Compensation

Management
PRESENTERS:
Talib 22990008
Faizan 22990034
Gazanfar 22990052
Farhat 22990017
Ubaid 22990039
Mehran 22990020
 TABLE OF CONTENTS
01 Compensation 04 Components of
Management employee
compensation
02 Components and
05 Employee
objectives of
compensation
Incentive
management Scheme
03 Principles of 0 Factors affecting
compensation employee
management 6 compensation
 Compensatio
n
management
Compensation management is the discipline for
the establishment, formulation and
implementation of sound policies and practices
of employee compensation. Compensation is
the reward given to an employee in exchange
of their services or contribution to the
organization.
Compensation management is also known at
remuneration management or
salary administration.
 Pay Inequity

During the last few decades there have been few trends in the compensation management. In the last decade, chief executives' average compensation
has more than tripled. The average corporate chieftain now ears in a single day more than the typical U.S. worker earns in a year. According to one
report, "U.S. CEOs are far and away the highest paid CEOs in the world. Yet, from a long-term perspective, and compared to CEOs in other countries,
they cannot be considered the very best performers." In 1974, the CEO of a large American corporation earned an estimated 35 times what a factory
worker earned. By 1990, that figure had increased to 120 times; by 1998 that figure increased to 326 times; by 2004, the gap was 43l to1. Of course, this
increase far exceeded the average growth in corporate revenues, growth in value, or the cost of living. In fact, a study of 1,500 U.S. companies found
that, between 1992 and 2002, every 1 percent increase in total compensation for each of the top five executives predicted a .22 percent decrease in
shareholder return over the next year, and .12 percent decline over the coming three years* Pay increases for CEOs appeared to be coming under pore
scrutiny by late 2001, as the economy slowed and as corporate scandals involving executive behavior and accounting irregularities came to light. In the
first quarter of 2004, 40 percent of the proposals to be voted on at annual shareholder meetings related to executive pay—a 19 percent increase over the
prior two-year period. Even so, in 2004, CEO pay climbed 12 percent while the wages for average American workers increased by an estimated 2
percent.
Pay programs are increasingly being used to communicate major change and realignment in organizations, particularly during and after major downsizing
and reengineering efforts. As IBM began co rebuild itself in the late 1990s, one of the key tools for change was a complete redesign of the pay system. It
scrapped its traditional approach to evaluating work and its pay grade structure. It reduced the number of different jobs from 5,000 to fewer than 1,200. It
significantly increased the percentage of an individual's pay that was directly related to performance and created pay-at-risk programs at all levels in the
organization a big first for IBM!)." Although HR and compensation experts continued to design and develop the framework of the pay program, significant
day-to-day administration of the program was transferred to line managers, making compensation more of a management tool than an HR program.
Compensation experts have traditionally argued the importance of directly aligning business strategies and compensation programs. This past decade,
however, has seen a rethinking of the role that compensation programs play in supporting. communicating, and even leading the way to new
organizational values and performance norms. As a result, compensation programs are in a state of transition. Organizations are experimenting with
different types of structures; they are allocating money differently to programs; they are questioning the traditional (rather rigid) approach to compensation
program design; and they are looking for innovative ways to "get more" for their investment in compensation.
Today, firms are providing variable pay, hiring bonuses, lump-sum recognition bonuses, group incentive plans, broad-based success-sharing
programs, plus a broader and more flexible selection of employee benefits.
 Components Of Compensation
Management
• Pay for person - Based on skills and knowledge of the employee.
• Pay for position - Based on job duties and seniority.
• Pay for performance - Based on individual, group or organizational performance.

Pay For Pay For

Person Position

Pay For
Performance
 Objectives and benefits of compensation
management
• Acquiring qualified personnel - Compensation must be competitive in order to attract
candidates.

• Retaining current employees - Employees may leave when remuneration levels are not
competitive.

• Ensuring equity - Employee compensation must be fair in order to retain and motivate the
human resources.

• Controlling costs - Workers can be overpaid or underpaid without proper compensation

management.

• Compliance with legal regulations - Compliance with rules and regulations is important to be
legally acceptable.
 Principles of compensation
management
• Internal equity - Employees should be paid as per their skills, experience, job responsibilities, qualification and
performance.

• External equity - Companies should compensate their employees as per the industry standards..

• Job Worth - Job worth refers to the value of a particular job to the organization.

• Ability to pay - Companies should pay their employees as per their financial capabilities.

• Performance orientation - Performance linkage with compensation is extremely important for creating a
performance-driven work culture.

• Communication - Effective communication is essential for successful compensation management.

• Legal compliance - Relevant laws and regulations must be followed.

