INTRODUCTION

Human resource is the most vital resource of an organization as it handles all the

physical resources therein and takes the responsibility of decision making, work done and

achievement of results etc. So, to carry on these heavy responsibilities, employees should

be motivated by providing the best remuneration and compensation package as per the

industry standards. Lucrative compensation is a means of attracting and retaining the best

talents in an organization.

Compensation is an integral part of human resource management. It is the

remuneration received by an employee in return to his or her contribution for the

organization. A good compensation system evolves a balanced work-employee

relationship by providing monetary and non-monetary benefits to the employees. In this

way, it acts as a motivating factor to the employees and increases the organizational

effectiveness.

The remuneration provided by any organization to its employee in return to its

contribution to the organization is known as compensation. It can be monetary or non-

monetary benefits provided by an organization. Compensation is the key drive to improve

the effectiveness of any organization by improving the efficiency of employees.

.

OBJECTIVE OF THE STUDY

This project attempts to understand the objectives:-

To understand in details the concept of compensation management atdifferent

level of employee.

To understand the impact of compensation management on performance level.

A comparative study of the compensation management strategies followed in

different sectors in India.

EVOLUTION OF COMPENSATION

Today’s compensation systems have come from a long way. With the changing

organizational structures workers’ need and compensation systems have also been

changing. From the bureaucratic organizations to the participative organizations,

employees have started asking for their rights and appropriate compensations. The higher

education standards and higher skills required for the jobs have made the organizations

provide competitive compensations to their employees.

Compensation strategy is derived from the business strategy. The business goals and

objectives are aligned with the HR strategies. Then the compensation committee or

the concerned authority formulates the compensation strategy. It depends on both

internal and external factors as well as the life cycle of an organization.

                                Evolution of Strategic Compensation

Traditional Compensation Systems

In the traditional organizational structures, employees were expected to work hard

and obey the bosses’ orders. In return they were provided with job security, salary

increments and promotions annually. The salary was determined on the basis of the

job work and the years of experience the employee is holding. Some of the

organizations provided for retirement benefits such as, pension plans, for the

employees. It was assumed that humans work for money, there was no space for

other psychological and social needs of workers.

Change in Compensation Systems

With the behavioral science theories and evolution of labour and trade unions,

employees started asking for their rights. Maslow brought in the need hierarchy for

the rights of the employees. He stated that employees do not work only for money

but there are other needs too which they want to satisfy from there job, i.e. social

needs, psychological needs, safety needs, self-actualization, etc. Now the

employees were being treated as human resource.

Their performance was being measured and appraised based on the organizational

and individual performance. Competition among employees existed. Employees

were expected to work hard to have the job security. The compensation system

was designed on the basis of job work and related proficiency of the employee.

                                           Maslow’s Need Hierarchy

Today’s Modern Compensation Systems

Today the compensation systems are designed aligned to the business goals and

strategies. The employees are expected to work and take their own decisions.

Authority is being delegated. Employees feel secured and valued in the

organization. Organizations offer monetary and non-monetary benefits to attract

and retain the best talents in the competitive environment. Some of the benefits are

special allowances like mobile, company’s vehicle; House rent allowances;

statutory leaves, etc.

 

MEANING OF WAGE/ COMPENSATION PAYMENT:

Wage is a monetary payment made by the employer to his employee for the work

done or services rendered. It is a monetary compensation for the services rendered. A

worker may be paid Rs. 100 per day or Rs. 4500 per month. This is wage payment. The

worker gives his services and takes payment called wage payment. Industrial workers are

paid remuneration for their services in terms of money called wage payment. Wages are

usually paid in cash at the end of one day, one month or one week. Money wage is the

monetary compensation or price paid by the employer to his employee for the services

rendered. Such compensation is also called wage or salary or reward given by an

organisation to a person in return to a work done.

Generally, compensation payable to an employee includes the following three

components:

Basic compensation for the job (wage/salary)

Incentive compensation for the employee on job

Supplementary compensation paid to employees (fringe benefit and employee

services)

IMPORTANCE OF WAGE PAYMENT:

1. To worker:

Wage payment is important to all categories of workers. Wage is a matter of

life and death to workers/employees. Their life, welfare and even social status depend on

wage payment. It is only source of income to large majority of workers. They and their

unions always demand higher wages and other monetary benefits.

