What Is Compensation?

The term Compensation refers to all form of financial returns and tangible benefits that

employees receive as a part of an employment relationship. As the business environment

increasingly becomes complex and global, the challenge to create and maintain effective

compensation programs, given cost constraints, also requires greater professional expertise,

organisational understanding, creativity and vision than ever before.

Types of Compensation

Compensation typically is divided into two parts, namely Direct Compensation and Indirect

Compensation.

Direct compensation

Direct compensation 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.

Basic Salary

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.

Conveyance

Organizations provide for cab facilities to their employees. Few organizations also provide

vehicles and petrol allowances to their employees to motivate them.

Leave Travel 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.

Medical Reimbursement

Organizations also look after the health conditions of their employees. The employees are

provided with medi-claims for them and their family members. These medi-claims include

health-insurances and treatment bills reimbursements.

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 one month’s salary of the employee.

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.

Indirect Compensation

Indirect compensation refers to non-monetary benefits offered and provided to employees in

lieu of the services provided by them to the organization. They include Leave Policy,

Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits,

Retirement Benefits, Holiday Homes.

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.

Overtime Policy

Employees should be provided with the adequate allowances and facilities during their

overtime, if they happened to do so, such as transport facilities, overtime pay, etc.

Hospitalization

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.

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.

Leave Travel

The employees are provided with leaves and travel allowances to go for holiday with their

families. Some organizations arrange for a tour for the employees of the organization. This is

usually done to make the employees stress free.

Retirement Benefits

Organizations provide for pension plans and other benefits for their employees which benefits

them after they retire from the organization at the prescribed age.

Holiday Homes

Organizations provide for holiday homes and guest house for their employees at different

locations. These holiday homes are usually located in hill station and other most wanted

holiday spots. The organizations make sure that the employees do not face any kind of

difficulties during their stay in the guest house.

Flexible Timings

Organizations provide for flexible timings to the employees who cannot come to work during

normal shifts due to their personal problems and valid reasons.

Graphical Breakup of Monthly Payroll

Deductions such as tax and loan/advances taken by the employee from organizations are

deducted only where applicable. Dearness Allowance and House rent allowance is provided

at a fixed rate stated by the employment law. Provident fund is deducted from the gross

salary of employee on the monthly basis as per the employment law, which is provided later

to the employee. Organizations also contribute the same amount to the provident fund of the

employee.

Need of Compensation

Unless compensation is provided no one will come and work for the organization.

Thus, compensation helps in running an organization effectively and accomplishing its goals.

Salary is just a part of the compensation system, the employees have other

psychological and self-actualization needs to fulfil. Thus, compensation serves the purpose.

The most competitive compensation will help the organization to attract and sustain

the best talent. The compensation package should be as per industry standards.

Compensation in Banking Sector

Banking and finance sector is currently experiencing high growth rate nearly all over the

world including India. With increased FDI and high inflation rates, finance sector is enjoying

high deposits. Financial institutes and commercial banks are expanding their business and

going for large scale recruitments. The banks are collaborating with insurance units to

provide insurance coverage to their clients. Few of the banks are also dealing in gold and

silver.

Nationalized banks are preferred more as they provide for job security. Compensation

packages in banks have always been lucrative. Incentives, special allowances, travel leaves,

concessions, paid vacations, paid leaves, retirement benefits are also offered along with basic

salary and other allowances such as house rent allowance, transportation vehicle etc.

Compensation package in finance and banking sector depends on the level of knowledge and

experience an individual have.

Top players in India such as nationalized banks- Bank of India, SBI, Indian Overseas Bank,

Bank of Baroda, Punjab National Bank, HDFC, ICICI and other private banks, financial

institutes such as Bajaj Capital, Kotak Mahindra, etc, are offering high salary packages with

lucrative incentives to attract and retain their talented work force.

COMPENSATION ON THE BASIS OF EXPERIENCE

In the context of Indian Banking sector, it is seen that as age increases, the compensation also

increases proportionally.

ENTRY LEVEL COMPENSATION PACKAGES

Indian finance & banking sector offers jobs in various segments. The managerial level jobs

are held by management professionals, commerce graduates and finance professionals.

Apart from pay packages finance professionals also get high incentives and perks. The

industry provides for special allowances such as annual bonus, house rent allowances, mobile

allowances, transportations, travel leaves, paid vacations, etc.

