Introduction to Compensation Management.pptx

Compensation is a complex and vital aspect of human resource management, encompassing the myriad forms of remuneration and rewards provided to employees in exchange for their work. This intricate system plays a crucial role in shaping an organization’s ability to attract, retain, and motivate its workforce. Understanding compensation in its entirety involves exploring its different forms, strategic importance, and the myriad factors influencing its design and implementation.

At its core, compensation refers to the total of all financial returns and tangible benefits that employees receive from their employer. This includes direct monetary payments, such as salaries and bonuses, as well as indirect benefits like health insurance and retirement plans. The primary purpose of compensation is not only to remunerate employees for their time and effort but also to ensure their overall job satisfaction and financial security. It functions as a key driver of motivation, influencing employees' performance and engagement levels.

1. Introduction to Compensation Management Module 1

2. Compensation is referred to an money and other benefits received by an employee for providing services to his employer. Compensation refers to all forms of financial returns tangible services and benefits employees receive as part of an employment relationship. Compensation According to Keith Davis “Compensation is what employees receive in exchange for their contribution to the organization”

3. Objectives of Compensation TO EMPLOYEES Employees are paid according to requirement of their jobs. The chance of favoritism are minimized. Jobs sequence and lines of promotion are established wherever they are applicable. Employees moral and motivation are increased because of the sound compensation structure. 3

4. TO EMPLOYERS They can systematically plan for and control the turnover in the organization. A sound compensation structure reduces the likelihood of friction and grievance over remuneration It enhances an employee morale and motivation because adequate and fairly administrative incentives are basis to his wants and need. It attracts qualified employees by ensuring and adequate payment for all the jobs. Objectives

5. Equitable Balanced Secure Cost Effective Incentives Acceptable to all employees Principles of Compensation Management

6. Wages:- It is a payment usually of money for labor or services usually according to contract and on a hourly, daily, or piece work basis In another words; It is a money that is paid by an employer to an employee in exchange for work Salary:- A salary is the money that someone is paid each month by their employer, especially when they are in a profession such as teaching, law ect …,

7. DA (dearness allowance) It is an amount paid to employees as a cost of living adjustment allowance to mitigate the impact of inflation. It is typically calculated as a percentage of the basic salary and is adjusted periodically to reflect changes in the cost of living index. DA ensures that the purchasing power of employees is maintained despite rising prices of essential commodities. Consolidated Pay:- It means a total salary without any breakup, which means consolidated salary is not divided into salary components like basic wages, HRA, transport & medical allowance etc. .., It is paid weekly or monthly basis to the employees.

8. Equity Based Program:- An equity based incentive plan is used to attract, retain, and incentivize employees. Companies often reward employees, partners, directors, contractors, or other by granting them shares in an equity plan. Commission :- It refers to a form of compensation provided to employees based on the sales they generate or their business they bring to the company. It is a variable payment structure that reward employees for their sales performance.

9. Rewards It refers to the benefits or incentives that an individual receives in return for their work, services, or achievements. These rewards can be tangible or intangible and are often used to motivate and recognize outstanding performance, achievements, or contributions. Remuneration It refers to the compensation or payment received by an individual for their work, services, or contributions. It encompasses all the financial and non-financial benefits that an individual receives in exchange for their efforts, skills and time. Bonus A Bonus is an extra amount of money that is added to someone pay, usually because they have worked very hard.

10. Various types of compensation and supplementary compensation Direct compensation Basic salary House rent allowances Leave travel allowances Bonus DeaRness allowances

11. 2. INDIRECT OR SUPPLEMENTARY ALLOWANCES Leave policy Overtime policy Hospitalization Insurance Flexible timings

12. Theories of Compensation Reinforcement and Expectancy Theory Equity Theory 3. Agency Theory 12 internal equity external equity individual equity

13. Compensation Structure Straight Salary Compensation Salary Plus commission Commission Only Territory Volume Compensation plan Residual Commission

14. Salary structure or compensation structure

15. Basic Salary
HRA (House Rent Allowance)
LTA (Leave Travel Allowance)
Applicable Allowance
Performance Bonus
EPF (Employees’ Provident Fund)
Professional Tax
TDS (Tax Deducted at Source)
ESIC (Employees’ State Insurance Corporation)
Gratuity

16. MEANING OF INCENTIVES In simple words incentives are extra financial motivation they are designed to stimulate human effort by rewarding the person over and above the time rated remuneration for improvements in the present and targeted result Short term incentive:- Long term incentive:- Annual incentive plan Retention bonus Performance shares Stock option

17. DEFINITIONS OF SOCIAL SECURITY According to ILO, Social security is the protection which society provides for its member through a series of public measure against the economic and social distress that otherwise would be caused by the stoppage or substantial prediction of earning resulting from sickness maternity employment injury unemployment invalidity oldage and death

18. Retirement planning Retirement planning means preparing todays for your future life so that you continue to meet all your goals and dreams independently. Different plans for Retirement :- National Pension Scheme Annuity Plans Pension Funds Pension Plans with Life Cover

19. Meaning of Pension Plan Pension plan is a type of retirement plan where employers promise to pay a defined benefit to employees for life they retire.

