Compensation:Compensation is the methods and practices of maintaining balance between interests of operating the company within the fiscal budget and attracting, developing, retaining, and rewarding high quality staff through wages and salaries which are competitive with the prevailing rates for similar employment in the competitive markets. It is the cornerstone of an effective talent management strategy.

Compensation strategies can affect many facts of the business. Such as;

Improved employee morale and retentionIncreased employee engagement and productivityStrengthened governance and compliance with company vision and mission

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Compensation ModelThe Compensation model should be closely knitted with following three elements i.e. Management StrategyCompensation Plan DesignPerformance

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Management Strategy:This relates to the basic existence of any organization its objectives and goals i.e. vision and mission of the enterprise, for which human resources are hired, and the organization pays to its employees to keep them motivated for accomplishing those set objectives in a cost effective manner.Compensation Plan Design*

Market Wage SurveysThe goal of labor market wage surveys is to find data from employers with whom the organization competes for employees. Once the data has been collected, it must be analyzed. The simplest analysis involves comparing the going market rate and approximating this rate within the organization's own pay structure.Methods of Wage SurveysGenerally three methods are employed for wage surveys;Personal InterviewsMailed QuestionnairesTelephone Inquiries*

Pay StructureThe basis for most pay programs is a pay structure - a hierarchy of jobs with pay ranges and/or rates assigned. Pay structures are designed so that the greater the worth of a job (determined by internal or external equity), the higher the pay grade and range. At PP, pay program has certain objectives. The principal ones are as follows:

Internal equity. External equity (or competitiveness), Individual equity, Process equity, Performance or productivity incentives, Maximum use of financial resources, Compliance with laws and regulations, and Administrative efficiency

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Salary Vs. Wages Salary is best associated with employee compensation quoted on monthly / annual basis.

Wages is best associated with employee compensation based on the number of hours worked multiplied by an hourly rate of pay.

COMPENSATION FUNCTIONIt serves to attract qualified applicants to the organization. It helps to retain competent employees in the organization. It serves as an incentive to motivate employees to put forth their best efforts. Minimizing it can also contribute to organizational effectiveness since it is a significant cost for most employers.

Compensation Strategy It is an action plan designed to move an organization toward achievement of its goal / vision.

Generally at three levels Pay level decisions Pay structure decisions Individual pay determination

Pay Level Decisions High Pay Strategy : Pay higher than average salaries. e.g. MNC

Low Pay Strategy: Pay minimum level needed to hire enough employeese.g. Small enterprises

Comparable Strategy: At the going wage level modified by cost-of-living or purchasing power.e.g. Most of the local companies

Compensation Structure Monetary Base Pay Variable Pay BonusIncentive Stock options Non-Monetary (Benefits) Mandatory benefits Voluntary benefits

Non-Monetary (Benefits)Vacation leavePaid public holidaysTime for personal mattersSick leaveMaternity leaveHealth and life insuranceMedical Aid SchemesPension FundsEmployee Services e.g.. Canteens, social & recreational services

Factors Determining Compensation Structure The organization's ability to paySupply and demand for laborThe prevailing market rateThe cost of livingProductivityTrade unions bargaining powerJob requirementsManagerial attitudesPsychological and sociological factors

What Is Compensation & BenefitsCompensation is the process of providing adequate equitable and fair remuneration to the employees both direct pay (salary and wages) and indirect pay (benefits programs) in exchange of the work done by them.Direct and indirect monetary and nonmonetary rewards given to employees on the basis of the value of the job, their personal contributions, and their performance. These rewards must meet both the organization's ability to pay and any governing legal regulations.Employee benefits consist of a large number of diverse organizational reward offeringsCompensation are of two types: Direct & Indirect

Direct CompensationDirect compensation is the full monetary award which fulfills the equity and worth concept. Its paid to the employees as their salary, fees or wages.

It includes :cash package( basic, hra, DA, short term and long term incentives etc. Various Reimbursements (conveyence, medical bills, children fees etc.)

Direct CompensationDirect compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. They are given at a regular interval at a definite time.

Components in Direct CompensationBasic SalaryHRA (House Rent Allowance)CA (Conveyance Allowance)LTA (Leave Travel Allowance)Medical ReimbursementBonus (Salary Bonus)SA (Special Allowance)

Indirect CompensationIndirect compensation includes benefits and services provided to motivate the employees to harness best their potentials to fulfill socio- economic needs.It includes: benefits and service( holiday homes, club memberships, credit stores, free transpostation, medical assistance, legal assistance, etc)Related social benefits( recognition, learning opportunities, employment security, etc.)

Indirect CompensationIndirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization.

Non-cash benefit (such as an office car) provided to an employee. In some jurisdictions a certain percentage of the indirect compensation is added to the beneficiary's income for taxing purposes.

Components of Comp & BenFixed PayBasicDearness AllowanceHRACity Compensatory AllowanceConveyanceBonusGratuityPensionSuper AnnuityProvident FundLFAMedical AllowanceVariable PayPerformance Link IncentivesBonusJoining BonusDirect CompensationIndirect Compensation Benefits Leave Policy Hospitalization Overtime Policy Insurance Retirement Benefits Holiday Homes Flexible Timings

CompensationBasic Pay Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.

House Rent Allowance Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees. This is done to provide them social security and motivate them to work.

City Allowance To meet the expenses in order resort to the standard of living of the metropolitan city

Special Allowance Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.Special Allowance helps in balancing the CTC

Provident Fund Provident Fund is the fund which is composed of the contributions made the employee during the time he has worked along with an equal contribution by his employers. It is calculated as a percentage of his salary, say, 10 % and is returned to him on his retirement.Bonus Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to two months basic salary of the employee.

Leave Fare Allowance These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization.Conveyance Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.

BenefitsMedi Claim The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.Leave Policy It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

Insurance Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.Loans At Concessional Rate Company also offers loan to its employees depending upon their designation at concessional interest rate which is half of the market rate

Equity in Financial CompensationEquity - Fair pay treatment for employeesExternal equity - Firm's employees are paid comparably to workers who perform similar jobs in other firmsInternal equity - Exists when employees are paid according to relative value of their jobs within same organizationEmployee equity - Individuals performing similar jobs for same firm are paid according to factors unique to employee, such as performance level or seniorityTeam equity - More productive teams are rewarded more than less productive groups

Determinant of Individual Financial CompensationOrganization typically use a number of factors to determine individual pay. This decision was influenced by the Labor marketEmployeeJobOrganization

The Labor Market as a Determinant of Financial CompensationCompensation surveysExpediencyCost of livingLabor unionsSocietyEconomyLegislation

Employee as a Determinant of Financial CompensationPerformance-based PaySkilled-based PayCompetency-based PaySeniorityExperienceMembership in the organizationPotentialPolitical InfluenceLuck

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