* The salary figures provided are for the business development executives and marketing &

sales executives

Management Level Compensation

Finance sector is a promising sector where compensation is considered. The sector has

witnessed 17% average increase in the salary packages in the year 2006. The compensation

packages offered to managerial level employees are very much lucrative. Besides the basic

salary employees are also provided with heavy perks and incentives with special allowances.

They are offered club memberships, company’s vehicle, travel leaves, paid vacations, other

allowances and non-monetary benefits.

Organizations also conduct training and development programs for their employees’

professional growth. Organizations provide for certification courses and online degree

courses for the employees.

At higher level employees are given employee stock options. Individuals are given equal

preferences on the basis of their performance.

Nationalized banks offer job security and private financial institutes provide high lucrative

packages. With the globalization, liberalization, business expansion, more number of

competitors, jobs in the financial sector are also demanding too much hard work. Earlier bank

jobs were considered very comfortable ones but now the scenario has been changed. Indian

banking sector is heading for 24*7. Some of the nationalized and private banks have started

working 8 to 8.

Dearness Allowance for workmen and officer employees in banks

>> Dearness Allowance for workmen and officer employees in banks

Payable for the Year Payable for the months Average CPI No. of slabs % of pay

2007-08  Nov/Dec/Jan  3028  185  33.3 

2007  Aug/Sep/Oct  2944  164  29.52 

2006-07  May/Jun/Jul   2907.06  154  27.72 

2006-07  Feb/Mar/Apr  2898.84  152  27.36 

2006-07  Nov/Dec/Jan  2836  137  24.66 

2006  Aug/Sep/Oct  2768  120  21.6 

2006  May/Jun/Jul   2716.28  107  19.26 

2002   Feb/Mar/Apr   2312.17  157  0 

2002   May/Jun/Jul   2307.23  155  0 

2002   Aug/Sep/Oct   2346.67  161  0 

2002-2003   Nov/Dec/Jan   2391.05  174  0 

2003   Feb/Mar/Apr   2386.11  178  0 

2003   May/Jun/Jul   2400.9  177  0 

2003   Aug/Sep/Oct   2450.21  188  0 

2003-2004   Nov/Dec/Jan   2460.07  194  0 

2004   Feb/Mar/Apr   2474.86  198  0 

2004   May/Jun/Jul   2484.71  200  0 

2004   Aug/Sep/Oct   2524.15  205  0 

2004-2005   Nov/Dec/Jan   2578.38  220  0 

2005   Feb/Mar/Apr   2568.53  224  0 

2005   May/Jun/Jul   2588.25  226  0 

2005   Aug/Sep/Oct   2604  79  14.22 

2005-2006   Nov/Dec/Jan   2672.05  93  16.73 

2006  Feb/Mar/Apr  2711.5  106  19.08 

SBI first one to open ESOP locker for employees

Employees of state-owned banks will soon get rid of their tag of being considered as poor

cousins of their counterparts in new-age private and foreign banks in terms of remuneration

packages. According to the top official with knowledge of the issue said that the Cabinet has

given the approval to a proposal for a stock option plan for staffers of the country’s largest

bank, State Bank of India, marking a first in the Indian banking industry and perhaps for any

state-owned company.

The official said the bank, which is preparing for a rights offering of over Rs 16,000 crore

this fiscal, might in a good position now to unveil an employee stock options plan (ESOP)

aggregating up to 0.7% of its capital base of Rs 526 crore. Officials had informed ET that the

bank will be discussing on the proposal of merging all its associate banks with the parent in

January. Till now no official confirmation is available on whether the board of the bank and

its associates would consider this proposal.

The proposal, which intends to reward value creators for state-owned banks just like their

peers in private banks based on a defined performance criterion, has been in the making for

long. A couple of years ago the government had discussed the proposal with the banking

regulator, though it’s only now that it has been able to get the proposal off the ground. The

government is the leading shareholder in 28 banks in the country with stakes ranging from

100% to 53%.

By offering stock options, it is believed that it could bring motivation among the employees

which could reflect on the performance of their organizations. However in a stock market,

which has posted spectacular gains over the last few years, this can prove to be one of the

best tools to both retain and attract talent in state-owned banks given their inability to offer

substantial pay packets.

A convincing reason now for giving the nod for stock options can be the imminent opening

up of the banking sector to foreign investors a year down the line and increased competition

in the local markets. Officials are of view that the decision taken to allow SBI to offer stock

options will open the way for other state-owned banks and units to come up with similar

offers. SBI has over two lakh employees on its rolls spread across over 9,500 branches in

India and 84 offices abroad in 32 countries.