Majority of labour problems and disputes are directly related to wage

payment. The efficiency of workers and their interest and involvement in the work

depend on wage payment. Even their attitude towards employer depends on wage

payment. In brief, wage payment is a matter of greatest importance to workers. Wage

problem is the most pressing and persistent problem before the entire labour force.

2. To employer:

Wage payment is equally important to employers as their profit depend on the

total wage bill. An employer in general is interested in paying low wages and thereby

controls the cost of production. However, low wages are not necessarily economical. In

fact they may prove to be too costly to the employer in the long run. E.g. In garment

manufacturing company if tailors are not paid properly then it is difficult for the company

to retain them. An employer has a moral and social responsibility to pay fair wages to his

worker as they are equal partners in the production process. He should give fair wages

which will benefit to both the parties. Employees will offer full co-operation to the

management when they are paid attractive wages. On the other hand, strikes and disputes

are likely to develop when workers are paid low wages or when they are dissatisfied and

angry due to low wage rates. It is possible to earn more profit by paying attractive wages

to workers. E.g. Reliance, Citi Bank, Motorola are earned huge profits because of their

higher pay packages.

3. To government:

Government also give special importance and attention to wages paid to

industrial workers as industrial development, productivity, industrial peace and cordial

labour- management relation depend on the wage payment to workers. Government

desires to give protection to the working class and for this minimum wages act and other

Acts are made. In India, wages are now link with the cost of living. This is for the

protection of workers. Government is the biggest employer in India and the wage rates of

government servant and employees of public sector organisations are decided by

government only. Revision of pay scale of government employees made for adjusting

their wages as per the cost of living. For this, “Pay Commission” is appointed and pay

scale is adjusted as per the recommendations made.

In India, wage payment is very critical, controversial and delicate issue for all

categories of work force. This is due to poverty, rising prices, mass unemployment and

rising population. Wage payment indeed a vexatious problem and needs to be tackled

from economic, social and humanistic angles.

CONCEPT OF FAIR WAGES:

Fair wages is the wage which is above the minimum wage but below the living wage.

Obviously the lower limit of the fair wage is the minimum wage and the upper limit is set

by the ability of the industry to pay. Between these two limits, fair wages should depend

on the factors like –

1. Prevailing rates of wages in the same occupation

2. Prevailing rates of wages in the same region or neighbouring areas

3. Employers ability to pay

4. Level of national income and its distribution

5. Productivity of labour

6. Status enjoyed by the industry in the economy

Hence it can be said that fair wages are determined on industry cum region

basis. When fair wages are paid employees enjoy higher standard of living. It is accepted

fact that wages must be fair and reasonable. Wages is fair when the employee is able to

meet its essential needs and enjoy reasonable standard of living. ”Equal pay for equal

work” serves as base of fair wage.

According to Encyclopaedia of social science,”Fair wages are equal to those

received by the workers performing work of equal skill, difficulty or unpleasantness.”

Factors Influencing Wage And Salary Structure

The organization’s ability to pay:

Wage increases should be given by those organizations which can afford them.

Companies that have good sales and therefore high profits tend to pay higher wages

than those which are running at a loss or earning low profits because of the high cost

of production or low sales.

Supply and demand of labour:

If the demand and certain skills are high and the supply is low the result is rise in the

price to be paid for these skills. The other alternative is to pay higher wages if the

labour supply is scarce and lower wages when it is excessive.

The cost of living:

When the cost of living increases, workers and trade unions demand adjusted wages

to offset the erosion of real wages. However when living costs are stable or decline

the management does not resort with this argument as a reason for wage reduction.

The living wage:

Employers feel that the level of living prescribed in workers budget is opened to

argument since it is based on subjective opinion.

Job requirements:

Jobs are graded according to the relative skill responsibility and job conditions

required.

Trade unions bargaining power:

Trade unions do affect the rate of wages. Generally the stronger and more powerful

trade union, higher the wages.

Productivity:

Productivity is another criterion and is measured in terms of output man-hour. It is not

due to labour efforts alone. Technological improvements, greater ingenuity and skill

by the labour are all responsible for the increase in productivity.

Prevailing market rate:

This is also known as ‘comparable wages’ or ’going wage rate’. Reason behind this is

competition demand that competitors adhere to the same relative wage level.

