Compensation Management - 2
Concept, Objectives, Importance
Process
Current Trends in Compensation 4
Factors in compensation plan 5
Wage/ Salary differentials 6
Components of salary 7
Financial & Nonfinancial Incentive 8
Fringe Benefits 9
Employees Separation - Retirement, 10
Termination, VRS, Golden Handshake,
Suspension- Concepts & Methods
Grievance Procedure in Indian 12
Industry
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Compensation Management - Concept, Objectives,
Importance
Compensation management is the process of designing and implementing a
fair and competitive pay system for staffs. It involves determining the value of
different jobs, setting salary ranges, offering benefits and incentives, and
complying with legal and ethical standards. To attract and retain qualified and
talented staffs.
To motivate employees to perform well and achieve organizational
goals.
To maintain employee satisfaction and morale
To align compensation with the company’s strategy and culture
To ensure internal and external equity and fairness
To control labour costs and optimize return on investment.
To comply with legal and regulatory requirements
Compensation Management- Process
Developing pay scale and structure of an organization
Determining competitive wage rates and change as necessary
Making sure that the company’s pay scale complies with laws and
regulations
Managing and overseeing the distribution of pay to staffs
Coordinating with managers to help develop promotion and retention
strategies
Evaluating and reviewing the effectiveness and relevance of the
compensation system
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Some examples of compensation management practices are:
Conducting job analysis and evaluation to determine the worth of
different jobs
Conducting market surveys and benchmarking to compare the
company’s pay with competitors and industry standards.
Developing a pay structure and policy that defines the salary ranges,
grades, and progression for different jobs
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Current Trends in Compensation
Compensation is the money and benefits that staffs get for working in a
company. It includes salary, bonuses, incentives, health insurance, retirement
plan, etc. Compensation is important because it affects how staffs feel and
perform at work.
Pay transparency: This means that companies share information about how
they decide how much to pay their staffs. This help staffs to understand and
trust their pay, and also reduce pay gaps based on gender, race, or other
factors.
Eg - some companies publish their salary ranges and pay policies on
their websites or internal platforms
Flexible work arrangements: This means that staffs can choose when and
where they work, such as working from home, part-time, or working
flexible hours. This can help staffs balance their work and personal life, and
also save time and money.
Student loan repayment assistance: This means that companies help their
staffs to pay off their student loans by giving them money.
Performance-Based Bonuses - Rewarding staffs based on achievements.
Eg - Giving a bonus for exceeding sales targets.
Skill-Based Pay - Paying staffs based on their skill set.
Eg - Providing higher pay for staffs with specialized technical skills.
Staffs Stock Option - Offering shares in the company as part of
compensation.
Eg - Granting staffs the option to buy company stock at a discounted
rate.
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Factors in compensation plan
Job Role - The type of work employee does.
Example: Sales roles may have different pay scales than manager roles.
Experience - How long an employee has been working.
Example: A more experienced employee may receive higher pay.
Education - The level of education a staff has.
Example: Employees with advanced degrees may earn higher salaries.
Market Rates - Pay levels in the industry and region.
Example: Salaries based on local industry standards.
Performance - How well an employee does their job.
Example: Bonuses for exceeding performance targets.
Company Budget - The amount of money the company can give
Example: Budget tight may limit salary increases.
Benefits and Perks - Additional offerings like healthcare plans.
Example: Providing health insurance
Seniority - How long an employee has been with the company.
Example: Long-term employees may receive incremental pay raises.
Cost of Living -The general expenses in the area where the employee lives.
Example: Adjusting salaries for employees in high-cost cities.
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Wage/ Salary differentials
Wages Salary
Wage is the money paid to an Salary is the money paid to an
employee based on the number of employee at a fixed rate per month
hours or days they work. or year.
Wage is variable and depends on Salary is fixed and does not change
how much time the employee works. with the time the employee works.
Wage is usually paid to blue-collar Salary is usually paid to white-collar
workers, such as labours, factory workers, such as managers,
workers, etc. professionals, etc.
Wage is paid on an hourly, daily, or Salary is paid on a monthly base.
weekly base
Wage is more flexible and can be Salary is more stable and predictable
adjusted according to the demand and can be negotiated in advance.
and supply of labour.
Wage is more affected by overtime, Salary is less affected by overtime,
holidays, and absences. holidays, and absences.
Wage is more common in developing Salary is more common in developed
countries countries
Wage is more transparent Salary is more confidential
Wage is more associated with lower Salary is more associated with higher
income income
Wage is more simple and Salary is more complex and involves
straightforward to calculate and pay. deductions and tax, insurance, etc.
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Components of salary
Base Salary - The fixed amount an employee is paid regularly.
Example: $50,000 per year as the base salary.
Bonuses - Extra money given for good performance.
Example: An annual bonus for meeting sales targets.
Overtime Pay - Additional pay for working more than regular hours.
Example: Getting paid extra for working on weekends.
Commission - Earnings based on sales or business generated.