UTI AMC, which in a sense is a quasi-government entity, has guided the way by offering

shares to all its employees numbering over 1,000. Officials of SBI, however, said the ESOP

would be independent of the rights offering. This means that it would be unveiled perhaps in

the next fiscal only as the details need to be fleshed out.

Last weekend, the government issued a letter to SBI through which it has given signal of its

willingness to subscribe to its entitlement of the rights issue. The government has 59.73% of

the equity holding in the bank; it will issue securities aggregating Rs 10,000 crore to SBI to

fund its subscription. A securities redemption fund which might be created will be built out of

the dividends and tax receipts which the government will receive from SBI. The fund will

enable the government to cash in the securities on maturity.

Officials stated that the SBI chairman had discussions with the finance ministry last week on

the modalities of the proposed rights offering. The rights issue is aimed at strengthening the

capital of the bank. SBI will require the capital to fulfil the Basel II norms and new

accounting standards and to fund credit growth.

Compensation structure in Industrial Development Bank of India Limited

(IDBI):-

COVERAGE

• Compensation

• Loan Facilities, etc,

Total Emoluments incl. Reimbursement for the post of Assistant manager

• Gross Salary Rs.16, 900/- p.m.

• Reimbursements# Rs. 5400-8300/- p.m.

• Total (approx) Rs.23, 300 – 25,200/- p.m.

• Annual Gross emolument Rs.2.79 – 3.02 lakh (approx)

In addition, bank housing/ leased accommodation is provided. (Lease rentals varying between

Rs. 2750 – 8000/- p.m.)

# Include Reimbursement towards medical, newspaper, telephone, petrol, LTA, etc. -

Periodical reimbursement as per policy.

Reimbursement (details)

• Medical Expenses:

• Unlimited for self and dependent family members.

• Additional Rs.2,500/- p.a. on declaration basis.

• Cleaning Expenses: Rs.1,000/- p.m.

• Conveyance Expenses:

• Petrol: Rs.5,280/ 2400 p.m for Four wheeler/Two wheeler and insurance cost.

• Non-vehicle owners - Rs. 600/- p.m.

• Newspaper Expenses: Rs.400/- p.m.

• Telephone Expenses: Rs.1,154/- bi monthly

• LTA: Rs.20,000/- once in 2 years on declaration

• Brief case: Rs.2,000/- once in 3 years

Superannuation & other benefits

• Provident Fund: 10% contribution by the employee

• Pension: Eligible as per Rules.

• Gratuity: Eligible as per Rules.

Loan facilities

• Housing Loan:

-After 3 years of confirmation. (Including probation period)

-80 times of basic pay OR 90% of the cost subject to maximum of Rs.15 lakh.

- Rate of Interest: 5% p.a.

• Festival Advance:

- Rs.20,000/- after 6 months of service

(Interest free) once in a calendar year.

- Repayable in 10 monthly instalments.

• Consumer Advance:

Eligible: 2 years of confirmation (including probation period)

- Amount: Rs.40,000/-

- Rate of Interest: Prevailing Bank rate at the time of disbursement.

• Computer Advance:

- 1 year after confirmation

- Amount: 90% of cost of PC OR Rs.75,000/- whichever is less.

- Rate of Interest: Prevailing Bank rate at the time of disbursement

• Vehicle Advance:

I) Car:

- 3 years of confirmation.

(Including probation period)

- 100% of the cost subject to maximum of

Rs.3,00,000/-(Rate of Interest : 7% p.a.)

II) Two wheeler:

- 3 years of confirmation.

(Including probation period)

- 90% of the cost subject to maximum of

Rs.40,000/- (Rate of Interest : 7% p.a.)

• Advance for Consumer Durables for furnishing residence (Lease facility):

- 2 years service

- Rs.30, 000/-

- Recovery of Rs.1020/- p.a.

Other facilities (Examples of Indirect Compensation)

In addition, Employees are also provided facilities such as:

• Reimbursement of fees for pursuing professional courses.

• Holiday home facility at various locations all over the country.

