Components of Compensation Management.pptx

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Components of CompensationManagement

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Fixed Compensation

Base Pay

Dearness Allowance

House Rent allowance

Fixed Period Employment Contracts

Fringe Benefits

International Compensation

Performance Pay

Retirement funds

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Variable Compensation

Short-Term Incentives

Long-Term Incentives

Share Schemes

Organization Wide Incentives

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Base Pay

Standard pay that an employee receives fordoing a job irrespective of performance.

Base pay is recurring ie employees continue

to receive base pay as long as they remain Itheir job.

Companies disburse base pay to employeesin one of the two forms: hourly pay or wage,

or as salary.Compensable factors: skill, effort,

responsibility and working conditions.

Factor for adjustment of base pay: cost of

living adjustment, seniority pay, merit pay,

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Cost of living adjustments (COLA): Itrepresents basic pay increase that arefounded on changes in prices as recorded byconsumer price index (CPI).

Seniority pay: Periodic addition to base payaccording to employees length of service inperforming their job.

Merit pay: Employees receive permanentincrease to their base pay according to theirperformance.

Incentive pay: Rewards employees for

partially or completely attaining apredetermined work objective.

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Dearness Allowance: An amount declaredby govt. from time to time for neutralizingincrease in cost of living.

House Rent allowance: An amount formeeting house rental.

Fixed Period Employment Contracts:Employment contracts that are for a fixedperiod of time with performance goals

attached.

International Compensation: Any

remuneration that is received overseas.

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Fringe Benefits

Benefits received in addition to base pay (eg

company cars, housing)

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Retirement funds

Provident funds, pension funds, deferredcompensation.

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The Employees' Provident Funds andMiscellaneous Provisions Act, 1952

The Employees' Provident Funds andMiscellaneous Provisions Act, 1952 is enactedto provide a kind of social security to theindustrial workers.

It Employees' Provident Funds andMiscellaneous Provisions Act mainly providesretirement or old age benefits, such asProvident Fund, Superannuation Pension,

Invalidation Pension, Family Pension andDeposit Linked Insurance.

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Eligibility

Every employee employed in or in connectionwith the work of a factory or otherestablishment covered by the schemes otherthan an excluded employee is entitled and

required to become a member of the fundfrom the date of joining the factory orestablishment.

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Excluded Employee

An employee who, having been a member ofthe fund, has withdrawn the full amount of hiscontribution in the fund (a) on retirement fromservice after attaining the age of 55 years or

(b) before migration from India for permanentsettlement abroad; or for taking employmentabroad

An employee whose pay at the time he isotherwise entitled to become a member of the

Fund, exceeds Rs. 6,500/- per month.

A person who, is an apprentice, or who isdeclared to be an apprentice by the authorityspecified in this behalf by the appropriate

Government.

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Applicability

Establishment which is factory engaged inany industry specified in Schedule 1 and inwhich 20 or more persons are employed.

Any other establishment employing 20 ormore persons which Central Governmentmay, by notification, specify in this behalf.

Any establishment employing even less than20 persons can be covered voluntarily undersection 1(4) of the Act.

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Rate of Contribution

Rate of Contribution

Scheme Employee's Employer's Central Govt.

Provident FundScheme

12% 3.67% NIL

Insurance Scheme NIL 0.5% NIL

Pension Scheme NIL8.33%(Diverted outof Provident Fund)

1.16%

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Benefits

Employees covered enjoy a benefit of

Social Security in the form of non-

withdrawable (except in severely

restricted circumstances like buying

house, marriage/education, etc.)

financial nest to which employees and

employers contribute equally

throughout the covered persons

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The employer also will pay administrative charges@ 0.01% on maximum limit of Rs.6500 whereas

an exempted establishment will pay inspectioncharges @ 0.005% on the total wages paid.

Note:

The above clarification is given by taking wagesupto a maximum of Rs.6500 towards wage(basic+DA).

Since an excluded employee i.e. drawing wagesmore than Rs.6500 can also become member ofthe Fund and the Schemes on joint request and if,for instance, such an employee is getting Rs.10,000 per month, his share towards provident fund

contribution will be Rs.1200 e.g. 12% and

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Long-Term Incentives

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References

Strategic Compensation: A HumanResource Management Approach

By Joseph J. Martocchio, Martocchio Joe