Compensation system

1. M.Rehman Siddique

2. Compensation
system

4. What Is Compensation?
Compensation is the total
reward received by an employee
in exchange for services
performed for an organization.
It can include both direct pay
(salary and wages) and indirect
pay (benefits programs).

6. Contd……
Workers' compensation first
started in Germany in the
1800's. A need was seen to take
care of injured workers so they
did not suffer physically or
financially from injuries
resulting from working for a
company.

7. Contd…….
Workers' compensation became
common in the US in the 1930's and
1940's. It continues today in all 50
states. Workers’ compensation is
similar in Canada.
Workers' compensation laws and
regulations are made by each state
and are regulated by state officials.

8. Contd…….
Compensation—the total of all
rewards provided employees in
return for their services.
 Direct Financial Compensation—
Consists of the pay that a person
receives in the form of wages,
salaries, bonuses, and commissions.

9. Contd…….
Indirect Financial Compensation—all
financial rewards that are not included in
direct compensation.
Non-financial Compensation—consists of
the satisfaction that a person receives
from the job itself or from the
psychological and/or physical
environment in which the person works.
All such rewards comprise a total
compensation program.

10. Contd…….
Compensate - cover: make up for
shortcomings or a feeling of
inferiority by exaggerating good
qualities;
Compensate - pay: do or give
something to somebody in return

12. Employee Benefits and
Compensation
Employee benefits typically refers to
retirement plans, health life insurance,
life insurance, disability insurance,
vacation, employee stock ownership
plans, etc.
Compensation is payment to an employee
in return for their contribution to the
organization, that is, for doing their job.
The most common forms of compensation
are wages, salaries and tips.

13. Compensation management
Compensation is the applied form of
motivation. It is the most difficult
problem of an employee and the
touchiest for the employer. The
employer wants to save money so
that it may be further invested to
generate profits and better comforts
for self and family.

14. Objectives of the compensation
management
Compensation objectives are not the rules,
but guidelines to promote fair emoluments of
work done.
Recruit qualified people
Retain present employees
Ensure equity of compensation
Reward smart work
Appreciate creativity and innovation
Make work-force cost-effective

15. Role of Line managers and HRM
Department in Compensation:
Line managers perform the function
of job evaluation that is base for the
compensation systems; according to
the worth of the job negotiation
regarding the salaries and other
benefits is negotiated with potential
employees through line mangers.

16. Contd…….
Basic compensation packages are
mostly recommended by the line
managers in the organizations. All
these information is communicated
to the employees by HRM.

17. Contd…….
All companies with employees must
determine how and what to pay
their workers and when to offer
things like raises, bonuses and other
incentives.

18. What is called a compensation
philosophy.
This is an actual plan for how employees
are to be paid, when payments will rise,
and when bonuses are appropriate. Such a
plan is often made available to
employees, so they have a sense of the
organization’s philosophy and can thus
determine their treatment by the
organization, as it relates to
compensation, not just at present but
also in the future

19. Contd…….
Some of the things that influence
compensation philosophy include
present revenue of the company and
expected profits in the future,
market value of the jobs for which
the company is hiring, and degree of
competitiveness in the types of jobs
a company offers.

20. Contd…….
Having a clearly stated
compensation philosophy may in
part solve this issue; if the company
has a policy of no raises, employees
who work for it know in advance this
policy exists but employee retention
may still be difficult.

21. How is compensation used?
Recruit and retain qualified employees.
Increase or maintain morale/satisfaction.
Reward and encourage peak performance.
Achieve internal and external equity.
Reduce turnover and encourage company
loyalty.
Modify (through negotiations) practices of
unions.

22. Different types of compensation:
Morale and job satisfaction are affected
by compensation.
Base Pay
Commissions
Overtime Pay
Bonuses, Profit Sharing, Merit Pay
Stock Options
Travel/Meal/Housing Allowance

23. The equal pay act of 1963
The equal pay act (EPA) required that men
and women who work for the same
organization be paid the same for work that
is equal in skill (such as experience or
retaining), efforts (mental or physical),
responsibility (the degree of accountability),
and working conditions (the physical
surroundings and hazards)

24. Contd…….
Some people believe that the wage
gap should not be closed because
women are less qualified than their
male counter parts. However,
research appears not to support this
claim.

25. Reward and compensation system:
Reward and compensation systems
are seen to be particularly
important in view of their potential
for encouraging certain aspects of
functional flexibility such as multi-
skilling (via pay for knowledge
schemes) and team working (via
group performance payments)

26. Contd…….
According to leading compensation
theorists there should ideally be a
two way relationship between
reward systems and strategic
planning, which requires and
organization to consider the essence
its compensation philosophy.

27. Contd…….
Reward system is to enhance the motivation
of individual employees, and hence their
current on-the-job performance.
There is ample evidence that a poorly
designed and administered reward system
can do more harm Rewards can come in the
form of verbal rewards (i.e. telling someone
“Good job!”), physical rewards (i.e. a pat on
the back), or tangible rewards (i.e.
giving someone money, food, or a
medallion), among others

29. The effect of intrinsic and extrinsic
rewards on employee motivation
Every person is motivated by different
factors in their workplace. Some are
motivated primarily by external factors such
as salary, promotion and bonuses
 these are known as extrinsic rewards and
some are motivated primarily by internal
factors such as job satisfaction, recognition
and the desire to learn, which are referred
to as intrinsic rewards.

30. Types of rewards
Intrinsic rewards
Extrinsic rewards

32. Intrinsic Reward
An intrinsic reward or motivation is
something a person feels after they've
accomplished something. Prides, joy,
etc.
Rewards that are part of the job itself
and the personal satisfaction of
accomplishing something worthwhile,
i.e., responsibility, challenge,
autonomy, purpose and feedback; or
rewards that are self-administered.

33. The Four Intrinsic Rewards
A Sense of Choice
A Sense of Competence
A Sense of Meaningfulness
A Sense of Progress

34. Extrinsic rewards
Extrinsic rewards can also be
used to maintain or strengthen
intrinsic motivation.

36. Contd…….
Rewards that are external to the job, i.e.,
pay, bonuses, promotion, incentives,
fringe benefits or tangible awards; or
rewards that are administered by
someone else (i.e. the carrot.) Extrinsic
rewards may weaken or strengthen the
intrinsic motivation. Extrinsic rewards can
also be used to maintain or strengthen
intrinsic motivation.

37. ?

38. Thank You