Compensation

and Reward
Management

Dr. Mragakshi Tiwari

Employee Compensation
Direct Compensation
Indirect Compensation
Concepts of Different Wages
• Minimum Wages: Minimum amount of
remuneration paid to workers. Under Minimum
Wages Act 1948.
• Fair Wages: Workers performing work of equal
skills, difficulty or unpleasantness should receive
equal or fair wages Match the prevailing wage rates.
• Living Wages: Living wages should enable the
earner to provide for himself and his family, not only
the bare essentials of food, clothing and shelter, but
also a measure of frugal comfort including:
Education for the children , Protection against
ill-health ,Requirements of essential social needs , A
Measure of insurance against the more important
misfortunes including old age
Concept of Salary

• CTC- Cost to Company

• Gross Salary
• Net Salary
• Take Home Salary
Why wage and salary administration in
an organization?
• Main objective is to have a scientific, rational
and balanced wage & salary structure
• In salary administration, the employer should
not feel employees are getting more money
than they deserve and employees should not
feel they getting lower money than they
deserve
• Wage and salary administration includes
allowances, leave facilities, housing, travel,
etc. and non-cost rewards such as recognition,
privileges and symbols of status
Objectives
• To establish and maintain an equitable wage
and salary structure.
• To design the lowest cost pay structure that
will attract, motivate and retain competent
employees.
• To acquire qualified and competent people.
• To retain present employees.
• To secure Internal and External Equity.
• To ensure and reward desired behaviour.
• To control labour and administration cost.
Conti…….
• To comply with Legal regulations.
• To facilitate payroll administration.
• To simplify collective bargaining process.

These goals are achieved by Job

Evaluation..
Objectives of Job Evaluation
• To compare duties and demands of a job
with other jobs.
• To determine the hierarchy and place of
various jobs in an organization.
• To determine the grades of each job.
• To ensure fair and equitable wages.
Techniques of Job Evaluation:

1. Qualitative techniques/ method

2. Quantitative techniques/ method

 Techniques of Job Evaluation:

Qualitative methods Quantitative methods

Ranking: Classification Factor Points

Comparison Ranking
1. Simple Ranking
2. Ranking key jobs
3. Paired comparison
4. Single factor ranking
 Ranking Method
• Simple ranking Method:
It is the simplest comparison of one job with
others based on duties, responsibilities, and
demands made by jobs. In this method jobs
are arranged from highest to lowest in
order of their value.
• Ranking the key jobs:
The evaluator identifies the key jobs or
representative jobs and ranks them first other
jobs are then identified and ranked.
Conti…
• Paired Comparison Method:
One job is evaluated against all other jobs
in pair and paired ranking is obtained.

• Single Factor Rating Method:

One single important task or factor is
identified and compared with other jobs.
 Classification/ Grading Method:

• Determine the shape and size of organization.

• Prepare job description and grade description
• Establish job description and divide jobs in to
grades
• Discuss and negotiate with trade union and
finalize
• Select key jobs and grade them.
• Grade the entire jobs
• Classify the jobs
• Assign money value to grades.
Conti…
[B] Factor Comparison method- Steps:
• Determine critical factors (responsibility,
skills, mental & physical effort, working
conditions etc.).
• Determine key jobs. Eg: Mechanic &
Secretary.
• Allocate current wage for key jobs
depending on importance of factors. (See
table: 1)
• Place key jobs on factor comparison chart
(Table: 2) and evaluate other jobs.
 TABLE: 1 mechan secretar
ic y

