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COMPENSATIONADMINISTRATION

Group Memebers-

•Ashrana Parween

•Aswani Gupta

•Avanish Singh

•Ayush Vaish

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What is Compensation ?

INTRODUCTION

Compensation is what employees receive in exchange for their contribution to the organization. Generally speaking, employees offer their services for three types of rewards-

Base pay:- It is the basic compensation an employee gets, usually as a wage or salary.  

Variable pay:-It is the compensation that is linked directly to performance accomplishments (bonuses, incentives, stock option)

 Benefits:-Theses are indirect rewards given to an employee or group of employee as a part of organizational membership (health insurance, vacation pay, retirement pension etc.)

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Objectives of Compensation Planning

The most important objective of any pay system is fairness or equity, generally expressed in three forms-

• Internal equity: This ensure that more difficult jobs are paid more.

• External equity: Where jobs are fairly compensated in comparison to similar jobs in labour market.

• Individual equity: It ensures equal pay is ensured for equal work.

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Other Objectives of compensation planning

Attract talent

Retain talent

Ensure equity

New and desired behaviors

Control costs

Comply with legal rules

Ease of operation

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Equity And Pay Rates

Equity in pay rates could be achieved through five steps –

1. Job Evaluation:- Job analysis offers valuable information for developing a compensation system in terms of what duties and responsibilities need to be undertaken.

2. Wage and Salary Surveys :- Conduct as salary survey to find what other employers are paying for comparable jobs. Published sources also provide valuable information regarding industry wise trends in salary structure in and around the country. The published sources in India include: reports published by the Ministry of Labour, pay commission reports, reports of employees and employers’ organisation, Trade journals etc.

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• Conduct a salary survey through the following methods

• Key job matching• Key class matching• Occupational method• Job evaluation method• Broad classification method

3. Group Similar Jobs into Pay Grades:- In this step, similar jobs (in terms of their ranking or number points as ascertained by the job evaluation committee) are grouped into grades for pay purpose. The organisation can now focus on, say 10 to 12 pay grades, instead of hundreds of pay rates.

Equity And Pay Rates (cont)

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4.Price each Pay Grade-

Equity And Pay Rates (cont)

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Equity And Pay Rates (cont)

5.Fine Tune Pay Rates:- Fix a pay rage for each grade (like pay for officer category I, II, III etc) for example, in Banking industry.

The wage structure of a company is nothing but a pay scale showing ranges of pay within each grade.

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Components of Pay Structure

The two essential components of pay structure are:-

1. Basic wages:-the basic wage rate is fixed taking the skill needs of the job, experience needed, difficulty of work, training required, responsibilities involved and the hazardous nature of the job.

2. Dearness allowance:- it paid to employees in order to compensate them for the occasional or regular rise in the price of essential commodities. DA is linked to three factors

• All India consumer price index (AICPI)

• Time factor

• Point factor

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Components of pay structure in India

• Under the Workmen's Compensation Act 1923– Wages for leave period, holiday pay, overtime pay, bonus,

attendance bonus and good conduct bonus.

• Under the Payment of Wages Act 1948

- Retrenchment compensation, payment in lieu of notice , gratuity payable on discharge constitute wage.

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The following, however, do not come under the term wages

Bonus

Payments made under a profit sharing scheme

Value of house accommodation

Medical allowances

Travelling allowances

Any other sum paid to defray special expenses incurred by the worker

Contribution to pension, provident fund

Any amenity or service excluded from the computation of wages

Components of Pay Structure

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Employee compensation may be classified into two types-

1. Base compensation, here, refers to monetary payments to

employees in the form of wages and salaries. It is a fixed, non-

incentive kind of payment calculated on the basis of time spent

by an employee on the job.

2. Supplementary compensation signifies incentive payments

based on the actual performance of an employee.

Wage And Salary Administration

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Objectives To establish a fair and equitable remuneration

To attract competent personnel

To retain present employees

To control labour cost

To improve motivation and morale of employees

To project a good image of the company

Wage And Salary Administration

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Wage And Salary Administration

• Principles

• Wage and salary plans be sufficiently flexible.

• Job evaluation being done scientifically.

• Wage and salary plans be always consistent with overall plans.

• Wage and salary plans being responsive to changing conditions.

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Factors influencing compensation levels

Job needs

Ability to pay

Cost of living

Prevailing wage rates

Unions

Productivity

State regulation

Demand and supply of labour

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Wage Policy In India

A wage policy offers certain guidelines for determining a wage structure. The term wage structure refers to various pay scales showing rages of pay within each grade. Three important elements of wage policy in India are-

Minimum wage: Wage sufficient to sustain and preserve the efficiency of the worker and offer basic amenities of life.

Fair wage: It is above the minimum wage but below the living wage. It is fixed, taking into account factors such as the

productivity of labour, prevailing wage rates, level of national income and its distribution, the employer’s capacity to pay etc.

Living wage: This is the highest amount of wages proposed by the government, offering basic amenities of life and satisfying the social needs of worker.

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Reference

• http://business.gov.in/legal_aspects/compensation_1923.php

• http://en.wikipedia.org/wiki/The_Minimum_Wages_Act,_1948

• Human Resource Management by V.S.P Rao.

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