Skill levels available in the market:

With the rapid growth of industries, business trade there is shortage of skilled

resources. The technological development, automation has been affecting the skilled

levels at a faster rate.

Psychological and social factors:

This determine in a significant measure how hard a person will work for the

compensation received or what pressures he will exert to get his compensation

increased.

Components Of Employee Remuneration

The remuneration packet of an employee includes wage/salary, incentives, fringe

benefits, perquisites and finally non-monetary benefits.

This is made clear in the following chart:

Remuneration Packet of an employee

Wage/ Salary Fringe benefits Perquisites

Total

compensation

payable

IncentivesNon-monetary

benefits

1. Wages and salary:

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay,

irrespective of the number of hours put in by the employee. Wages and salaries are

subject to the annual increments. They differ from employee to employee, and

depend upon the nature of job, seniority, and merit.

2. Incentives:

Incentives are paid in addition to wages and salaries and are also called ‘payments

by results’. Incentives depend upon productivity, sales, profit, or cost reduction

efforts.

There are: (a) Individual incentive schemes, and (b) Group incentive

programmes. Individual incentives are applicable to specific employee

performance. Where a given task demands group efforts for completion, incentives

are paid to the group as a whole. The amount is later divided among group members

on an equitable basis.

3. Fringe benefits:

These are monetary benefits provided to employees. They include the benefit of: (a)

Provident fund, (b) Gratuity, (c) Medical care, (d) Hospitalization payment, (e)

Accident relief, (f) Health and Group insurance, (g) Subsidized canteen facilities, (h)

Recreational facilities, and (i) Provision of uniforms to employees.

4. Perquisites:

There are special benefits offered to managers/executives. The purpose is to retain

competent executives. Perquisites include the following: (a) Company car for

traveling, (b) Club membership, (c) Paid holidays, (d) Furnished house or

accommodation, (e) Stock option schemes, etc.

5. Non-monetary benefits:

These benefits give psychological satisfaction to employees even when financial

benefit is not available. Such benefits are: (a) Recognition of merit through

certificate, etc. (b) Offering challenging job responsibilities, (c) Promoting growth

prospects, (d) Comfortable working conditions, (e) Competent supervision, and (f)

Job sharing and flexi-time.

SYSTEMS OF WAGE PAYMENT

A)    TIME RATE SYSTEM

B)    PIECE RATE SYSTEM

 Time rate system:

It is the oldest and simplest method of wage payment used extensively in the

industrial as well as government departments. Wages are paid as per the time spent by the

workers in the factory. The production given by them is not taken into consideration. The

employer buys the hours of the workers and pays them accordingly. Time rate system is

also called as day wage system. In the time rate system, efficiency, sincerity, ability is not

given attention and all the workers are paid at one and the same rate as per the period

spent in the factory.

  ADVANTAGES OF TIME RATE SYSTEM:

 1)     Easy and simple: Time rate is easy to understand and simple to follow and

calculate. Wage calculations are also easy and quick. Each worker knows how much

wage payment he is entitled to at the end of the month. This gives convenience to

employer and employees.

  2)    Guarantee of minimum wage: It gives the guarantee of certain minimum wage

payment to every worker irrespective of their working capacity. Workers get a regular

and stable income and this gives a sense of security to all workers as regards wage

payment.

  

3) Maintains quality of production: Quality of production is maintained here as

the workers are not in a hurry to complete the work. They do not rush the job and spoil

the quality because of the temptation to earn more. Workers tend to work slowly and with

care. Even accidents are less as workers use the machines in a careful manner.

  4)     Support from trade unions: Workers and trade unions accept and support time

rate system as all workers are placed in one category as regards wage payment. This

ensures unity among workers. Trade unions normally prefer time rate system of wage

payment.

  5)     Avoids quarrels among workers: Time rate avoids heart burning and quarrels

among the workers as uniform wages are paid to all. Here efficiency, honesty and

sincerity of workers are not given any special weightage. Wage rate is the same for

sincere and lazy workers.   

6)     Convenient in modern factory system: Time rate payment is convenient in

modern factory system where production process is continuous and integrated. It is not

possible to measure the work completed by one individual worker and hence time rate

system is convenient.

