compensation ppt

Compensation

Group- 9SSSSSS

Compensation

Compensation is what employees receive in exchange for their contribution to the organization. This includes a basic salary, any and all bonuses, shares, options, and any other company benefit.

Objectives

• Internal Equity -Internal equity deals with the perceived worth of a job relative to other jobs in the organization.

• External Equity - External equity deals with the issue of market rates for jobs.

• Individual Equity - Individual equity deals with how individuals perceive how they are being paid relative to other individuals within the organization and perhaps within the same position.

• Performance Incentives -A significant element of a base pay program is to encourage higher or increased levels of employee performance.

Contd…..

• Maximum Use of Financial Resources - Since an organization does not have unlimited financial resources, the management needs to be design the base pay program to maximize the value to the organization with minimum use of these limited resources.

• Compliance with Laws and Regulations -While not the primary objective of a pay program, one of the objectives of the management is to see that a pay program is kept in compliance with various state and central laws and regulations.

• Administrative Efficiency - Due to the limited financial resources in an organization, one of the objectives of the management is to be to have a pay program that is easy to administer, flexible, and cost-effective.

Compensation Management

• Compensation systems are designed keeping in minds the strategic goals and business objectives.

• Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities

Contd……

• Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc.

• Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services.

Types of Compensation Management

• Direct Compensation

• Indirect Compensation

Direct Compensation

Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization.

The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc.

Components in Direct Compensation

• The basic salary in INDIA corresponds with what has been recommended by the Fair Wage Committee(1948) and the15th Indian Labour Conference(1957). The various awards by Wage tribunals, Wage boards, Pay commission reports and job evaluations also serve as guiding principles in determining ‘BASIC SALARY’.

• While deciding the basic salary, the following criteria may be considered:• Skill needs of the job• Experience needed• Difficulty of work: mental as well as physical• Training needed• Responsibilities involved• Hazardous nature of job

Basic Salary

HRA (House Rent Allowance):• Organizations either provide accommodations to its

employees who are from different state or country or they provide house rent allowances to its employees


Conveyance :• Organizations provide for cab facilities to their

employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.


3) Leave Travel Allowance:• These allowances are provided to retain the best

talent in the organization. • The employees are given allowances to visit any place

they wish with their families.• The allowances are scaled as per the position of

employee in the organization.


4) Medical Reimbursement :• Organizations also look after the health conditions of

their employees. • The employees are provided with medi-claims for them

and their family members.• These medi-claims include health-insurances and

treatment bills reimbursements


5) Bonus:• Bonus is paid to the employees during festive seasons

to motivate them and provide them the social security .• The bonus amount usually amounts to one month’s

salary of the employee. • This is apart from the salary.


6) Special Allowance :• Special allowance such as overtime, mobile

allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees for motivation and company’s Productivity.

Indirect Compensation

• Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization.

• They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

Components in Indirect Compensation


1) Leave Policy:• It is the right of employee to get adequate number of leave while

working with the organization.• The Leave Policy differs in every organization.• The organizations provide for paid leaves such as, casual leaves,

medical leaves (sick leave), and maternity leaves, statutory pay, etc.


2) Overtime Policy :• Employees should be provided with the adequate

allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc.


3) Hospitalization :• The employees should be provided allowances to get

their regular check-ups, say at an interval of one year.• Even their dependents should be eligible for the medi-

claims that provide them emotional and social security.


4) Insurance :• Organizations also provide for accidental insurance

and life insurance for employees. • This gives them the emotional security and they feel

themselves valued in the organization.


5) Leave Travel :• The employees are provided with leaves and travel

allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization.

• This is usually done to make the employees stress free.


6) Retirement Benefits :• Organizations provide for pension plans and other

benefits for their employees which benefits them after they retire from the organization at the prescribed age.


7) Holiday Homes :• Organizations provide for holiday homes and guest house for

their employees at different locations.• These holiday homes are usually located in hill station and other

most wanted holiday spots. • The organizations make sure that the employees do not face any

kind of difficulties during their stay in the guest house.


8) Flexible Timings :• Organizations provide for flexible timings to the

employees who cannot come to work during normal shifts due to their personal problems and valid reasons.

Payroll Management

• Payroll refers to the administration of employees' salaries, wages, bonuses, net pay, and deductions.

• It consist of the employee ID, employee name, date of joining, daily attendance record, basic salary, allowances, overtime pay, bonus, commissions, incentives, pay for holidays, vacations and sickness, value of meals and lodging etc.

• There are some deductions such as PF, taxes, loan installments or advances taken by employee.

Cntd…

• Deductions such as tax and loan/advances taken by the employee from organizations are deducted only where applicable.

