Compensation Policy & Administration 1

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Assignment on

Compensation Policy & Administration


Course Code: HRM-614

Prepared for:
Tahmina Akter Arzin

Lecturer

Dept: Business Administration

Prime University

Mazar Rd, Dhaka

Prepared By:
Md. Jubair Newaz

Id: 192020102014

Program: MBA

Batch: 51st (36 crd.)

Prime University

Mazar Rd, Dhaka


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Topic: What are the Factors Considered in Compensation System Design Components?

 Base Pay:
Compensation System
Design Components

Base pay is the initial salary paid to an employee, not including benefits, bonuses, or
rises. It is the rate of compensation an employee receives in exchange for services. An
employee's base pay can be expressed as an hourly rate or as a weekly, monthly, or
annual salary.

 Incentive Programme:

Incentive programs are usually monetary tools used by the Human Resources (HR) to
motivate employees or to bring about a desired behavior during a given period of time.
Incentive programs are always based on specific and measurable outcomes. Therefore,
incentive programs are commonly used in the sales environment, where fulfilling set
targets results in predetermined rewards. Incentive programs should not be confused with
recognition programs which, are usually nonmonetary and, acknowledge employees’
contribution during a given period of time. However, the two programs can go hand in
hand in retaining valuable employees and in keeping the workforce satisfied.
 Benefits Programme:

Employee benefits are non-financial compensation provided to an employee as part of the


employment contract. Employee benefits may be required by law (depending on the risk
associated with the job or industry and the laws of the country where the job is held) or
provided voluntarily by the employer. From an employee’s point of view, a good package
of benefits increase the value they receive from their working life and contribute to their
own health and that of their family. From an employer’s point of view, benefits help staff
remain happy and committed, reducing the chance of them leaving to work elsewhere.

Topic: Differences between Traditional Compensation Approach and Total


Rewards Approch
Topic: Definition of Fringe Benefits

According to the International Encyclopedia of social sciences “A fringe benefits has to


meet two tests, it must provide a specific benefit to an employee and it must represent a
cost to the employer”

Fringe benefits are indirect form of compensation given to employees in addition to the
various forms of cash pay- base pay, dearness allowance and inventive pay. They provide
a quantifiable value for individual employees. They are the indirect form of
compensation as they are not related to the performance but are granted to the employees
for just being a member of the organization. They are called benefits as the employees
stand benefited on account of such provisions. They are not in the form of wages, salaries
and time related payments. For example key executives in large companies might also
enjoy fringe benefits like use of time-share condominiums, paid continuing education,
use of a company jet, use of a company credit card, discounted or free health club
memberships, and a significant amount of paid vacation.

Topic: Objectives of Fringe Benefits

 To create and improve sound industrial relations


 To boost up employee morale.
 To motivate the employees by identifying and satisfying their unsatisfied needs.
 To provide qualitative work environment and work life.
 To provide security to the employees against social risks like old age benefits and
maternity benefits.
 To protect the health of the employees and to provide safety to the employees against
accidents.
 To promote employee’s welfare by providing welfare measures like recreation facilities.
 To create a sense of belongingness among employees and to retain them. Hence, fringe
benefits are called golden hand-cuffs.
 To meet requirements of various legislations relating to fringe benefits.
Topic: Factors Determining for Offering Fringe Benefits.

The following are the main reason company offers fringe benefits:

Social Security

The employers must pay in whole or in part for certain legally mandated benefits and
insurance coverage also known as social security. According to ILO, social security
refers to the protection which society provides for its members through a series of public
measures against the economic and social distress that otherwise would be caused by the
stoppage or substantial reduction of earnings resulting from sickness, maternity,
employment injury, unemployment invalidity, old age and health.

Paternalistic or Humanistic Consideration

Historically, fringe benefits were introduced with humanistic considerations to support


wage compensation with certain infrastructure or facilities to provide for health,
education and housing as also social, cultural, religious and recreational activities.

Tax Considerations

There are individual and organizations to develop ingenious methods of avoiding the
obligations through restructuring the pay packet. The various fringe benefits like house
rent, education expenses, travel charges and many more are shown as re-imbursement of
expenditures. However, in recent years the tax authorities are taking exception to such
camouflaging and disallowing non-wage benefits beyond certain limits.

