Compensation.

1st Year BAP (Psychology+HRM)

Presentation by:
Ipshita,Eshani,Sanvi,Naisha,Aleena
INTRODUCTION TO
COMPENSATION.
Compensation refers to any payment given by an employer to an
employee during their period of employment. In return, the
employee will provide their time, labor, and skills. This
compensation can be in the form of a salary, wage, benefits,
bonuses, paid leave, pension funds, and stock options, and more.
IMPORTANCE
OF
COMPENSATION
ATTRACTS TOP TALENT

Compensation is crucial for attracting top talent as it signals a

company's commitment to valuing its employees. Competitive
salaries, performance-based incentives, and comprehensive
benefits packages appeal to skilled professionals who often have
multiple job options. Moreover, a strong compensation strategy
enhances a company's reputation as a desirable workplace,
contributing to talent retention and fostering a positive work
environment. Ultimately, an attractive compensation package not
only draws in high achievers but also promotes long-term loyalty
and motivation.
MOTIVATES EMPLOYEES

Compensation motivates employees by providing a tangible reward

for their efforts and contributions. Competitive salaries and
performance-based bonuses incentivize employees to excel in their
roles and achieve organizational goals. Additionally, a well-
structured benefits package enhances job satisfaction by addressing
employees' needs, such as health care, retirement savings, and work-
life balance. When employees feel fairly compensated, they are more
likely to be engaged, committed, and productive, fostering a positive
work environment. Ultimately, meaningful compensation reinforces
a culture of recognition and appreciation, motivating employees to
perform at their best.
HELPS ADDRESS COMPLEX PAY CONSIDERATION

Compensation addresses complex pay considerations by

establishing clear, structured frameworks that promote fairness
and transparency.

A well-structured compensation system ensures compliance

with labor laws, reducing legal risks. Ultimately, competitive and
equitable compensation promotes employee retention and
engagement, effectively navigating the complexities of modern
workforce dynamics.
TYPES OF COMPENSATION
1. BASE PAY
A set amount of money paid to an employee, regardless of how
many hours they work.

2. HOURLY WAGES
A employee is paid a set rate per hour they work.

3. COMMISSION
An employee is apid a salary based on what they sell
or produce
4. BONUSES
A type of compensation paid to an employee in addition to
their base pay, contract amount, or annual salary.

5. STOCK OPTIONS
A contract that gives an employee the right to buy a set
number of shares of the company’s stock at a pre-set price.

6. EQUITY
A form of compensation that can help employees build long-
term wealth
7. EXECUTIVE COMPENSATION
A special type of pay for high-level executives that often
includes stock or other incentives plans.

8. PENSIONS
Recurring payments made to a retired employee from an
investment fund they contributed to while employed

9. MERIT PAY
A compensation approach that gives employees an increase in their
base salary or bonuses based on their performance.
FACTORS TO CONSIDER WHEN DECIDING ON THE
TYPES AND LEVEL OF COMPENSATION FOR A ROLE:
1.MINIMUM WAGE REGULATIONS
2. REQUIRED EXPERIENCE AND QUALIFICATION
3. TYPE OF JOB
4. RESPONSIBILITIES
5. INDUSTRY STANDARD WAGES
6. COST OF LIVING AT THE JOB LOCATION
7. AVAILABLE SUPPLY OF REQUIRED TALENT
8. COMPANY SIZE
9. COMPANY REPUTATION
THE COMPENSATION
PROCESS:
The compensation process involves a
series of steps to determine how
employees are paid and rewarded for
their work. Key steps include:
 Job analysis is a critical part of the
compensation process, as it provides
the foundational data needed to
JOB make
informed decisions about pay
ANALYSIS: structures and other
compensation related elements.
Here
how job analysis fits into the
process:
• It involves gathering data on tasks, duties, and the
qualifications needed for the job, such as education,
experience,and specific skills.

• This information is then used to create job descriptions and

specifications, which outlines the tasks,duties, responsibilities. By
analyzing jobs, HR professionals can ensure that compensation
reflects the job’s actual demands and complexity,promoting
fairness and internal equity.
 Market research in the
MARKET compensation process involves
gathering salary data, benefits,
RESEARCH: and industry trends to ensure
competitive pay structures.
Key steps include:
•Benchmarking: Comparing salaries through surveys and job
matching.

