SUBJECT : HUMAN

RESOURCES MANAGEMENT

COMPENSATION

MANAGEMENT

WHAT IS COMPENSATION PAYMENT PURPOSE AND OBJECTIVES OF COMPENSATION WHAT IS COMPENSATION MANAGEMENT NEED OF COMPENSATION MANAGEMENT TYPES OF COMPENSATION SALARY SLIP SALARY SLIP STRUCTURE EMPLOYEES COMPENSATION PACKAGES FRINGE BENEFITS TYPES OF FRINGE BENEFITS FEATURES OF FRINFE BENEFITS FRINGE BENEFITS IN INDIAN SCENARIO PERFORMANCE LINKED INCENTIVES MEANING OF INCENTIVES PLAN FEATURES OF GOOD INCENTIVE PLANS TYPES OF INCENTIVE PLAN

What is compensation payment

Is an integral part of human resource management which helps in.

Motivating the employees and improving organizational effectiveness .

If the compensation offered is effectively managed , it contributes to high organizational productivity .

Cont……

The organization must provide appropriate and equitable rewards to employees .

Individuals who work for organizations want to feel valued .

Want to be rewarded at a level commensurate with their skills , abilities and contributions to the organization .

Compensation serves a ( signaling ) function .

Organizations signal to employees what they feel is important or the employee to focus on..

(And what they feel is less important )by paying for certain kinds of activities or behaviors and not for others .

Compensation can serve as an incentive to employees to increase their efforts along desired lines

Purposes and Objectives of Compensation

What is compensation management

Is more than just the means to attract and retain talented employees .

“Compensation management is a strategic activity that helps an organization improve the effectiveness of its employee reward processes. “

This requires integrating employee processes , information and programs with organizational processes and strategies to achieve optimal organizational results .

COMPENSATION

MOTIVATION

NEED SATISFACTI

ON

EMPLOYEE RETENSION

Need of compensation management

o A good compensation package is important to motivate the employees to increase the organizational productivity .

o The lucrative compensation will also serve the need for attracting and retaining the best employees .

o Unless compensation is provided no one will come and work for the organization .

o Thus , compensation helps in running an organization effectively and accomplishing its goals .

Cont…

o Unless compensation is provided no one will come and work for the organization .

o Thus , compensation helps in running an organization effectively and accomplishing its goals .

o Salary is just a part of the compensation system .

o The employees have other psychological and self actualization needs to fulfill , thus , compensations serves the purpose .

o The most competitive compensation will help the organization to attract and sustain the best talented employees

Cont…

Direct Compensation

o Wageso Salarieso Commissions, Bonuses, Gainsharing, Profit

Sharing

Indirect Compensation

o Pay for Time Not Worked (vacation, sick leave, holidays,

o etc.)o Insurance Coverage (medical, dental, life, etc.)o Income Security (pensions and disability)o Services(education assistance, child care,

recreation, discounts, etc.)

Types of compensation

Salary slipo Pay slip is given monthly , with that particular months

(Earning , Gross Earnings) and also (Deductions ,total Deductions) with total net pay.

o This structure of pay slip would let us know how much we have earned & how much it has been deducted category wise (basic ,HRA ,LTA ,Medical,PF,ESI,ITetc)from our monthly income.

o Pay slip is tabular representation of all salary/wage/compensation details. Every employer is bound to distribute the salary slip before disbursement of salary or on the day of issuing salary.

o Salary slip format may vary from employer to employer. it shows all deductions, taxes etc.

o Finally it shows the NET (ie. Take home salary )salary for employee.

Pay slip for the month of April 2012Emp. No. : L&T12 Name : Mr. Rane Days worked : 29

INCOME DEDUCTIONS

Basic 3176 .00H.R.A 159.00

Conveyance 87.00 Medical 0.00Other allow. 0.00

GROSS SALARY : 3422

Prov. Fund 301.00

E.S.I.C 60.00Prof. tax 60.00Loan 0.00Advances 0.00Income tax 0.00Transport 0.00Labour welfare 0.00

TOTAL DEDUCT- 501.00

NET SALARY PAYABLE : 2912

SALARY SLIP STRUCTURE

EMPLYOEES COMPENSATION PACKAGES

Wage/ Salary:a) Dearness allowance(DA)b) House rent allowance(HRA)c) City Compensatory allowance (CCA)d) Transport allowance (TA)

