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COMPENSATION MANAGEMENT

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CONTENTS OF THE CHAPTER

Introduction

Scope of HRM

Remuneration

Concepts of Remuneration

Objectives of Salary and Wage Administration

Factors Influencing Employee Remuneration

Devising a Remuneration Plan

Role of Reward System

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Introduction

Human resources management is also amanagement function concerned withhiring, motivating and maintaining people

in an organization. It focuses on people inthe organizations.

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Scope of HRM

Nature of HRM

Employee Hiring

Employee and ExecutiveRemuneration

Employee Motivation

Employee Maintenance Industrial Relations

Prospects of HRM

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Remuneration

Remuneration is the compensation an employeereceives in return for his or her contribution tothe organization.

Remuneration occupies an important role in thelife of the employee as the standard of livingdepends on remuneration.

In HRM too Employee remuneration is a majorfunction as it is concerned with the difficult taskof fixing wages and wage differentialsacceptable to the employees and their leaders.

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Concepts of Remuneration

Wage The remuneration paid to by the employer for the

services of hourly, daily, weekly and fortnightlyemployees.

Salary The remuneration paid to clerical and managerial

personnel employed on monthly or daily basis.

Earnings Earnings are the total amount of remuneration

received by an employee during a given period, These include salary (pay), DA, HRA, CCA, other

allowance, over timepayments etc.

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Continued.

Nominal Wage It is the wage paid or received in monetary terms

(Money wage).

Real Wage

Real wage is the amount of wage arrived afterdiscounting nominal wage by the living cost.

Take Home Salary It is the amount of salary left to the employee after

making authorized deductions Minimum Wages

It is the amount which could meet the normal needsof the average employee regarded as a human beingliving in a civilized society

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Continued

Statutory Minimum Wage It is the amount of remuneration fixed

according to the provisions of the Minimum

Wages Act, 1948. Wage Rate

It is the amount of remuneration for a unit oftime excluding incentives, overtime pay etc.

Standard Wage Rate It is the amount of wage fixed for a unit of

time fixed on the basis of job evaluation

standards

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Incentives Also called payments by results It is paid in addition to wages and salaries Depends upon productivity or turnover or target

Fringe Benefits Includes provident fund, gratuity, medical care,

hospitalizations, accident relief, health and groupinsurance, canteen, uniform, recreation etc

Perquisites Includes company car, club membership, paid

holidays, furnished house etc.

Non-monetary Benefits

Continued.

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Objectives of Wage and SalaryAdministration

To acquire qualified competent personnel

To retain the present employees

To secure internal and external equity

To ensure desired behavior To keep labor and administrative cost

To pay according to the content

To facilitate pay roll To simply collective bargaining

To promote organization

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Factors Influencing

EmployeeRemuneration

Internal Factors External Factors

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Internal Factors

Business Strategy

Job evaluation and Performance Appraisal

The Employee

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External Factors

Labor Market

Cost of Living

Labor Unions Labor Laws

Society

The Economy

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Devising a Remuneration Plan

Remuneration plan must beunderstandable, workable and acceptable.

The Remuneration scheme must have twocomponentsa base rate and the scopeof increasing the base rate.

Determining a remuneration plan isthrough employing sequential steps.

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Remuneration Model

JOB DESCRIPTION

JOB EVALUATION

JOB HIERARCHY

PAY SURVEY

PRICING JOBS

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THE THREE PHASES IN REWARD STRATEGY PROJECT

PHASE -I

DIAGNOSIS

PHASE II

DESIGN

PHASE III

IMPLEMENTATION

Clarified business strategy

and organization structure

Analysis of performance,goal, capabilities &competencies

Review of HR strategy &approach

Gap analysis of performancerequirements & current pay &

reward systems

Review of change options

Recommended futuredecision

Train project group

Detailed design tobe worked out

Conduct further

research internally

Test onspecific/sample ofjobs

Analyzeimplications . E.g.costFinalrecommendationsPreparation &

further testing

Communication to staff

Phased introduction e.g.bonus performancemanagement, payadjustment

Formal review after ayear, against successcriteria.

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Role of Reward System

Retaining competent individuals for long time is moredifficult than attracting fresh ones

Attractive remuneration enables an organization to

attract, retain and motivate competent employees

Consequences of Pay Dissatisfaction highly affect theorganizational performance.

Primary goal of a wage policy in any country should bethe promotion of economic development.