Utilization of Leisure Time

There is awareness about the effects of off-duty life style on working life and vice versa.
The importance of leave and holidays for rest and recuperation is increasingly being
understood. Keeping these in mind, organizations are providing various facilities for
leave travel including expenses of travel maintenance of guest houses etc.

Competitive considerations

A variety of incentives and benefits are being offered like company housing liberal loan
facilities, construction of schools or re-imbursement of education expenditure,
membership in clubs/professional associations, sponsorship for training and conference
abroad etc to attract and retain people based on the competitors companies in the field.
To Meet Price Rises

Rising prices and cost of living has brought about incessant demand for provision of extra
benefit to the employees. Employers too have found that fringe benefits present attractive
areas of negotiation when large wage and salary increases are not feasible.

To Attract and Retain Best Talents

As organizations have developed more elaborate fringe benefits programs for their
employees, greater pressure has been placed upon competing organizations to match
these benefits in order to attract and keep employees. Recognition that fringe benefits are
nontaxable rewards has been major stimulus to their expansion.

To Protect Employees from Adverse Impact

Rapid industrialization, increasingly heavy urbanization and the growth of a capitalistic


economy have made it difficult for most employees to protect themselves against the
adverse impact of these developments. Since it was workers who are responsible for
production, it was held that employers should accept responsibility for meeting some of
the needs of their employees. As a result, some benefits-and-services programs were
adopted by employers.

Due to Government Legislation

The growing volume of labor legislation, particularly social security legislation, made it
imperative for employers to share equally with their employees the cost of old age,
survivor and disability benefits.

Collective Bargain by Trade Unions

The growth and strength of trade unions has substantially influenced the growth of
company benefits and services.

Labor Scarcity and Competition

Labor scarcity and competition for qualified personnel has led to the initiation, evolution
and implementation of a number of compensation plans.
Topic: Types of Fringe Benefits.

The following are the general types of fringe benefits offered to the employees.

For Old Age and Retirement

Benefits under this category include: deferred income plans, pension, gratuity,
provident fund, old age assistance, old age counseling, medical benefits for retired
employees, traveling concession to retired employees, jobs to sons/daughters of the
deceased employee and the like.

For Personnel Identification, Participation and Stimulation

This category covers the following benefits: anniversary awards, attendance bonus,
canteen, cooperative credit societies, educational facilities, beauty parlor services,
housing, income tax aid, counseling, quality bonus, recreational programs, stress
counseling, safety measures etc.

Employee Security

Physical and job security to the employee should also be provided with a view to
promoting security to the employee and his family members. The benefit of
confirmation of the employee on the job creates a sense of job security. Further a
minimum and continuous wage or salary gives a sense of security to the life.

For Employment Security

Benefits under this head include unemployment, insurance, technological adjustment


pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave
for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms,
jobs to the sons/daughters of the employees and the like.

For Health Protection

Benefits under this head include accident insurance, disability insurance, health
insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc.

Health Facility

Employee’s health should be taken care of in order to protect the employee against
accidents, unhealthy working conditions and to protect worker’s capacity. These
provisions relate to cleanliness, disposal of waste and effluents, ventilation and
temperature, dust and fume, artificial humidification, over-crowding, lighting,
drinking water, latrine urinals, and spittoons.
Safety Facility

Provisions relating to safety measures include fencing of machinery, work on or near


machinery in motion, employment of young person’s on dangerous machines, striking
gear and devices for cutting off power, self-acting machines, easing of new
machinery, probation of employment of women and children near cotton openers,
hoists and lifts, lifting machines, chains ropes and lifting tackles, revolving
machinery, pressure plant, floors, excessive weights, protection of eyes, precautions
against dangerous fumes, explosive or inflammable dust, gas etc. Precautions in case
of fire, power to require specifications of defective parts of test of stability, safety of
buildings and machinery etc.