   DISADVANTAGES OF TIME RATE SYSTEM:

1)     Not scientific: Time rate is not scientific system of wage payment as there is no

direct linking between wages and production/productivity. Wages bill may increase

without corresponding increase in the production. This will bring loss to the employer /

management.

2)     Absence of positive encouragement: In the time rate system, there is no positive

encouragement to workers to improve their efficiency/ performance as the wage rate is

uniform to all workers; efficient and inefficient.

 

 3)     No   distinction   between   workers: In the time rate system no distinction is made

between efficient and lazy workers, both are paid at one rate which is unfair. This system

gives punishment to sincere and efficient workers. They are discouraged as they are paid

less than what they deserve. They may even leave the job.

4)     No initiative to workers: Time rate fails to encourage workers to take more interest

and initiative in their work. In fact, it encourages them to follow “go slow” policy. This is

because wage payment is not linked with the production given.

5)     Labour cost may increase: In the time rate system, there is a possibility of

increase in the labour cost without corresponding increase in the production. Workers

may work with slow speed, give less production but collect the wage as per time or day

fixed.

 6)     Strict supervision: In the time rate strict supervision on the workers is essential as

payment is for period and not production. This raises the expenditure on supervision.

7)     No effect on productivity/ efficiency: Time rate fails to raise productivity and

efficiency of labour force. It is not an incentive system of wage payment.

 Piece rate system:

This is another basic system of wage payment. It is just opposite to the time rate. It

is also treated as an incentive wage system as it encourages workers to produce more and

also to earn more. In the piece rate system, wages are paid as per the output or production

given by the worker and not as per the time spent by the worker in the factory. Payment

is by results in terms of output given. Wage rate is fixed per piece of work or for certain

quantity of production. The production given by a worker at the end of the day is counted

and payment is made accordingly.

 

MERITS/ ADVANTAGES   OF PIECE RATE SYSTEM:

1)   Linking of wages with production: Here wages are linked with production or

productivity. It raises the productivity of labour. Workers work with speed and use their

capacity fully as the wage payment is directly related to the quantity of production

given by a worker.

2)   Distinction is made between efficient and inefficient workers: Distinction is made

between efficient and inefficient worker and full justice is done to efficient worker as he

gets payment in proportion to the production given. Efficient workers support the piece

rate system but it is not preferred by unskilled and inefficient workers. They get less

payment under this method as their capacity to produce is less.

3)   Encourages workers to take initiative in the work: Piece rate system encourages

workers to take more interest and initiative in the work as every worker gets full reward

of his efforts. There is direct efforts-reward relationship in the piece rate system.

 4)   Fair to employer and employees: This system is fair to employers as well as

employees. The employees get income in proportion to production given by them and the

employer gets production in proportion to the wage paid.

5) Incentive system: This system serves as the incentive system. Workers work

efficiently and take interest in the work due to corresponding benefit/ reward in the

form of higher wage payment.

6) Limited supervision adequate: In this system strict supervision on the workers is not

necessary as workers work sincerely. This is because their wage payment is directly

linked with their sincerity and ability.

7) Freedom of work to workers: Workers get more freedom of work and there is

effective control on the cost of production in the piece rate system.

8) Brings cordial relations: Piece rate brings cordial labour- management relations and

industrial peace.

 DEMERITS/LIMITATION OF PIECE RATE SYSTEM

1)  No guarantee of minimum wage payment: There is no guarantee of certain

minimum wage payment to a worker. This may prove to be dangerous particularly to a

newly recruited worker and workers who are below average

  2)   Workers suffer even when they are not at fault: Sometimes workers suffer in

wage payment even when they are not fault. Due to power failure, etc they may not be

able to give production and naturally they will not be eligible for wage payment even

when they remain present in the factory for the whole day.

3)   Complicated system: Piece rate system is complicated and difficult as it is difficult

to understand by ordinary workers. Management will have to keep elaborate records of

production given by each worker. Workers also make complaints as regards

wage payment when they feel that due payment is not made to them.

4)   Disturbs unity of workers: Piece rate affects the unity among workers as wage

payment will not be uniform to all workers. This will lead to quarrel among workers.

Trade unions oppose piece rate system on the ground that it will lead to rivalry among

workers and destroy unity among them.