Fringe benefit. Perquisites Incentives Non-monetary benefits

Fringe benefits

o Fringe benefits are compensations made to an employee beyond the regular benefit of being paid for their work.

o Some fringe benefits are fairly standard, such as offering a few days of sick time or paid vacation time.

o Key executives in large companies might also enjoy fringe benefits like use of time-share condominiums, paid continuing education, use of a company jet, use of a company credit card, discounted or free health club memberships, and a significant amount of paid vacation.

o Most people who work full time in the US could probably not get along without fringe benefits. For example, offering health insurance to employees, where the employer pays part of the insurance is a typical example of fringe benefits.

o In fact, in fields where there is a high demand for workers, such as nursing and teaching, some unusual fringe benefits may be offered to attract employees.

o A few unusual fringe benefits offered by school districts have been paid housing, or use of private lakes for fishing.

o More likely are paid incentives for joining a teaching staff such as hiring bonuses, offers to fund continuing education so teachers get higher degrees and thus higher pay, or offering mentor programs for new teachers.

o Some companies also pay fringe benefits for those who work night or swing shifts. These fringe benefits may be in the nature of a 10—30% increase of base pay for working a non-standard shift.

o Blecher-has defined fringe benefits as “any wage cost not directly connected with the employees productive effort , performance , service or sacrifice”

Cont…

Types of fringe benefits

o For Employment Security : o For Health Protection: o For Old Age and Retirement: o For Personnel Identification, Participation and Stimulation: o For Transport Facilitieso For Housing Facilitieso Eating Facilities o For Child Care, etc

o The fringe benefits are categorized as follows:o a)Payment for Time Not worked: o b)Extra Pay for time Worked:

Features of fringe benefit

o Different from regular wages.

o Useful but avoidable expenditure.

o Not directly linked with effort o Beneficial to all employees

o Voluntary to character.

o With the technological developments taking place at a higher rate, the salary packages are too increasing at a much higher rate. Pay packages in India have witnessed an increase of more than 14% in 2006 over last year’s salary packages.

o The compensation package comprises of monetary and non-monetary benefits that includes salary, special allowances, house rent allowance, travel allowance, mobile allowance, employee stock options, club memberships, accommodations, retirement benefits and other benefits.

o Globalization is being considered as the cause for such salary hikes. The establishment of multi national companies and privatization has led the Indian industry to witness higher salary package.

Fringe benefit in Indian scenario

o With the immense competition of attracting and retaining talented human resource, compensation package is the only motivation factor available with the organizations be it Indian origin organizations or foreign-owned multinationals.

o With the high attrition rate organizations are increasing their salary packages to attract and retain talented human resource.

o In the race, India has begged first position followed by Lithuania and China.

Cont…

Performance linked incentives

A Performance Linked Incentive (PLI) is a form of payment from an employer to an employee, which is directly related to the performance output of an employee and which may be specified in an employment contract.

PLI may either be open ended (does not have a fixed ceiling) or close ended (has an upper ceiling which is normally stipulated in the employment contract)

Open ended incentives are normally applicable revenue generating activities (e.g., Sales) and Close ended incentives are associated to support functions (e.g., Operation, Human Resources, Administration etc.)

o An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time.

o Incentive programs are particularly used in business management to motivate employees, and in sales to attract and retain customers.

o Scientific literature also refers to this concept as pay for performance

o According to G. K. Suri, “a wage incentives scheme is essentially a managerial device of increasing a worker’s productivity. Simultaneously, it is a method of sharing gains in productivity with workers by rewarding them financially for their increased rate of output.”

Meaning of Incentives Plans

o Simplicity :o Promote initiative : o Definiteness and Flexibility : o Prompt payment : o Properly communicated to employees : o Wide coverage and equitable : o Guarantee of minimum wage payment :o Justice to employer and employees : o Acceptable to workers : o Grievance procedure :

Features of good incentives plans

Types of incentives plans

(A)Individual Incentives Plans

o Rowan plano Hasely Plano Emerson’s Plano Tyalor Differentiate Rate Systemo Gnatt task and Bonus Plano Bedeaux Point premium plano Scaion plano Haynes Plano Merric’s Multiple Piece Rate plan

(B)Group Incentives plans

o Profit sharingo Bonus payment

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