COMPENSATION

"If you pick the right people and give them the opportunity to spread their wings - and put
compensation and rewards as a carrier behind it - you almost don't have to manage them."
-Jack Welch

Compensation (meaning)
Compensation is a systematic approach to providing monetary value to employees in exchange
for work performed. Compensation may achieve several purposes assisting in recruitment, job
performance, and job satisfaction.

How is compensation used?

Compensation is a tool used by management for a variety of purposes to further the existence of
the company. Compensation may be adjusted according the business needs, goals, and available
resources.
Compensation may be used to:
 Recruit and retain qualified employees.
 Increase or maintain morale/satisfaction.
 Reward and encourage peak performance.
 Achieve internal and external equity.
 Reduce turnover and encourage company loyalty.
 Modify (through negotiations) practices of unions.

Recruitment and retention of qualified employees is a common goal shared by many employers.
To some extent, the availability and cost of qualified applicants for open positions is determined
by market factors beyond the control of the employer. While an employer may set compensation
levels for new hires and advertise those salary ranges, it does so in the context of other
employers seeking to hire from the same applicant pool.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that
must be reached between the monetary values, the employer is willing to pay and the sentiments
of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries
or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to
reduce employee turnover may seek to increase salaries and salary levels.
Compensation may also be used as a reward for exceptional job performance. Examples of such
plans include: bonuses, commissions, stock, profit sharing, gain sharing.

What are the components of a compensation system?

Compensation will be perceived by employees as fair if based on systematic components.
Various compensation systems have developed to determine the value of positions. These
systems utilize many similar components including job descriptions, salary ranges/structures,
and written procedures.

What are different types of compensation?

Different types of compensation include:
 Base Pay
 Commissions
 Overtime Pay
 Bonuses, Profit Sharing, Merit Pay
 Stock Options
 Travel/Meal/Housing Allowance
 Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

Scope of compensation survey

 A good compensation package is important to motivate the employees to increase the
organizational productivity.
 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.
 The employees have other psychological and self-actualization needs to fulfill. 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.

Components of Compensation System.

Job description

 A critical component of both compensation and selection systems, job

descriptions define in writing the responsibilities, requirements, functions, duties,
location, environment, conditions, and other aspects of jobs. Descriptions may be
developed for jobs individually or for entire job families

Job Analysis

 The process of analyzing jobs from which job descriptions are developed. Job
analysis techniques include the use of interviews, questionnaires, and observation.

Job Evaluation

 A system for comparing jobs for the purpose of determining appropriate

compensation levels for individual jobs or job elements. There are four main
techniques: Ranking, Classification, Factor Comparison, and Point Method

Pay Structures

 Useful for standardizing compensation practices. Most pay structures include

several grades with each grade containing a minimum salary/wage and either step
increments or grade range. Step increments are common with union positions
where the pay for each job is pre-determined through collective bargaining.

Salary Surveys

 Collections of salary and market data. May include average salaries, inflation
indicators, cost of living indicators, salary budget averages. Companies may
purchase results of surveys conducted by survey vendors or may conduct their
own salary surveys. When purchasing the results of salary surveys conducted by
other vendors, note that surveys may be conducted within a specific industry or
across industries as well as within one geographical region or across different
geographical regions. Know which industry or geographic location the salary
results pertain to before comparing the results to your company.

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.

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.
 COMPENSATION SURVEY QUESTIONNAIRE

This survey is basically done to understand the employee’s satisfaction

level towards compensation practices in the organization. The following
questions are designed only for research purpose. The researcher has
no intention to represent this information negatively in his paper. The
information will be kept confidential. You don’t have to mention your
name.
1. Name of organization:
2. Designation:
3. Department:
4. Pay band:
5. Grade pay:
Personal Information :( Tick marks the appropriate answer)
1. Gender: Male: Female:
2. Age: 18-25 years old: 25-35 years old:
35-45 years old: Over 45 years old:
Education: High School: Intermediate:
Graduate:
Post graduate:
Diploma: Ph.D:
3. Length of Employment: 0-5 years: 5-15 years:
15-25 years: More than 25 years

4. Income (per month): Below 20 thousand rupees:

20-40 thousand rupees:
40-60 thousand rupees:
60-80 thousand rupees:
80 thousand rupees above:
 I. Overall Employee Satisfaction in Organization
(Tick marks the appropriate answer)

S NO I am happy with following STRON AGR NEUT DISAGR STRONGLY

factors on GLY E R EE DISAGREE
organization AGREE E AL

1. Work environment.

2. Organizational
Policy and
Administration
3. Peer Groups

4. Job security
5. Formal Communication
6. Leadership
7. Performance appraisal policy
8. Promotion policy
9. Physical job security
10. Training and development
11. Working hour
12. Job location

I. Employees Satisfaction towards Monetary Compensation

S NO I am happy with HIGL AG NEU DIS HIGHLY DIS

following Y R T AGRE AGREE
Monetary AGRE E R E
Compensation E E A
Variables L
1. Basic Salary

2. Dearness Allowances

3. House Rent Allowance

4. Bonus

5. Travel Allowance

6. Yearly Increments
7. City compensation Allowance
8. Incentives
9. Salary scale of company

10. Diet Allowances

 I. Employees Satisfaction towards Non-Monetary Compensation

S I am happy with following Non-Monetary HIGLY AGREE NEUTRAL DISAGREE HIG

NO
Compensation Variables AGREE HL
Y
DIS
AG
REE
1. Leave Policy

2. Flexible Working Hours

3. Overtime Policy
4. Insurance
5. Medical facility
6. Career Advancement Opportunity
7. Acquire New Skills and Knowledge
8. Leave Travels and Holliday Home

9. Benefits (like tea, coffee) provided by

Company

II. Employees Satisfaction towards Retirement Benefits

S NO I am happy with following HIGLY AGREE NEUTRAL DISAGREE HIGHLY

Retirement Benefits Variables AGREE DISAGREE
1. Provident Funds

2. Gratuity
3. Leave Encashment

4. Post Retirement Medical Benefits

5. Pension Plan
 III. Employees Satisfaction towards Recognitions & Rewards

S NO I. I am happy with following HIGLY AGRE NEUTR DIS HIGHL

Recognitions & Rewards AGRE E AL AGREE Y DIS
Variables E AGREE
1. Extrinsic Rewards

2. Applicability of reward system at various levels

of employees
3. Rewards System commensurate with industry
norms
4. Rewards related to performance

5. Fairness in Recognition and rewards

6. Intrinsic Rewards
7. Reward for overtime or any other extra work

IV. Employees’ Satisfaction with Compensation Management

is Appropriate & Fair

S NO I am happy with following Compensation HIGLY AGRE NEUTR DIS HIGHL

Management is Appropriate & Fair AGRE E AL AGREE Y DIS
Variables E AGREE
1. Perceived fairness of salary structure

2. Compensation commensurate with

responsibility
3. Salary is fair in terms of work done and
experience
4. Company’s benefits are commensurate with
industry norms
5. Reasonableness and Fairness in pay raises

6. Appropriateness of benefits with employees’

Needs
7. Efficiency of compensation system
 I. What I like best about working for organization is…..

II. Things that need little change in organization is…..

III. What I like best about The Company’s Compensation policy is…

IV. Things that need little change in organization Compensation system is…..

THANK YOU FOR SHARING YOUR OPINION