 5)   Not fair to trainees: Piece rate system is not fair to trainees, as their capacity to

produce is less and naturally they will get less wages.

  6)   Quality of production is adversely affected: It affects the quality of production as

workers may work with speed and this may bring down the quality of production. In

addition the wastages and spoiled work are likely to increase due to haste on the part of

the workers to labour hard and over strain themselves in order to earn more. This affects

the health of workers.

 TIME RATE V/S PIECE RATE SYSTEMS

    Meaning: Wages are paid as per the time spent by workers.

Wages are paid as per the output or production given by workers.

Old/new system:Oldest and simplest method of wage payment.

Modern and incentive system of wage system.

Guarantee of wages:Gives guarantee of certain minimum wage payment to every worker.

Fails to give guarantee of minimum wage payment to every worker.

Support:Employees and trade unions support time rate system.

Employers and efficient workers prefer piece rate system.

U nderstanding of system :Easy to understand and simple to administer. Complicated system as various recorded

and registers are required to be maintained

Distinction between workers:Distinction is not made between efficient and inefficient workers as all are paid at one and same rate.

Distinction is made between efficient and inefficient workers. Efficient worker is paid more while an inefficient worker is paid less.  

Effect on production:Encourages workers to follow go-slow policy and naturally production suffers.

Encourages workers to take more interest in the work and naturally production increases.

 Quality of production:Quality, workmanship of production are not affected, raw materials, machinery are utilised properly. The spoiled work is also negligible.

Quality, workmanship of production may suffer. Increase in spoiled work and wastage of raw materials.

 Supervision:Strict supervision is necessary as workers are paid as per the period spent.

Strict supervision is not necessary as workers are paid in proportion to the production given.

Suitability:  

 Suitable to manufacturing units, also suitable when individual contribution is not easily measurable.

Suitable when contribution of individual worker is measurable and work is standardised and repitive in character.

INCENTIVE SYSTEMS OF WAGE PAYMENT

The wage plan should be highly incentive means it should encourage workers to take

more initiative and interest in the work, produce more and also earn more. The wage plan

which serves all these purposes is called incentive wage plan. Such an incentive plan is

beneficial to both - employers and employees as well as it is useful for the rapid industrial

growth.

Incentives include monetary as weft as non-monetary benefits offered. There is

motivation to work hard and to earn more. In every incentive plan, wages are linked with

the given output. Incentives are not fixed like wages and salaries. They vary from

individual to individual and from period to period.

ILO defines incentives as "payment by results". Incentives can also be described as

"incentive systems of payment".

According to Dale Yoder, “Incentive wages relate earnings to productivity and may use

premiums, bonuses, or a variety of rates to compensate for superior performance” Piece

rate system is the oldest incentive wage plan which is also useful for attracting and

retaining qualified personnel in the organisation and for motivating personnel to higher

levels of performance. In many incentive plans, a combination of time rate and piece rate

systems is used. Such combination creates an ideal incentive plan.

TYPES OF INCENTIVE PLANS:

There are two types of incentive plans:

(a) Individual incentive plans, and

(b) Group incentive plans.

Individual incentive plan is meant for individual employees. He has to work hard i.e.

efficiently, produce more and share the monetary benefits for himself. The benefit is

directly linked with his ability, efficiency and capacity.

In the group incentive plan, the incentive is not for individual employee but for the group

of employees working in one department or section. Such group incentive plan may cover

the entire labour force of a production unit. The group will work collectively, give more

production and share the benefit. Initially the benefit will be given to the group and

thereafter, it will be divided among the members of the group.

Management is interested in group incentive plan while employees are interested in

individual incentive plans. Production activities are now conducted in an integrated

manner and naturally incentives should be offered to the employees. Group incentive

plans are better as they encourage team spirit and develop cooperation and understanding

among the employees. This avoids wastages and promotes productivity.

FEATURES/REQUISITES OF A GOOD INCENTIVE PLAN:

Simplicity :

A good incentive plan is one which is easy to understand and simple to operate.

An average worker must be able to know the incentive offered and what he is expected to

do. The monetary as well as non-monetary benefits offered must be made clear to all

workers.

Encourage initiative:

A good incentive plan should create initiative among workers to work more and to

earn more. It must offer more income to workers and more profit/production to the firm

or company.

