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Compensation Management

Compensation management aims to balance employer expectations and employee aspirations. It includes direct payments like wages and salaries as well as indirect incentives and benefits to motivate higher productivity. The process involves job analysis, evaluation of internal and external factors, design and implementation of compensation policies, and regular review. Job evaluation determines the relative worth of jobs in an organization to set differential wages based on responsibilities, skills, efforts, and working conditions. Wage determination considers theories like subsistence, living standard, and marginal productivity as well as factors like ability to pay, industry wages, cost of living, productivity, unions, and government legislation.

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92 views9 pages

Compensation Management

Compensation management aims to balance employer expectations and employee aspirations. It includes direct payments like wages and salaries as well as indirect incentives and benefits to motivate higher productivity. The process involves job analysis, evaluation of internal and external factors, design and implementation of compensation policies, and regular review. Job evaluation determines the relative worth of jobs in an organization to set differential wages based on responsibilities, skills, efforts, and working conditions. Wage determination considers theories like subsistence, living standard, and marginal productivity as well as factors like ability to pay, industry wages, cost of living, productivity, unions, and government legislation.

Uploaded by

narensinha
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Compensation Management

Compensation management tries to balance the


employer’s expectation and employees’ aspiration
Compensation includes direct cash payment (wage/
salary) and indirect incentives and benefits that motivate
the employee to give higher level of productivity

Compensation includes :-
Wages and salary: for the work done
Incentives : performance bonus, financial rewards
Fringe benefits : with long term perspectives – pension,
provident fund, gratuity, insurance, medical expenses
Perquisites : housing, conveyance, club card, LFS/LTC,
stock option etc.
Compensation Mgt. & HRM role
 Agency Theory of compensation Magt. Principal –
Agent relationship of employer – employees

1. Attracting and Retaining employees – motivational


role – achieving new and desired behaviour
2. Optimisation of cost benefit – performance – compen.
3. Consistency – internal (job criticality) and external
(industry norm)
4. Ensuring Equity – internal, external, individual
5. Compliance with wage laws
6. Ease of operation
Comp Mgt. – Process stages
1. Organisation’s strategy – integrated
2. Compensation Policy – internal and external factors,
organisational strategy and philosophy
3. Job Analysis and job evaluation – level of work
complexity, level of competence required, worth /
value of the job
4. Analysis of contingent factors – demand & supply,
economic condition, welfare measures etc.
5. Design and Implementation – through a study team,
external consultant, bilateral negotiation
6. Evaluation and Review – from time to time; dynamic
not rigid – trend in the industry
Job Evaluation
 Different from Job Analysis/Job specification

 “Job evaluation is a process of determining the relative


worth of the various jobs within the organisation, so
that differential wages may be paid to jobs of different
worth. The relative worth of a job means relative
value produced. The variables which are assumed to
be related to value produced are such factors as
responsibilities, skills, efforts and working conditions”
– I.L.O.
Job Evaluation – Role/Objectives
 Collection of data relating to jobs / job groups etc.

 Inter-job comparison – ranks, grades etc.

 Determining hierarchy – helping career planning

 Compensation management

 Social Equity – avoids discrimination on grounds of


sex, age, caste, religion etc.
Evaluation – Methods/techniques
 Ranking Method – Ranked according to responsibility,
duty, importance – a crude method possible only in
small organisations

 Classification and Grading Method – Improvement


over the first method

 Quantitative Technique – Jobs into components, each


assigned numerical value, numerical value assigned
monetary value – elaborate and scientific
Wage Determination - Basis
 Wage Theories –
 The just Wage Theory – Wages just adequate to
maintain himself
 Subsistence Theory – Wages adequate to subsist – Prof.
David Ricardo
 Standard of Living Theory – Determined according to
traditional living standard that is determined by the
mode of production in the country – Karl Marx
 Wage Fund Theory – Determined by the wage fund
allocated and number of workers – J.S. Mill
 Residual clamant Theory – Prof. walker – wage = (Rent
+ Interest + Profit)
 Marginal Productivity Theory – J.B. Clarke – wage
determined by marginal contribution of a worker to the
production
Wage Theories
 Bargaining Theory – Wages determined according to
respective powers of employers & Trade Unions

 Behavioural Science Theory – Wages determined


based on several factors – size, nature, reputation,
prestige of the organisation, trade union strength,
social norms , tradition, customs job position in
hierarchy, employee’s behaviour etc.
Factors affecting wage level
 Organisation’s ability to pay – level of profitability
 Wages in the industry/comparable organisations –
retention of the employees, industries association
 Cost of Living – Concept of Dearness Allowance
 Employee productivity – related to company’s growth
and profitability
 Labour Unions, influence
 Government Legislations – Payment of Wages Act,
1936; Minimum Wages Act, 1948; Payment of Bonus
Act, 1965 & 1985; Company’s Act, Pay Commissions &
Wages Boards

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