Compensation Management

Compensation Management
Session 1 :
- Definition of Compensation Management
- Total Compensation
Introduction
- Purpose of Compensation Management
to
- Objectives of Compensation
Compensation - Significance of Compensation
Management - Factors influencing Compensation
- Components of Compensation System
Definition of Compensation Management
 Compensation Management refers to the establishment and implementation of sound

policies, and practices of employee compensation in an organization.
 It is essentially the application of a systematic and scientific approach for compensating the
employees for their work in a fair, equitable, consistent and logical manner.
 Compensation is the pay and reward an employee receives in return for their valuable
efforts while performing various jobs in the organization.
Total Compensation
Compensation = Salary / Wages
+
Bonuses
+
Commissions
+
Profit – sharing
+
Insurance
+
Childcare / Tuition Assistance
+
Other benefits
Salary vs. Wages
Particulars Salary Wages
1. Definition The salaries are paid to the employees in an The wages are paid to the workers in an organization.
organization.
2. Given to The salaries are given to people who are The wages are given to the people who are involved
involved in administrative work like office jobs. in manufacturing activities, technical, manual and
physical activities.
3. Nature The salary cost incurred is fixed i.e. fixed amount The wages is variable, because it can vary with the
is paid monthly. day to day performance of an individual.
4. Payment The salaries are paid monthly or annually based The wages are paid daily or weekly or fortnightly
Tenure on the performance of an employee. based on the hours worked.
5. Paid to The salaries are paid to the “White-collar” The wages are paid to the “Blue-collar” workers.
workers.
6. Payment rate Normally, the salary is fixed at the time of joining The wage rate is not fixed throughout the period and
of an employee. Its change with increment, usually, keeps on changing.
promotion, pay scale revision.
Purpose of Compensation Management
1. To retain present employees by paying competitive remuneration.
2. To recruitment of qualified employees.
3. To Increase or maintain morale/satisfaction.
4. To reward and encourage the performers.
5. To establish fair and equitable remuneration so as to avoid pay disparities.
6. To reduce turnover and encourage company loyalty.
7. To enhance brand image of the organization.

Objectives of Compensation
1. Equity : Compensation management strives for internal and external equity. Internal
equity requires that pay be related to the relative worth of a job so that similar jobs get
similar pay. External equity means paying workers what other firms in the labor market
pay comparable workers.
Compensation differentials, based on differences in skills or contribution, are all related
to the concept of equity.
2. Efficiency : The objectives of efficiency are link a part of wages to productivity or profit,
group or individual performance, acquisition and application of skills, and so on.
Arrangements to achieve efficiency may also be seen as being equitable (if they fairly
reward performance) or inequitable (if the reward is viewed as unfair).
Objectives of Compensation (contd.)
3. Macroeconomic stability: It can be achieved through high employment levels, and low
inflation. For instance, an inordinately high minimum wage would have an adverse impact
on levels of employment. Though the level at which it would occur is a matter of debate.
Although compensation and compensation policies are two of the many factors that
influence macroeconomic stability, they do contribute to (or impede) balanced and
sustainable economic development.
4. Efficient allocation of labor: The efficient allocation of labor in the labor market implies
that employees will move to wherever they receive a net gain. Such movement may be
from one geographical location to another, or from one job to another (within or outside an
enterprise). The provision or availability of financial incentives causes such movement.
Significance of Compensation
From individual From enterprise From national

viewpoint viewpoint viewpoint
• Compensation is a major • Compensation is a • Dissatisfied work force
source of an individual’s crucial element to hampers in distribution of
purchasing power. increase productivity, aggregate real income
which is expected to among various group
• It determines his or her boost profits leading to involved .
status, prestige & worth increase in new capital,
in society. expansion production,
and capacity.
Factors influencing Compensation
• Ability to pay
• Organizational strategy
• Competency level
Internal Factors •
•
Performance of employees
Seniority and job experience
• Employee potentiality
• Compensable factors for the job
• Legal mandates
• Labor market trends
External Factors • Economic state of the country
• Inflation rate
• Technological changes
Components of Compensation System
Job Analysis
Job Evaluation
Salary Surveys
Pay Structures
Policies and Regulations of the country

Components of Compensation System (contd.)
Job Analysis Identify and Study Jobs –
Job Evaluation Job Description

Job Specification
Salary Surveys
Pay Structures
Policies and Regulations

of the country
Job Analysis
Job Evaluation
Salary Surveys
Pay Structures

of the country
Job Analysis
Job Evaluation
 Discover what other employers are
paying for the specific Job.
Salary Surveys
 For external equity
Pay Structures
 Sources of Data –
- consultants
Policies and Regulations - associations
of the country
- self-conducted surveys
Job Analysis
Job Evaluation
Salary Surveys
Pay Structures

of the country
Job Analysis
Job Evaluation
Salary Surveys
Pay Structures  Align the proposed pay scale

with the prevailing policies and
of the country regulations of the country.
Thank You
All

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 Compensation Management refers to the establishment and implementation of sound

1. To retain present employees by paying competitive remuneration.

2. To recruitment of qualified employees.

3. To Increase or maintain morale/satisfaction.

4. To reward and encourage the performers.

5. To establish fair and equitable remuneration so as to avoid pay disparities.

6. To reduce turnover and encourage company loyalty.

7. To enhance brand image of the organization.

From individual From enterprise From national

Policies and Regulations of the country

Job Analysis Identify and Study Jobs –

Job Evaluation Job Description

Policies and Regulations

Policies and Regulations

Policies and Regulations

Pay Structures  Align the proposed pay scale

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