Definiteness and flexibility:

A good incentive plan should be definite. This means frequent changes should not

be made as regard rates, etc. as such changes create confusion and doubts in the minds of

workers. Such plan must give clear benefits to workers

In addition, an ideal incentive plan should be flexible. It should take care of

technological and other changes taking place from time-to-time. There should be suitable

provision for such adjustment. Flexibility makes incentive plan adaptable.

Wide coverage and equitable:

A good incentive plan should not be for employees in certain departments only. It

should have a wide coverage and almost all employees should be covered in such plan.

Such wide coverage makes the plan popular at all levels and among all categories of

workers.

An incentive plan should be equitable. This means it should provide equal

opportunity to all employees to show efficiency and earn more. This avoids

dissatisfaction among employees and makes the plan just and fair to all employees.

Guarantee of minimum wage payment:

An incentive wage plan should include certain minimum wage payment to every

worker per month. This should be irrespective of the production he gives. Such provision

of guarantee payments creates a sense of security and confidence among workers.

Scientific fixation of standard workload:

Under the incentive plan, extra payment is given for the extra work i.e. work

which is over and above certain quality. Such standard work-load must be clear, specific

and fixed with scientific time studies so that majority of employees will be able to give

extra production for extra payment.

Justice to employer and employees:

A good incentive plan should do justice to both parties. The employer must get

additional production along with extra profit and the workers must get extra payment for

extra production.

PROFIT-SHARING

Profit-sharing is regarded as a steppingstone to industrial democracy. Prof. Seager

observes: "Profit-sharing is an agreement by which employees receive a share, fixed in

advance of the profits."

Profit-sharing usually involves the determination of an organisation's profit at the

end of the fiscal year and the distribution of a percentage of the profits to the workers

qualified to share in the earnings. The percentage to be shared by the workers is often

predetermined at the beginning of the work period and IS often communicated to the

workers so that they have some knowledge of their potential gains. To enable the workers

to participate in profit-sharing, they are required to work for certain number of years and

develop some seniority. The theory behind profit-sharing is that management feels its

workers will fulfill their responsibilities more diligently if they realise that their efforts

may result in higher profits, which will be returned to the workers through profit-sharing.

FEATURES OF PROFIT-SHARING:

The main features of the profit-sharing schemes are:

The agreement is voluntary and based on joint consultation made freely between the

employers and the employees.

The payment may be in form of cash, stock of future credits of some amount over

and above the normal remuneration that would otherwise be paid to employees in

a given situation.

The employees should have some minimum qualifications, such as tenure or

satisfy some other conditions of the service which may be determined by the

management.

The amount to be distributed among the participants is computed on the basis of

some agreed formula, which is to be applied in all circumstances.

The amount to be distributed depends on the price earned by the enterprise.

Objectives of Profit-sharing:

1) To supplement the regular earning of the workers,

2) To create a sense of partnership among the workers and the management,

3) To enable the workers to participate in the prosperity of their company,

4) To develop cordial labour-management relations and to improve employee morale.

5) To introduce incentive wage plan

6) To raise productive efficiency by reducing costs and increasing output

7) To reduce labour turnover and to improve public relations.

8) To provide for employee security in the event of death, retirement or disability

ADVANTAGES OF PROFIT-SHARING:

1) Extra income to workers: Workers get extra cash payment due to profit-sharing

arrangement. This money is useful for raising their welfare. Workers can purchase

costly consumer durables out of this money available at one time. Thus, profit-

sharing provides better life and welfare to workers. It creates contended labour force

with higher standard of living. Profit-sharing plan acts as a good supplement to

regular wages paid to employees. In fact, profit-sharing is aptly described as a form

of added remuneration.

2) Workers take more initiative and interest in the work: Due to profit-sharing

arrangement, workers/ employees take more interest in the work. This develops

team spirit among the employees because their share in the profit depends on their

collective initiative, efforts and hard work. In this sense, profit-sharing is useful for

motivating employees. It encourages employees to be regular, stable and efficient as

the benefits of these elements are offered to them through profit-sharing. Here,

efforts and reward are directly and proportionately linked. This encourages

employees to take keen interest in the work and develops team spirit.