PAYMENT STRUCTURE OF BANK OF INDIA

The monthly remuneration received by each of its officers and employees, including the

system of compensation as provided in its regulations

The pay scales of employees of the Bank are fixed by IBA in consultation with Government

of India, Ministry of Finance, New Delhi. The scale of pay of its employees as of now is

given below:

Scales of Pay of Officers:

Scale I = Rs.10000 - 470/6 - 12820 - 500/3 - 14320 - 560/7 - 18240

Scale II = Rs.13820 - 500/1 - 14320 - 560/10 - 19920

Scale III = Rs.18240 - 560/5 - 21040 - 620/2 - 22280

Scale IV = Rs.20480 - 560/1 - 21040 - 620/5 - 24140

Scale V = Rs.24140 - 620/4 - 26620

Scale VI = Rs.26620 - 680/4 - 29340

Scale VII = Rs.29340 - 680/2 - 30700 - 900/1 - 31600 - 1000/1 - 32600

Scales of Pay of Clerical Staff:

Rs.4410 - 215/3 - 5055 - 335/3 - 6060 - 470/4 -7940 - 500/3 - 9440 - 560/4 - 11680 - 970/1 -

12650 - 560/1 - 13210.

Scales of Pay for Subordinate Staff:

Rs.4060 - 105/2 - 4270 - 115/2 - 4500 - 135/2 - 4770 - 165/3 - 5265 - 195/4 - 6045 - 235/3 -

6750 - 270/3 -7560

PAYMENT STRUCTURE OF A PRIVATE SECTOR BANK

ICICI BANK

Job title: Head NRI Private & Retail Banking (India)

Location: Mumbai, India

> Cost to company per year INR 2 million.

> Esops: Are given every year in the grade.

> Vacation time: 30 days.

> Car with 5 years written down value.

> Company owned staff quarters at subsidised rates.

> Canteen facility at subsidised rates.

Job title: AM I, Location: DELHI, India

”package structure is very different as gross and net amt varies. Make it very clear about take

home as gross may sound to be very attractive due to the bonus components. Yearend bonus

depends upon the yearly performance and the kind of rating you get at the end of the year”.

Job title: HR MANAGER (PERSONNEL)

Location: CUTTACK, INDIA

Approximate date of offer: 9/2004

Submitted on: SEP 17, 2004

GROSS SALARY: RS.14, 500/- PER MONTH,

LTA: RS.12, 000/- PER YEAR,

MEDICAL REIMB: RS.12, 000/-PER YEAR.

The current structure in ICICI -- bottom-up -- consists of assistant manager, manager, chief

manager, assistant general manager, deputy general manager, joint general manager, general

manager, senior general manager and executive director.

CONCLUSION

Banks play a crucial role in determining the economic wellbeing of an economy and the same

is true for India also. In its context, we find the segment differentiated into segments like the

public and the private sector. Post liberalization phase has seen a massive change in the

working of these institutions. All of them have realized the cut throat competition and for the

same, they all are focusing on excellence in performance in all spheres of work. To ensure the

same with the workforce, a sea change has been seen in the human resource policies of the

banking sector.

This becomes the reason why the compensation schemes have been modified. Earlier,

basically the direct component on the compensation formed the essential part of the payment.

Now also it is so, but the components of direct compensation have been modified. The idea is

to drive excellence, and for this, concepts like incentive component, sales based commissions

among others are gaining prominence in determining the magnitude of net compensation of a

bank staff.

Regular and effective performance appraisals help the employers to determine the

effectiveness of the bank staff and accordingly fine tune the compensation as the net salary is

heavily affected by the performance based payment factor. This is one of the reasons why

some private sector banks have seen exponential growth in sales figure in the recent past. The

Indian Banks’ Association, along with the finance ministry and the RBI, which plays a

pivotal role when the public sector banks determine compensation strategies, has also taken

clue from their counterparts and has thus come up with performance based incentives.

It has been accepted that a motivated employee can help create an efficient organization and

money in most case becomes the driving force. This becomes relevant for the present

competitive banking scenario also. This realization has given rise to the changes in the

compensation schemes in this sector. As the market undergoes further modifications directed

by the changes in local as well as the global economy, it becomes a challenge for the HR

managers to work out more efficient compensation schemes.

Bibliography

www.payroll.naukrihub/compensation in banking and finance

On 21/01/08

www.indiatimes.com/news in finance and banking

On 21/01/08

www.businessline.com /news in finance

On 22/01/08

www.businessworld.com/payroll-compensation

on 22/01/08

Ramani V.,March 2007,Executive Compentation-Theory and Practice,H.R.M.

ICFAI Press,pg 61-65.

http://o3.indiatimes.com/sbicreditcard/archive/2008/01/14/4863531.aspx

http://www.idbi.com/

http://www.idbisc.com/

http://www.bankofindia.com/

http://vault.co.in/companies/singlesurvey.jsp?

product_id=34610&type=salary&response_id=110358&ebxdk=56&country=India&gs=