• Dearness Allowance and House rent allowance is provided at a fixed rate stated by the employment law.

• Provident fund is deducted from the gross salary of employee on the monthly basis as per the employment law, which is provided later to the employee.

• Organizations also contribute the same amount to the provident fund of the employee.

Components of Monthly Payroll of an Employee

Annual Payroll Management

What is Annual Payroll?• Annual payroll consists of leave travel allowances,

incentives, annual bonuses, meal vouchers/reimbursements, and medical reimbursements.

Components of Annual Payroll

Incentive Management

• In today’s strategic compensation systems, incentives forms an integral part of the performance based compensation packages.

• It is a challenge for organizations to formulate strategies to maintain the internal equity and external equity and provide the most competitive compensation packages to attract and retain the talented workforce

Short-term incentives, or bonuses

• Those additions to base pay provided to employees within the current year.

The “bonus” is used as a salary alternative that gives the executive an incentive to remain employed through the end of the year, and protects the employer against a particularly bad year or particularly poor individual performance by enabling the employer to reduce basic compensation on a retroactive basis by reducing or eliminating the annual bonus. For example, an executive making $150,000 may be scheduled to receive a bonus equal to 20% of the executive’s base salary at the end of the year if he is still employed on the last day of the fiscal year. If that executive quits six months into the fiscal year, the employer saves $15,000 ([$150,000 x .2] x 6 months/12 months)by structuring part of the executive’s basic compensation as a bonus rather than as part of his base salary.

Long Term Incentive Pay

• A program established to give benefits to employees to reward them for improved commitment and performance and as a means of motivation. An incentive plan is designed to supplement base pay and fringe benefits. A financial incentive plan may offer stock options or a cash bonus.

Elements of long term incentive plan

• Cash based (LTIP)

Long Term Cash Incentive Pay is a performance driven award that pays compensation based on a three to five year performance period and calculated as a multiple of base salary. Performance can be measured against an industry peer group of companies and the projected long term growth of the company, just to name a few. Awards are based on a multiple of base salary.

Equity Based

EMPLOYEE STOCK OPTIONS • The award of stock options represents the most commonly used form of

long term performance incentives. The grant awards are designed to incentives the executive to perform because he or she has a long term stake in the future of the company, through eventual stock ownership. A majority of public companies issue fixed priced stock options (fair market value determined on the date of the grant).

Benefits of Incentives

Perquisites, or Perks

Executive Perquisites are those benefits provided to executives above and beyond benefits provided to all other employees. Generally, executive perquisites include office space, parking, cell phones, annual physical, company car, club memberships, first class air travel, corporate aircraft, employment contracts, legal and financial services, severance agreements, change in control agreements, special deferred compensation, SERP and supplement disability and life insurance.

a) Employment Contracts

• Employment Contracts provide security, through the use of the term contract and provisions covering performance, termination and compensation. An effective agreement represents the mutuality of interests between the parties and the method for achieving those interests. In a seller's market, executives expect to receive this safety net in the event the employment relationship sours. Without an agreement, the executive becomes an at-will employee. Offer letters are generally not binding contractual agreements.

b) Supplemental Executive Retirement Plans (SERPS)

SERPS are unfunded non-qualified plans that provide additional retirement compensation and benefits to the top tier of executives and directors. Many plans provide for benefits that range from 60% to 80% of the executive's final average salary. The plans are structured like defined benefit plans, and they provide a lifetime differential payment between the targeted overall retirement benefit and the benefits the executive receives from tax qualified plans and social security.

c) Change in Control & Severance Agreements

• Change-in-Control Agreements, also known as "Golden Parachutes," provide the executive with protection against the risk of losing their employment if the company is acquired. These agreements incentives the executive and create further dedication to the company during turbulent times, thus protecting management interests.

d) Executive Life Insurance Plans

• Companies offer executives additional life insurance coverage as a perquisite, beyond the company group plan. The most common reason companies provide additional life insurance coverage is to remain competitive in attracting top talent. The executive benefits by receiving retirement income (ownership of the cash value life insurance policy), wealth building, and estate tax minimization.

e) Relocation Packages

• Companies offer relocation programs that provide benefits to alleviate the financial and emotional stress of moving from one location to another. The executive generally expects to negotiate enormous benefits through these plans, in order to minimize financial and tax risks of the transition. Companies desire to remain competitive and retain top talent.

f) Make Whole or Leave Behind Payments

• "Make Whole" payments, also known as sign on bonuses or "Golden Hellos," are non-performance related payments used to compensate the new executive for loss of performance related compensation left behind with the former employer. The size of these generous make whole payments can be staggering and are dependent on the executive's level, industry and company.

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compensation ppt