Profit-sharing acts not only as supplement to regular wages (i.e. as an incentive wage

plan) but also as a motivating factor to all employees. It creates common objective

before employer and employees and diverts their energies for achieving one common

objective.

3) Increase in production and productivity: Profit- sharing acts as a driving force

for more production and productivity. It motivates workers for raising production as

they get direct and immediate benefit of additional efforts on their part. The benefits

of increase in production are available to employer and employees.

4) Fair to employer and employees: Profit-sharing gives mere remuneration to

workers along with more profit to employer. Employer pays a part of profit to

workers but he is not adversely affected as profit is paid only when it exceeds a

particular limit agreed by both the parties. This arrangement is, certainly fair to both

parties. There is an element of social justice in it.

5) Ensures cordial industrial relations: Profit-sharing creates cordial labour-

management relations. It. reduces industrial disputes, strikes and lock-outs. This is

because both have common objective and both are likely to suffer due to industrial

disputes, strikes and lock-outs. Thus, profit-sharing reduces industrial disputes and

leads to friendly relations between employer and employees. It certainly acts as a tool

for reducing industrial disputes and also for creating industrial peace.

Thus, profit-sharing agreement encourages workers to work efficiently and also

avoid dispute and quarrels with the employer. It acts as a natural and self-imposed

check on industrial disputes. Profit-sharing creates team spirit in the higher cadres of

management as well as in the rank and file of workers.

6) Less supervision required: Profit-sharing reduces the expenditure on supervision

of workers as they take interest in the work on their own. Moreover, wastage of'

materials, volume of spoiled work, etc. are also reduced.

7) Stability to labour force: Profit-sharing brings stability to labour force as the

benefit of profit-sharing is usually given only to those who work in the company for

the whole year. Thus, profit-sharing brings down the rate of labour turnover and this

gives benefit to the employer/ management.

8) Promotes social justice: Profit-sharing is a method of social justice. It is a

method by which workers are given the reward of their hard work and also allowed

to participate in the progress and prosperity of their company. Profit-sharing

introduces industrial democracy as workers are treated not only as wage earners but

also as partners for sharing the profits of the company.

DISADVANTAGES OF PROFIT-SHARING:

1) Uncertainty: There is high degree of uncertainty in the profit-sharing

scheme/plan. Profit-sharing is uncertain because it will be paid only when the profit

exceeds a particular limit. The profit may not cross a particular limit due to market

forces and the workers will suffer. Thus, profit-sharing does not give full guarantee

of extra payment to workers. It acts like a fair weather plan.

2) Unfair to efficient workers: Profit-sharing is a group incentive plan. It gives

equal benefit to all workers. Distinction is not made between good and bad workers.

As a result sincere and efficient workers get less than what they deserve while

insincere and inefficient get more than what they deserve.

3) Opposition from trade unions: Trade unions and workers feel that bonus

payment is better than profit:-sharing. They generally oppose to profit-sharing and

demand bonus from the employer as it is a cheap alternative to profit-sharing.

4) Disputes on calculation of net profit: In profit-sharing, the net profit is to be

calculated at the end of the financial year. There is a possibility of difficulties as

regards the calculation of the net profit. The employer may like to manipulate the

accounts and show less profit while workers may calculate it as high. Such quarrel

affects both the parties as it leads to dispute and delay in payment. In brief,

ascertaining net profits is one sensitive problem in profit-sharing.

5) Adverse effects on labour-management relations: Sometimes, relations

between labour and management are adversely affected on the point of profit-

sharing agreement. This defeats the very purpose of profit-sharing. Disputes are

possible as regards the profit-sharing agreement itself.

6) Not useful during depression: Profit-sharing as a method of extra remuneration

to workers can be used during the period of prosperity when profits are high. It

cannot be used during the years of depression. Even newly established companies

are not in a position to introduce profit-sharing scheme for their employees.

7) Opposition from conservative employers: The concept of profit-sharing is not

fully acceptable to conservative employers. They feel that profit is the reward for

the risks and uncertainties. They also argue that workers must be prepared to share

profit as well as loss in the business.

