unit 8 - compensation.pptx 5th sem - hrm
TRANSCRIPT
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Presented By:
Sujaya Thapa
CAMAD, VI Sem
Compensatio
n
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Concept of Compensation
Employee compensation refers to all forms of payor rewards going to employees and arising from
their employment.
Compensation refers to the extrinsic rewards that
employees receives in exchange for their work. It is
composed of the base wage or the salary and
incentives or bonus and any benefits.
Types of Compensation
Direct Compensations
They are wages, salaries, incentives, commissions and
bonuses
Indirect Compensations
They are insurance (life, death and health insurance),
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Components of Compensation
1. Basic Pay - Basic pay is generally determinedthrough job evaluation through the relative worth of a
job.
2. Allowances. Several allowances are paid in addition
to basic pay. Some of these allowance are given
below:
Dearness Allowance. This allowance is given to protect
real income against inflation. Generally, dearness
allowance (DA) is paid as a percentage of basic pay.
House Rent Allowance. Employers who do not provideliving accommodation pay house rent allowance (HRA)
to employees.
City Compensatory Allowance. This allowance is paid
generally to employees in metros and other big cities
where cost of living is comparatively high.
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3. Incentive - Incentive compensation isperformance-linked remuneration paid with a view
to inspire employees to work hard and do better.
4. Fringe Benefits/Perquisites. Several types of
benefits paid particularly to senior managers.
For eg. Provident funds, pensions, company car,
medical aid, entertainment, stock options, etc. are
examples of such benefits
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Determinants of Compensation External Factor
Labor Market condition Nature of demand & supply of various types of personnel
determine compensation (wage & salary structure)
Equity
It means fairness in the relation between what a persondoes (input) & what the person receives (output)
Cost of Living Inflation affects purchasing power. Hence, compensation
rates have had to be adjusted upward to maintainpurchasing power.
Labor Unions Employees have legal right to have collective bargaining.
Legal Considerations Government influences pay directly through laws,
regulation, policies.
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Internal Factor Compensation Policies
Job Evaluation
It determines relative worth of a job to organization.
Nature of Employees It includes performance
Employers Ability to Pay
Depends upon financial position & profitability of the
organization.
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Methods of Establishing Employee
Compensation
Job Analysis It is the first process for establishing compensation.
It is the process of determining the tasks that make
the job & skills, abilities & responsibilities required
of an individual to successfully accomplish the job.
Information obtained from job analysis are
necessary to match qualified personnel with job
requirements & establish proper compensation.
Job Evaluation It is the process of assessing the value of each job
in relation to other jobs in an organization.
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Job Evaluation Methods
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Job Evaluation System - Methods 1. Ranking Method
Jobs are arranged and ranked according to theirimportance from simplest to hardest.
Merits Simple to use, suitable for small organizations
Demerits based on judgment so possibility ofbiasness
2. The grade or classification method Overall evaluation of all jobs based on common sense
& experience
Job structure is divided into different classes withsalary range maximum to minimum.
Merits Easy to operate & understand, less costly &suitable for organizations with small work.
Demerits Rigid & improper for organization withvaried works
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3. Point rating method Jobs are ranked by assigning points.
Sum-total of points will give an index of relative
value of jobs.
4. Factor comparison method
Each job is ranked several times.
Merits uses job-by-job comparison so its accurate,
easy to explain to employees
Demerits Costly to install and complex to use, 5 or
7 factors might not be appropriate
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Compensation Programme 1. Performing Job analysis
Evaluate to determine its value relative to all otherjobs in organizations
2. Conducting Pay (Wage/Salary) surveys
Benchmark jobs, packaged surveys (informationfrom agencies), own survey
3. Analysis of Organizational problems It encounters different problems like;
What will be the result of paying higher or lowercompensation?
Are prevailing rates in industry are consistent withresult of job evaluation?
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Compensation Programme
4. Preparation of Pay structure Joint outcome of all three factors & lots of decisions
need to be taken.
Pay range is been determined.
5. Framing pay administration rules
Development of rules/policy of pay system is
finalized.
6. Implementation of wages & salaries
Due to sensitivity of pay system, usually assigned to
high-ranked officers.
High involvement of HR department