•Total Compensation: Evaluating base salary, bonuses, and perks.

•Geographic/lndustry Trends: Analyzing how location and industry

affect pay.

•Compliance: Ensuring alignment with legal wage standards.

This helps attract talent while maintaining fairness and

competitiveness.
 A compensation strategy
outlines how an
organization plans to
COMPENSATION compensate its employees,
aligning pay with business
STRATEGY :
goals and market
conditions. Key elements
include:
•Market Positioning: Deciding whether to lead, match, or lag the market in pay
levels.

•Pay Structure: Establishing salary ranges and grades for different roles. •Incentives:
Designing bonus and incentive plans to reward performance.

•Benefits: Offering competitive health, retirement, and other benefits to enhance

total compensation.

•Equity and Fairness: Ensuring pay equity and fairness across the organization.

This strategy helps attract and retain talent while supporting overall business
objectives.
Implementation of the
compensation process
•Designing the Structure: Setting pay grades, salary
ranges, and performance incentives based on
market research.

•Communication: Clearly explaining compensation

packages to employees.

•Rollout: Applying the structure across departments

and ensuring consistency.
 •Monitoring: Regularly assessing employee
satisfaction and market competitiveness.

•Adjustments: Making necessary updates

Evaluation: based on performance reviews, market
changes, or feedback.

•Compliance Checks: Ensuring ongoing

adherence to legal and regulatory
requirements.
KEY COMPENSATION MODELS
EQUITY THEORY

It is a theory of motivation that suggests that employee motivation at work is driven

largely by their sense of fairness.
Equity theory proposes that people strive for impartiality in their relationships.
People may take actions to make things right if they believe they are not being treated
fairly.
According to the theory of motivation, workers are more likely to be motivated and
satisfied with their jobs when they believe they are being paid fairly. Understanding
this theory and putting its principles into practice will help you stay inspired and
productive
EXPECTANCY THEORY
Expectancy theory says that people are only motivated to work towards
rewards they want and that are attainable.

Employees are motivated when they believe:

Their work contributes to a larger goal or value
They're competent at the work
They'll be rewarded for their efforts

The expectancy theory emphasizes the connection between effort,

rewards, and goals
JOB BASED PAY vs SKILL BASED PAY

Job-based pay:
Employees are paid based on the job they hold, and their performance. Job-based pay
structures use a standard pay scale for each job, and employees are evaluated on their
responsibilities and work experience.

Skill-based pay:
Employees are paid based on the skills they have and how proficient they are in those
skills. Skill-based pay structures evaluate employees on their skills, certifications, and
experience. Employees with more skills and credentials may be paid more than
employees with the same job title but fewer skills.
Advantages: Job-based pay can promote internal equity, simplify
pay management, and maintain market competitiveness. Skill-
based pay can encourage skills development, increase employee
motivation, and reduce operating costs.

Disadvantages: Skill-based pay systems can be complex and time-

consuming to manage. They may also exacerbate income
inequality within an organization.
 LEGAL
CONSIDERATION
 City Compensatory Allowance (CCA)

Definition: A supplementary allowance given to employees to compensate for the higher cost of living in
urban areas, particularly in metro cities.

Purpose: Designed to offset the increased expenses associated with residing in cities where the cost of
basic amenities, transport, and housing is higher.

Applicability: Typically offered to government and public sector employees, but private companies may
also provide CCA.

Factors Influencing CCA: The grade of the employee, city of posting (classified as metro or non-metro),
and company policy.

Taxation: CCA is fully taxable under the Income Tax Act of India.
Equal Remuneration Act, 1976
Objective: To provide equal pay for equal work to men and women and to prevent
discrimination on the grounds of gender in matters of employment.

Key Provisions:
Prohibits discrimination between men and women in recruitment and working
conditions.
Ensures equal remuneration for both genders for the same work or work of a similar
nature.

Enforcement: Employers are responsible for maintaining compliance, and employees can
file complaints in the case of violation.

Penalties: Employers violating provisions may face fines or imprisonment, depending on

the severity of the offense.

