compensation unit 3, hrm
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The remuneration received by anemployee in return for his/her
contribution in the organization.
Helps in motivating employeesand improving organizational
effectiveness.
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Importance of compensation
Recruit retain good employees Increase maintain morale &
satisfaction
Reward & encourage peakperformance.
Reduce turnover & encourage
company loyalty
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Objectives of a Goodcompensation Plan
Internal equity- ensure moredifficult jobs are paid more.
External equity- similar jobs in
industry get similar compensation Individual Equity- equal pay for
equal work
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Wage is..
According to Webster's Dictionarywage is payment for service renderedIt is a payment calculated by hour day,
or week or for certain amount of workdone.
Wage earners often have to give up
pay for leaving early, coming in late,missing a day, or taking a vacation.
Minimum Wage , Living wage & fairWage
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MINIMUM WAGE : education, medical
requirements and amenities.
FAIR WAGE : equal pay for equal workLIVING WAGE : not only bare essentials
like food, clothing but also a for comfort.
Mi i W i R j h
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Minimum Wage in Rajasthanw.e.f jan 2011
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Salary refers to how much you getpaid every year. Salary earners rarely
have to punch a time clock, or keep anaccurate account of their hours,because they get paid for performance
rather than by the hour. Salariedworkers are much more likely to havepaid sick days and paid vacations,
and are not penalized for being late orleaving early from time to time.
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Difference Between salary &Wage
Wage earners are paid by the hour. Salary earners are paid by the
year.
Salary earners usually receivepaid time when they are notworking.
Wage earners often have to giveup pay for time off.
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Salaries are often calculated aspackages.
Wage earners get paid more for
working more than 40 hours per week. Salary workers are rarely offered
overtime pay.
Salaries usually contain all kinds ofbenefits and perks.
P i i l f & l
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Principle of wage & salaryAdministration
General wage & salary level as per theprevailing market rate.
Equal pay foe equal work
Special skills may be rewarded suitabily The wage/salary structure should be
flexible according to economic
conditions. A wage /salary should fulfill a persons
basic need.
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Fringe Benefits-
Fringe Benefits- these are the extrabenefits provided to workers otherthan the usual compensation paid
in the form of wage or salary.These benefits refer to as fringebecause many years ago theyformed a very small part of thetotal salary.
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Includes Payment for time not worked example Sundays, paid
leaves
Sickness benefit- 56 days in a year allowed
Maternity benefit- 6 months leave
Paternity benefit
Health benefit- company med claim Dependants benefit
Hotels & temporary accommodation
Car Fringe benefits
Food benefits Pension
Provident fund
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Executive Compensation
Compensation for executive managers isdifferent from compensation for otheremployees in most organizations. Executive
compensation covers employees thatinclude company presidents, chief executiveofficers (CEOs), chief financial officers(CFOs), vice presidents, occasionallydirectors, and other upper-level managers.
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These high level employees are paidexecutive compensation.
Executive compensation is different fromcompensation for lower-level employees.
The salary and other benefits arenegotiated and are documented in acustomized employment contract. Thecontract spells out compensation, benefits,perquisites, performance bonuses,
separation and severance agreements, andother special terms of employment.
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Executive compensation often includes:
base salary,
bonuses,
incentives such as stock options,
income protection guarantees in the event
of a sale, public stock offering, or otherliquidity event,
a guaranteed severance package in the
instance of employment termination forreasons other than cause,
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a signing bonus for coming onboard,
The combination of salary, incentives, andbonuses is often referred to as Total CashCompensation (TCC) for executives.
Executive compensation is negotiatedbetween the potential executive and theemployer.
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Where non-executive compensation ismost often similar in characteristics
among employees, executivecompensation is negotiated and agreedto in an employment contract and may
include substantial differences from theorganizational norm.
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Variable Compensation
Variable pay is employee compensationthat changes as compared to salary whichis paid in equal proportions throughout
the year. Variable pay is used generally torecognize and reward employeecontribution toward companyproductivity, profitability, team work,
safety, quality, or some other metricdeemed important.
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The employee who is awarded variablecompensation has gone above and
beyond his or her job description tocontribute to organization success.Variable pay is awarded in a variety of
formats including profit sharing,bonuses, holiday bonus, cash, andgoods and services such as a company-
paid trip.
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Types of Incentive
Plan
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Piece Rate System
Differential Rate
Commissions
Bonuses
Awards
Merit Pay People - based Pay :
1. Skill-based Pay
2. Knowledge-based Pay
4. Feedback Pay
Piece Rate
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Piece RatePiece rate incentive is given to the employees based on the number ofunits produced. This plan is practiced in the sectors dealing withmanufacturing of products such as engineering automobile,telecommunication, FMCG
usually combines-A basic pay element this is fixed
An output-related element (piece-rate). Which is triggered by thebusiness exceeding a target output in a defined period of time
Commissions
Commission is a variable component of compensationpackage. It is given on the basis of business generated bythe employee. Commission is a pre fixed component say
5% of the total sales done by the employee. It is practicedin the retail, FMCG and other sectors in the marketing andsales segment.
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Bonuses( bonus act 1965)
Based on company profits or productivity.
Bonuses are given to employees on a pre established goal or criteria. The
organizations set policies regarding the bonuses. Usually bonuses are
provided during the festive season.
Bonus pay is used by many organizations as a thank you to employees
or a team that achieves significant goals. Bonus pay is also used to
improve employee morale, motivation, and productivity. As long as
bonus pay is discretionary by the employer, it is not considered to be a
contract. If the employer promises a bonus, however, the employer
may be legally liable to pay the bonus.
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TypesofBonusSales bonus. This is normally paid if a sales target has been reached.
For sales people this may make up a significant part
of their salary.
Performance bonus. This can be paid to an individual or on a group
or factory wide basis, and is often paid for reaching targets of outputand quality. This
method of payment is an important part ofChristmas bonus. Often called a 13 month's salary, paid for loyalty to
the business. In some
countries such as Germany virtually all companies will pay a Christmasbonus.
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Maturity Curves
Maturity curve incentive plan considers the experience andperformance of an employee for giving out the incentives. It ispracticed in all the industries. Experience is always given a weight-age as experienced people can produce better quality results.
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GroupIncentives Gain Sharing
Gain sharing incentive plans undertake those employees whogive outstanding performances and provide for cost savingmeasures. Organizations believe in sharing the profits with theemployees who are responsible for producing those results.
Profit SharingProfit sharing incentive plans are practiced in retail and FMCGsectors. Other sectors too implement the plan based on
organizational policies. It refers to giving out the share of profitsthe organization earned to all the employees.
ESOP