Example: A percentage of sales revenue as commission.
Benefits – Perks provided to the staff.
Example: Health insurance, retirement plans, or company car.
Allowances - Specific amounts given for particular expenses.
Example: Travel allowance or housing allowance.
Incentives - Rewards for achieving specific goals
Example: Gift vouchers for reaching sales targets.
Stock Options - The right to buy company stock at a predetermined price.
Example: Being offered the option to purchase company shares.
Profit Sharing - Sharing company profits with employees.
Example: A percentage of the company's annual profits distributed among
staffs.
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Financial & Nonfinancial Incentive
Financial and nonfinancial incentives are different ways of motivating staffs to
work better and achieve goals.
Financial Incentives - Money-related rewards given to motivate employees.
Salary Bonus - Extra money for achieving goals.
Example: Getting a bonus for exceeding sales targets.
Commission - Earning a percentage of sales revenue.
Example: Receiving a commission for each product sold.
Profit Sharing - Sharing company profits with staffs.
Example: Staffs getting a share of the company's annual profits.
Nonfinancial Incentives - Rewards not directly related to money.
Recognition and Awards - Acknowledging and rewarding outstanding
performance.
Example: Employee of the Month recognition.
Flexible Work Hours - Allowing employees to choose their work hours.
Example: Having the flexibility to start work later.
Professional Development - Opportunities for learning and career
growth.
Example: Attending workshops or training programs.
Employee Wellness Programs - promoting health and well-being.
Example: Providing gym memberships or wellness workshops.
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Fringe Benefits
Extra perks and advantages provided by employers, beyond salary.
Health Insurance - Coverage for medical expenses.
Example: Company paying for your doctor visits and medical exp
Retirement Plans - Savings plans for the future.
Example: Employer contributing to your retirement fund.
Vacation Time - Paid time off from work.
Example: Getting paid even when you're on a holiday.
Flexible Work Hours - Ability to choose when you work.
Example: Having the option to start work a bit later.
Company Car -Providing a vehicle for work and personal use.
Example: Being given a car to use for business purposes.
Education Assistance - Support for continuing education.
Example: Employer helping to pay for your college courses.
Meal Allowance - Providing money for meals during work hours
Example: Receiving a daily allowance for lunch.
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Retirement
This is when an employee decides to stop working after reaching a certain age
or completing a certain number of years of service. Retirement can be
voluntary or mandatory, depending on the company’s policy and the
employee’s preference. Retirement can affect the employee’s income,
pension, health insurance, and other benefits.
Eg - an employee may retire at the age of 60 or after working for 30 years in a
company.
Termination
This is when company decides to end the job of an employee for various
reasons. For example, company may terminate an employee for poor
performance, misconduct, downsizing. Termination can be done by giving a
notice period to the employee, usually a month or two, or by paying a
severance pay in lieu of notice. Termination can affect the employee’s income,
morale, and legal rights.
VRS
VRS stands for Voluntary Retirement Scheme, which is when an employee
chooses to retire before the retirement age or date. The company offers some
benefits to the employee who opts for VRS, such as money, pension, health
insurance, etc. The employee cannot work for another company under the
same management after taking VRS. VRS helps the company to reduce the
number of employees and save costs.
Eg- an employee who is 50 years old and has worked for 25 years in a company
may take VRS and get 45 days salary for each completed year of service, plus
other benefits.
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Golden Handshake
It describe a large amount of money or other benefits that company gives to
an employee who is leaving the job, usually due to retirement, termination or
restructuring. The employee may or may not have a choice to leave the job.
Golden Handshake is a way of showing appreciation and gratitude to the
employee for their service and performance.
Eg- an employee who is 60 years old and has worked for 30 years in a company
may get a Golden Handshake of one year salary, plus stock options, bonus, and
other benefits.
Suspension
This is when company temporarily stops the employment of an employee for a
certain period of time, usually as a disciplinary action or a measure. Suspension
can be done with or without pay, depending on the issue. Suspension can
affect the employee’s reputation, career, and motivation.
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Grievance Procedure in Indian Industry
A process to address and resolve employee complaints or grievances at the
workplace.
Steps in Grievance Procedure:
Informal Discussion - Employees talk informally about the issue with their
manager.
Example: An employee discusses a problem with a co-worker or
immediate supervisor.
Formal Complaint - If the issue still goes on, the employee formally raises a
grievance with HR or management.
Example: Filing a written complaint about workplace harassment
Investigation - HR or management investigates the grievance to understand
the facts.
Example: Conducting interviews and gathering evidence related to the
complaint.
Resolution and Follow-Up - Implementing the solution and monitoring to
ensure the issue is resolved.
Example: Changing work schedules or roles based on the resolution of a
conflict.
Key Concepts:
Confidentiality - Keeping grievance details private
Example: HR ensures that only necessary personnel are aware of the
grievance details.
Fairness - Treating all parties equal.
Example: Providing equal chance for each party to present their side.
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