• Continuous Review - Compensation plans should be reviewed and updated on a regular basis to ensure that they
remain fair, equitable, and competitive.
Components
of employee
compensatio
n
 Components of employee
•
compensation
Base Salary - Fixed amount of money paid to an
employee for their work.
• Incentive Pay - Includes bonuses, commissions and
profit shearing plans.
• Travelling Allowance - Company provides travel
allowances to cover employee’s travel expenses.
• House Rent Allowances – Companies provide
accommodation or house rent allowances.
• Dearness Allowances – Helps employee’s to adapt
to the change in the price of goods and services.
Employee
Incentive
Schemes
 Employee Incentive Schemes
• Employee recognition programs – Acknowledge and appreciate
employee’s hard work and achievements.
• Professional development opportunities – Opportunities to attend
workshops or training programs to enhance skills and knowledge.
• Work-life balance initiatives– Providing generous vacation time,
family friendly benefits or flexible parental leave.
• Flexible work arrangement – Providing flexible schedules, remote
work options and compressed work weeks.
• Career advancement opportunities – Providing promotions,
transfers and job rotations.
• Work anniversary rewards – Providing gifts and rewards for
employee’s loyalty and commitment.
• Employee wellbeing benefits – Access to wellness initiatives such
as gym membership, yoga classes and mental health support.
Factors affecting
employee compensation​
●
● Internal Factors External Factors

● Employers ability to pay ● Legal framework

● Organisational strategies ● Labor supply and labor demand
● Productivity of workers ● Govt. control
● Nature and worth of job ● Cost of living
 INTERNAL FACTORS
Employer’s Ability To Pay​
• How much an employer can actually pay.​
• ​Employer can only spend what they can afford.​
• ​If a company has high profitability, it can pay better compensation.​
• ​Retain your employees.​
• ​If an employer cannot pay the employee what they can get elsewhere, the employee will work
elsewhere.​

Organizational strategies​
​
• Compensation strategy is how a company approaches employee compensation in terms of pay
and benefits.​
• ​How competitors compensate their employees.​
• ​A strong compensation strategy is required to recruit, attract, and retain top talent.​
​
 Productivity of workers​
​
• Productivity-based compensation helps derive the best results.​
• ​Higher the productivity of employees, the more should be the compensation.​
• ​A more productive individual in a more productive role will have an overall higher pay rate.​
​

Nature and worth of job​

• Organizations base their pay level on the worth of a job.​
• The wages and salaries tend to be higher for jobs involving exercise of brain power,
responsibility-laden jobs, creativity-oriented jobs, and technical jobs.​
• The nature of the job and the skills required for it also play a crucial role in determining
compensation. ​
• Jobs that involve high risk or unfavorable working conditions often command higher pay​
 EXTERNAL FACTORS
Legal framework​
​
• Basic HR laws that govern wages, pensions, and benefits​
• ​Laws ensure that employees are compensated fairly for their work​
• ​Tax laws also affect compensation, including employee profit sharing and stock purchase plans​

Labor Supply And Labor Demand​

​
• A labor shortage. Due to the COVID-19 pandemic.​
• ​The shift toward work-from-home, many workers left jobs.​
• ​Other jobs that paid better and offered better benefits.​
​
As a result, industries have had to increase their compensation.​
​
 Government Controls​
​
• Government also has certain policies to protect employee interests. ​
• ​Several different pieces of legislation can affect how much a company must pay its
employees.​
• ​Government through various legislative enactments such as Minimum Wages Act, 1948,
Payment of Wage Act, 1936, have a bearing on compensation decisions.​

These laws ensure that employees are compensated fairly for their work.​

Cost of Living (COL)​

​
• Every location has a different cost of living.​
• ​Some areas have higher average wages simply because their living costs are so high.​
• When the cost of living rises by a certain percentage, so do employee wages.​
​
For example, if the cost of living increases by 2% this year, the employer will increase employee
wages by 2%.​
 Summing Up
• Compensation is the reward given to an employee in exchange of their services or
contribution to the organization.
• Compensation management is the discipline for the establishment, formulation and
implementation of sound policies and practices of employee compensation
• Compensation can be monetary called cash compensation.
• Compensation can also be non-monetary called fringe compensation that comprises of
various incentive schemes, benefits, rewards, allowances, employee programs etc.
• There are internal and external factors that affect employee compensation.
 References
• Human Resource Management An
Experiential Approach – H John
Bernardin – Fourth Edition.
• Human Resource Management –
Gary Dessler, Biju Varkkey –
Fifteenth Edition.
• Pictures and icons from Google.
Thank
You