Compensation Management importance and factors influencing compensation

COMPENSATION
MANAGEMENT IMPORTANCE
AND FACTORS INFLUENCING
COMPENSATION
SADIQUE
ALI.V.K

An investigative study indicated that most of the employees
left because of compensation issues.

COMPENSATION MANAGEMENT
 Compensation is what employees receive in exchange for their
contribution to the organization.
 Compensation in other terms also called as ‘Employee
Remuneration’
 Compensation is a systematic approach to providing monetary &
non monetary value to employees in exchange for work performed.
 Compensation may be defined as money received in
performance of work and many kinds of benefits that an
organization provides to their employees.

 Remuneration occupies an important place in the
life of an employee. His or her standard of living,
status in the society, motivation, loyalty, and
productivity depend upon the remuneration he or
she receives. For the employer too, employee
remuneration is significant because of its
contribution to the cost of production

ITS IMPORTANCE
 Compensation is an integral part of human
resource management which helps in motivating
the employees and improving organizational
effectiveness.
 Effectiveness in terms of:
 Attracting & Retaining Talent
 Motivating talent for better performance
 Cost effectiveness

SIGNIFICANCE OF EMPLOYEE COMPENSATION
 To an employee, pay is a primary reason for
working. For some individuals, it may be the only
reason. For most of us, it is the means by which we
provide for our own and our family’s needs.
Compensation is also important to
organization. It represents a large
proportion of expenditure. Compensation
is also significant in the operation of the
economy.

ITS IMPORTANCE

Effective
Compensation
Motivate &
Retain Staff
Attract talent
Image Building
Administratively
Efficient
Reward Valued
Behavior
Ensure Equity
Institutional
effectiveness
Legal
Compliance
Employee
Management

HIGH COMPENSATION –
LOW COMMITMENT
Hired Guns
HIGH COMPENSATION
– HIGH COMMITMENT
Professionals
LOW COMPENSATION –
LOW COMMITMENT
Workers as commodity
LOW COMPENSATION –
HIGH COMMITMENT
Family oriented
organization

DIRECT COMPENSATION
It refers to monetary benefits offered and provided to employees
in return of the services they provide to the organization. The
monetary benefits include basic salary, house rent allowance,
conveyance, leave travel allowance, medical reimbursements,
special allowances, bonus, PF/Gratuity, etc. They are given at a
regular interval at a definite time.

INDIRECT COMPENSATION
It refers to non-monetary benefits offered and provided to
employees in lieu of the services provided by them to the
organization. They include Paid Leave, Car / transportation,
Medical Aids and assistance, Insurance (for self and family),
Leave travel Assistance, Retirement Benefits, Holiday Homes.

 Wage and Salary:
The most important component of compensation and these are
essential irrespective of the type of organization
Administered individually
Provides employee stabile income and can plan chores of daily life,
budget
 Incentives:
Incentives are the additional payment to employees besides the
payment of wages and salaries. Often these are linked with productivity,
either in terms of higher production or cost saving or both.
Can be administered individually and for groups
Additional compensation having immediate effect and no future liability.

 Demand & supply of
labour
 Cost of living
 Society
 Labour unions
 The economy
 Labour laws
 Compensation policy
 The org. ability to pay
 Job analysis &
description
 Employee
External Internal
FACTORS INFLUENCING EMPLOYEE
COMPENSATION

COMPENSATION
EXTERNAL FACTORS
 Labour market:
 Demand for and supply of labour influence wage
and salary fixation
 Labor markets are based on the supply and
demand of labor in a country or a specific location
that are able and willing to work.
 A low wage may be fixed when the supply of labour
exceeds the demand for it.
 A higher wage will have to be paid when demand
exceeds supply, as in the case of skilled labour.

COMPENSATION
Cost of living:
 A rise in the cost of living is sought to be compensated
by payment of dearness allowance, basic pay to remain
undisturbed.
 DA (Dearness allowance) takes care of the price
inflation that affects the purchasing power of the
employees.
 It is a regular and continuing part of the compensation
package that gets changed according to the price
increase.
 Many companies include an escalatory clause in their
wage agreement in terms of which dearness allowance
increases or decreases depending upon the movement
of consumer price index (CPI)

COMPENSATION
 Labour Unions: The presence or absence of
labour organization often determine the quantum of
wages paid to employees.
 The benefit of belonging to a labor union is that
wages are always the union's top priority. Union
leaders work hard to ensure members receive
sufficient wages for the work performed.
 Employers of non-unionized factories enjoy the
freedom to fix wages and salaries as they please.
Because of large unemployment.

LABOUR LAWS
 Government makes and enacts laws regarding
welfare aspects of workers, their security and their
prosperity.
 Workers Compensation Act,1923
 The Payment Of Wages Act, 1936
 The Minimum Wages Act, 1948, is precisely
meant to prevent this kind of exploitation.
 Employees’ State Insurance Act, 1948
 Employees’ Provident Fund Act, 1952
 The Payment To Bonus Act, 1965
 Maternity Benefit Act, 1971
 The Equal Remuneration Act, 1976

INTERNAL FACTORS INFLUENCING EMPLOYEE
COMPENSATION
 Compensation Policies: Provides general
guidelines for making compensation decisions.
 Pay leaders
 The market rate
 Pay followers
 The organization’s ability to pay

COMPENSATION
 Job
analysis
and job
description:
more difficult
and
challenging a
job, the
higher the
wages.

COMPENSATION
The employee:
 Performance, seniority, experience, potential and
even luck determine his or her remuneration.

CONCLUSION
We can say that good compensation can increase the
productivity of an organization because its provides
various rewards, bonus, schemes etc. and its
compulsory for every organization.

“FOR EVERYTHING YOU HAVE MISSED,
YOU HAVE GAINED SOMETHING ELSE; AND
FOR EVERYTHING YOU GAIN, YOU LOSE
SOMETHING ELSE.”
-Ralph Waldo Emerson
THANK YOU

Compensation Management importance and factors influencing compensation

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