Impact: Aims to close the gender wage gap and promote workplace equality.
Minimum Wages Act, 1948
Purpose: Ensures that workers receive a minimum wage for their labor to maintain a basic
standard of living.

Applicability: Applies to employees working in specified industries, covering both skilled and
unskilled workers.

Components:
Basic Wages: The standard pay determined by state governments or the central government.

Variable Dearness Allowance (VDA): Adjusted periodically based on inflation.

Authorities: Central and State governments set different minimum wage rates for various
sectors, industries, and geographical areas.

Compliance: Employers must pay at least the prescribed minimum wage. Failure to do so can
result in penalties and legal action.

Objective: Prevent exploitation of labor and improve the livelihood of low-wage workers.
 CHALLENGES IN
COMPENSATION MANAGEMENT
INTERNAL EQUITY
Internal equity refers to the fairness of compensation
within an organization, ensuring that employees in
similar roles or with comparable responsibilities are
paid similarly based on skills, experience, and
performance.
Internal equity challenges in compensation
management include:
•Subjectivity: Job evaluations can be subjective, leading to inconsistent
valuations.

•Employee Perception: Disparities in pay can lead to dissatisfaction, even

among similar roles.

•Market Pressures: External salary competition can create gaps in internal

equity.
EXTERNAL COMPETITIVENESS

External competitiveness in compensation

management refers to how an organization's pay
compares to the market.

Key challenges include:

•Market Fluctuations: Rapid changes in salaries due to economic conditions can
hinder competitiveness.

•Data Availability: Finding reliable compensation data can be difficult.

•Geographic Differences: Pay expectations vary by location, influenced by cost of

living.

•Employee Expectations: High

expectations based on competitor salaries can lead to dissatisfaction.
MANAGING EMPLOYEE
EXPECTATIONS
Managing employee expectations in compensation poses challenges
due to:

•Market Comparisons: Employees may feel underpaid compared to

industry peers.

•Cost of Living: Rising living expenses increase demands for salary

adjustments.

•Transparency: Expectations for clear communication about pay

structures can lead to dissatisfaction if unmet.
 •Work-Life Balance: Employees seek nonmonetary benefits
alongside salary, raising expectations.

•Performance Tied Rewards: High expectations for raises and

bonuses based on performance can pressure management.

Organizations can mitigate these issues through clear

communication and regular compensation reviews.
BEST PRACTICES IN
COMPENSATION
MANAGEMENT
1. MARKET RESEARCH AND
BENCHMARKING
 2. TRANSPARENT
COMMUNICATION
3. TRAINING FOR
MANAGERS
 FUTURE TRENDS
IN COMPENSATION
Total rewards:

Organizations will focus on total rewards, which

includes a broader range of benefits and perks beyond
base salary.

Personalization and customization:

Organizations will use data analytics and technology to

create tailored compensation packages for individual
employees.
Pay equity and transparency:

Employers will continue to focus on ensuring that all

employees are paid fairly and will be more open to
communicating pay-related information.

Non-financial incentives:

Non-financial incentives will become more prominent in

addition to traditional financial compensation.
Technology and automation:

Technology and automation will be integrated to

streamline processes and enhance efficiency.

Variable pay:

Variable pay, such as bonuses, commissions, and profit

sharing, will be used more often.
Upfront cash compensation:

Executives will be more interested in upfront cash

compensation rather than deferred or equity
compensation.

Long-term view:

Organizations will prefer to have a long-term view when

formulating remuneration packages for top management
CONCLUSION
In conclusion, an effective compensation process is critical for aligning
employee pay with organizational goals while maintaining fairness, equity,
and competitiveness. By conducting thorough job analysis, market
research, and strategic planning, organizations can design compensation
structures that attract, retain, and motivate top talent. Addressing
challenges such as internal equity, external competitiveness, budget
constraints, and managing employee expectations requires ongoing
evaluation, clear communication, and flexibility. Ultimately, a well-
implemented compensation strategy not only supports organizational
success but also fosters employee satisfaction and engagement.
QUESTIONS
AND
ANSWER
Thank you!
Presented by:
Ipshita,Eshani,Sanvi,Naisha,Aleena