Retrenchment Compensation

The Industrial Disputes Act, 1947 provides for the payment of compensation in case
of lay-off and retrenchment. The non-seasonal industrial establishments employing 50
or more workers have to give one month’s notice or one month’s wages to all the
workers who are retrenched after one year’s continuous service. The compensation is
paid at the rate of 15 days wage for every completed year of service with a maximum
of 45 days wage in a year. Workers are eligible for compensation as stated above
even in case of closing down of undertakings.

Lay-off Compensation

In case of lay-off, employees are entitled to lay-off compensation at the rate to 50%
of the total of the basic wage and dearness allowance for the period of their lay-off
except for weekly holidays. Lay-off compensation can normally be paid up to 45 days
in a year.

Accident or Health Plans

The value of accident or health plan coverage provided by the employer is usually not
included in the income. However, benefits may be taxable to employee. If employer
does not pay the entire cost of your health insurance, employee may be able to enter
into a “salary reduction agreement” with employer. Under these agreements,
employer reduces salary or wages by the amount of cost of the health insurance and
pays the full amount.

Holiday Gifts

If employer gives employee a ham, turkey, or other item of nominal value at


Christmas or other holidays, it is not included in employee income. However, cash,
gift cards, or similar items are included in the income regardless of the amount.
Topic: Define Strategic Compensation Planning

 Once employees have done their jobs and been appraised, they expect to be paid. Each
employee’s pay should make sense in terms of the company’s overall pay plan.
Developing a pay plan is as important in a small firm as a large one.
 Paying wages rate that are too high may be unnecessarily expensive, and paying less may
guarantee interior help and high turnover. Furthermore, internally inequitable wage rates
will reduce morale and cause endless badgering by employees demanding rises.The
strategic compensation planning otherwise called the process of looking ahead at what an
organization needs to do about its reward policies and practices in the future. The
strategic compensation management deals with both ends and means. As an end, it
describes a vision of what reward policies will look like in a few years time. As a means,
it shows how the vision will be realized. Therefore, strategic compensation management
is also called visionary management. But it is also called empirical management which
decides how, in practice, it is going to get there.

Topic: Modern Compensation Systems.

Modern Compensation Systems

The Salary/Wage Survey

Job Analysis

Job Description

Job Position

Job Worth

Job Evaluation
 The Salary/Wage Survey: It is difficult to set pay rates if one don’t know what others
paying, so salary survey of what others are paying will play a big role in pricing jobs.
Virtually every employer conducts at least an informal telephone, newspaper, or internet
salary survey.
 Job Analysis: Job analysis is a systematic approach to defining the job role, description,
requirements, responsibilities, evaluation, etc. It helps in finding out required level of
education, skills, knowledge, training, etc for the job position. It also depicts the job
worth i.e. measurable effectiveness of the job and contribution of job to the organization.

Thus, it effectively contributes to setting up the compensation package for the job
position

 Job Worth: Job Worth refers to estimating the job worthiness i.e. how much the job
contributes to the organization. It is also known as job evaluation. Job description is used
to analyze the job worthiness. It is also known as job evaluation. Roles and
responsibilities helps in determining the outcome from the job profile. Once it is
determined that how much the job is worth, it becomes easy to define the compensation
strategy for the position.
 Job Evaluation: The relative value of every job is determined through job evaluation.
The relative job value is then converted into money value so s to fix. Wage Survey: Wage
or salary surveys are conducted to find out wage or salary levels prevailing in the region
or industry for similar jobs. Other organizational problems such as recruitment policy,
fringe benefits, etc., are also considered.
 Job Worth: Job Worth refers to estimating the job worthiness i.e. how much the job
contributes to the organization. It is also known as job evaluation. Job description is used
to analyze the job worthiness. It is also known as job evaluation. Roles and
responsibilities helps in determining the outcome from the job profile. Once it is
determined that how much the job is worth, it becomes easy to define the compensation
strategy for the position.
 Job Evaluation: The relative value of every job is determined through job evaluation.
The relative job value is then converted into money value so s to fix. Wage Survey: Wage
or salary surveys are conducted to find out wage or salary levels prevailing in the region
or industry for similar jobs. Other organizational problems such as recruitment policy,
fringe benefits, etc., are also considered.

END

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