Compensation is the total reward received by an employee in exchange for services rendered for an organization. It can include both direct pay (salary and wages) and indirect pay (benefits)
Acquire qualified personnel Retain present employees Ensure equity Reward desired behavior Control costs Comply with legal regulations Facilitate understanding Further administration efficiency Optimizing cost of compensation
TAXES
SALARY
INCENTIVES
BENEFITS
ALLOWANCES
LONG TERM BENEFITS
Compensation System Consists of the following: Salary - Basic Salary or Consolidated Salary Grade wise flat Allowance Reimbursement of expenses Annual payments Benefits Employee stock option schemes Retirement benefits Performance Bonus
Organization·s ability to pay Demand and supply of labor The prevailing market rate The cost of living Psychological and Social Factors The level of skills available in the market Trade union pressures
State regulations Survey reports (Mercer, Hewitt, Zinnov Consulting, Watson,etc) Attrition rate data Recruiting offer acceptance/rejection data Competitors pay structure data Past work experience of the candidate Inflation Type of business
Capital-intensive or labor-intensive Company size Management philosophy Complete compensation package Geographic location Company profitability Employment stability Gender Difference Length of employment
The norms include those which were recommended by the Indian Labor Conference in its session held in 1957 3 consumption units for one earner Minimum food requirements of 2700 calories per average Indian adult Clothing requirements of 72 yards per annum per family (containing 4 people) calculated at per capita consumption Rent corresponding to the minimum area provided for under Government's Industrial Housing Scheme Fuel, lighting and other miscellaneous items of expenditure to constitute 20% of the total Minimum Wages
Basic Time Rate Piece Rate
Fixed Variable
Monetary
Basic Salary House Rent Allowance Dearness Allowance Conveyance Leave Travel Allowance Medical Reimbursement Special Allowance Bonus PF/Gratuity ESOP·s Overtime Policy
Non Monetary
Leave Policy Car policy Chauffeur·s salary Hospitalization Insurance Retirement Benefits Holiday Homes
Attract & Keep Motivate Satisfy No frequent Demand & Struggle
Salary and Wage level may be higher than or equal to what is prevailing in the surroundings or in the industry Monetary remuneration should be adequate to meet the needs Monetary remuneration system should not be exorbitantly higher or lower; compared with existing standards
It is better to pay the salary a few days in advance before it fails due A sound merit-rating and systematic job evaluation may be used as the basis for pay fixation There should be some scope for pay hikes to offset the inflationary tendencies Monthly salary may be supported by financial incentive schemes so that there would be scope for every executive to increase his income by increasing his performance
Basic Salary/Fixed pay Variable pay HRA DA PF Gratuity LTA Medical claim Non cash benefits ESOP·s
70 % Fixed, 20% variable and 10% deferred cash / stock options = 7 L + 2 L + 1 L For the fixed salary, possible structure is:
Basic = 40% of Fixed Pay Retirals = 12% PF, 4.81% Gratuity (both as a % of basic) HRA = 40% or 50% of basic (basis metro / non metro) Medical = 15000 p.a. LTA = one months basic Conveyance = 9600 p.a.
Balance would be general allowance from which employee can choose sodexo, professional development, etc capped to the maximum available amount within the general allowance bucket
It transparently tells the employees what to expect in terms of Employee Deductions and entitlements A salary structure imposes faith in the Management Policies The salary structure defines the growth path of the employee based on his performance Department wise budgeting is possible as we know the Net, Gross CTC of each employee The accounts department knows what every employee is entitled to in terms of allowances and they can deduct excess amounts if any found over the entitlements
Job satisfaction Motivation Low Absenteeism Low Turnover Peace of mind Increases Self Confidence