20. Individual Retirement Account (IRA) An individual retirement account (IRA) is a saving account with tax advantages that individuals can use to save and invest long term.

21. Employee stock ownership plan (ESOP) An employee stock ownership plan (ESOP) refers to an employee benefit plan that gives the employees an ownership stake in the company .

22. Stock bonus plan meaning A stock bonus plan is a type of retirement plan designed to increase employees’ vested interest in a company’s success. A stock bonus plan is a type of profit-sharing plan paid in employer stock instead of cash. Profit sharing plan meaning A profit-sharing plan is a pension plan, which gives an employee a share in the company’s profits. As per this plan, which also referred to as the deferred profit-sharing plan (DPSP), employees will go onto receive a portion from the company’s profits which depend on the annual or quarterly earnings.

23. COMPENSATION MANAGEMENT Definition: According to Deb, “compensation management is a system of compensating individuals for the work they perform in such a way that the organization is able to attract, retain and motivate them to perform well keeping in view organizational and market factors.”

24. Components of Compensation Management • a. Job descriptions • b. Job analysis • c. Pay structures • d. Salary surveys

25. Benefits of compensation Financial security Motivation and productivity Work life balance 26 Employee:- Employer:- Attract and retention of talent Employee engagement and moral Reputation and employee branding

26. Meaning of Non- Monetary Compensations Non- Monetary Compensation is defined as any compensation or reward given to an employee in a non-cash form for their work in the organization.

27. Forms of Non-Monetary Compensation

28. 1. Time Off From Work 1.Includes Paid Time Off (PTO) much as vacation and sick time 2.Also includes time off without pay such as unpaid sabbaticals and leave mandated by Family and Medical Leave Act (FMLA)

29. 2. Career Development Opportunities Helps the employees to enhance their job-related skills, which helps them to take up new, expanded projects or roles in future

30. 3. Employee Recognition Awards These are given to publicly acknowledge the major performance milestones and other positive employee behavior that goes beyond the typical call of duty

31. 4. Work-Life Benefits This benefit includes the policies and services that the organization has to put in place to help employees balance obligations at office and at home

32. 5. Autonomy At Work Giving employees the autonomy to perform, take decision of their tasks on their own without someone else or his/her manager’s micromanaging would give them an opportunity to learn

33. 6. Time out of normal work commitments Freeing up employees time at work to focus on the work or projects they are passionate about which may or may not be related to their main task will be a another way of rewarding them.

34. 3P APPROACH 3P Compensation is a system designed to pay salaries according to employee’s merit and performance in order to create fairness, encouragement in company Helping each employee maximize his abilities in works , contributing to company development

35. Pay for position Pay for person Pay for performance

36. Compensation management in multinational organization Objectives:- This policy should be consistent with the overall strategy, structure and business need to be accomplished. It must be competitive and recognize factors such as incentives to Foreign Service, in reasonable costs. This policy should facilitate the transfer of international employees in the most cost-effective manner for the firm. The compensation policy must work to attract and retain the staff in the areas where Multinational has the greatest need.

37. Factor Affecting International Compensation Social Contract Culture Trade Union Ownership and Capital Market Cost of Living

38. Compensation statergies as a integral part of HRM Compensation Strategies play a important role in Human Resource Management (HRM), serving as a crucial component in attracting, retaining, and motivating a talented workforce. Compensation strategies are foundational elements of HRM, intricately linked to an organization's ability to attract, retain, and motivate a skilled workforce.

39. Why compensation is important in organization Attracting and retaining talent Employee motivation and performance Reduces turnover cost Return on investment Risk management

40. COMPENSATION POLICY

41. MEANING A compensation policy is a formal statement that outlines an organization's approach to determining and administering employee compensation. It defines how salaries, wages, bonuses, benefits, and other forms of remuneration are structured and managed to ensure fairness, competitiveness, and alignment with organizational goals

42. TYPES OF COMPENSATION POLICY General compensation level Wage and salary structure Formulas based on time or productivity governing disbursement of wage or salary funds to individuals