Responsibility Rs. 8 Rs. 24

Skills Rs. 8 Rs. 20

Table 2:
Mental effort Rs. 5 Rs. 18

rate Resp. Skills mental Physical Working

Physical effort Rs. 27 Rs. 7 effort effort condition

25 Sect Mech
working Rs. 19 Rs. 6
condition
20 Sect Mech
Total 🡪 Rs. 67 Rs. 75

15 Sect

10

5 Mech Mech Mech Sect Sect

0
Quantitative technique/ method
A] Points Ranking method: Steps:
• Select sample jobs & prepare job
description.
• Select the factors (skill, responsibility,
experience etc.)
• Determine the weight of each factor &
assign percentage value to each (total 100).
• Divide each factor into levels.
• Determine relative value of each level.
• Convert point scores into money value..
 Rewards and Incentives
Incentive in simple terms is something that
encourages a person or organization to do or
achieve something. It is something that incites
or has a tendency to incite a determination.
This is usually given in cash or in kind. In
business, the objective of incentive is to
increase employee productivity, improve
industrial and interpersonal relations, and as
result increase the overall profit of the
organization.
Types of Rewards & Incentive

Rewards & Incentives can be generally

classified as financial (monetary)
incentives and non-financial
(non-monetary) incentives.
Monetary incentives
Bonus
It is a sum of money added to the basic salary or wages on a
seasonal basis, as a reward for a good performance. Many
companies offer bonuses during the festivals of Diwali,
Christmas, New Year, etc.
Productivity linked Wage Incentives
This refers to performance-linked compensation given to
increase productivity. Wage incentives are offered to
employees to make them perform beyond the accepted
standards.
For example, a manufacturing worker is paid 50 dollars per
item if he produces 50 items a day but if he produces more
than 50 items a day, he is paid 5 dollars extra per item. Thus,
on the 51st item, he will receive 55 dollars.
Profit-Sharing
It is an incentivized compensation program in which an
employee receives a direct share of the company’s profits. The
amount granted is normally based on the company’s positive
earnings over a set period. This motivates them to perform
efficiently and give their best to increase the company’s
profits.
Retirement benefits
Retirement benefits like gratuity, pension, provident fund,
leave encashment, etc. provide financial security to the
employees upon retiring from the company Hence, they work
properly during their term of service.
Commission
Some companies offer a commission on top of the employee’s
salary for successfully hitting targets over a set period. This
incentive motivates the employees to increase the client base
of the organization.
Co-partnership/Stock Option
Under this incentive system, employees are offered shares at
a price that is lower than the market price. This practice helps
in creating a feeling of ownership among employees and
motivates them to give their all-out contribution towards
organizational growth and success.
Non-Monetary incentives
These are types of rewards that do not form part of an
employee’s pay or cannot be measured in terms of money.

Status
• It is one’s social or professional position. In an organization,
this refers to the position in the hierarchy of the
organizational chart. Management-level employees have
more authority, responsibility, recognition, salary, etc., than
those of the rank-and-file employees.
• The level of authority and responsibility determine the
status of an employee in an organization. Status increases
the self-esteem, confidence, and psychological needs of an
individual resulting in a motivated attitude at work.
Non-Monetary incentives
Career Advancement Opportunity
Organizations have to establish the appropriate skill and
career development programs, and even a sound promotion
policy for their employees, that serves as a booster for them
to perform well and get promoted. Upward progress in one’s
career, such as promotion, shows recognition and
appreciation of an employee’s work, motivating him to do
better.
Job Enrichment
It refers to the designing of jobs in such a way that it involves
challenging and variety of tasks, requiring a higher level of
knowledge and skill, more autonomy and responsibility, and
more growth opportunities and thus, could also increase
employees’ pay. Sometimes, when the job itself is interesting,
it already serves as a good source of motivation.
Job Security
Job security offers future stability and a sense of security
among the employees in an organization. Not having to worry
about the future gives a sense of enthusiasm at work. While
there is an undesirable aspect of this incentive, like employees
taking their jobs for granted, the increasing rate of
unemployment in our country makes this a great work
incentive.
Employee Recognition Programs
The organization adopts this to raise employee morale, attract
and retain key employees, elevate productivity within an
organization, and increase competitiveness. This pertains to
employers’ initiatives to reward their employees for
achievements, new behaviors, anniversaries, and milestones
unlocked during their stay in the company.