MEANING OF FRINGE BENEFITS:

Fringe benefits may be defined as wide range of benefits and services that employees

receive as an integral part of their total compensation package. They are based on critical

job factors and performance. Fringe benefits constitute indirect compensation as they are

usually extended as a condition of employment and not directly related to performance of

concerned employee. Fringe benefits are supplements to regular wages received by the

workers at a cost of employers. They include benefits such as paid vacation, pension,

health and insurance plans, etc. Such benefits are computable in terms of money and the

amount of benefit is generally not predetermined.

The purpose of fringe benefits is to retain efficient and capable people in the organisation

over a long period. They foster loyalty and acts as a security base for the employees.

FEATURES OF FRINGE BENEFITS:

Different from regular wages : Fringe benefits are different from regular wages as

such benefits are those payments, which an employee enjoys in addition to wages

he receives. It is a supplementary payment and provides support to an employee.

Employee motivation : Fringe benefits are not given to employees for performing

certain jobs. The purpose is to encourage them to take more interest in the

assigned work.

Useful but avoidable expenditure : Fringe benefits constitute a labour cost for the

employer.

Not directly linked with efforts : Fringe benefits are not direct reward for the

efforts made or the production given by an employee.

Beneficial to all employees : Fringe benefits are a labour cost but its benefits

should be made available to the entire labour force and not to a small group of

employees.

OBJECTIVES OF FRINGE BENEFITS:

To supplement direct remuneration : Fringe benefits supplement regular pay of

employed. It raises the total earnings of an employee and provides better life and

welfare to him.

Employers prefer fringe benefits: employers prefer this indirect remuneration to

direct pay increase.

To retain competent employees: Fringe benefits create satisfied labour force. In

addition, the management can attract and retain competent personnel in the

organisation by offering liberal packet of fringe benefits.

To develop good corporate image : Fringe benefits help to develop a good corporate

image.

To raise employee morale: Liberal package of Fringe raises the morale of

employees.

LIMITATIONS OF FRINGE BENEFITS:

There are some limitations of Fringe Benefits. These are:

Fringe Benefits may lead to unhealthy competition among employees

The expected benefit may not be available if the monetary benefits are not

adequately attractive to employees.

The motivation may not be as per expectation if the implementation of the

benefits scheme is not transparent.

ADVANTAGES OF FRINGE BENEFITS

There are certain advantages of Fringe benefits. These are:

Fringe benefits provide support to remuneration paid to employees.

Fringe benefits improve efficiency and productivity of employees.

Fringe benefits act as an added attraction to the employees.

Fringe benefits reduce monotony and fatigue of employees. They make employees

efficient and co-operative for whatever organisational changes required to be

introduced.

Fringe benefits raise morale of the employees. They develop affinity for the

organisation.

Fringe benefits develop good corporate image and raise market standing of the

organisation.

Fringe benefits act as a motivating force. They motivate employees and induce

them to work for the progress and prosperity of the organisation.

TYPES OF FRINGES/ FRINGE BENEFITS:

(1) Payment for time not worked by the employee:

Holidays.

Vacations.

Leave with pay and allowances.

(2) Contingent and deferred benefits:

Pension payment.

Group life insurance benefit.

Group health insurance.

Sick leave, maternity leave, child care leave, etc.

Suggestion/service award

Severance pay.

(3) Legally required payments:

Old age, disability and health insurance

Unemployment compensation

Worker's compensation.

(4) Misc. benefits:

Travel allowances.

Company car and membership of clubs, etc

Moving expenses.

Child care facilities.

Tool expenses and meal allowances, etc

JOB EVALUATION

DEFINITION:

According to Edwin b. Flippo, “Job evaluation is a systematic and orderly process of

determining the worth of job in relation to other jobs”.

Job evaluation means determining the relative worth of a job in an organization by

comparing it with other jobs within an organization and with job market outside jobs are

evaluated on the basis of their content and are placed in the order of their importance. In

this way, job evaluation helps in establishing job hierarchy. It is a process by which jobs

in an organization are appraised. It suggests comparative importance of different jobs. A

wage structure hierarchy is based on such job evaluation.

In job evaluation the jobs are ranked on the basis of their relative importance and not the

job holders. They are rated through performance appraisal. Job evaluation is the output

provided through job analysis.

Features:

1. It determines the relative worth of jobs in an organization. Jobs are evaluated as per

their content and place in the order of their importance.

2. It is based on the analysis of the facts about the job collected through job analysis.

3. It helps to bring a balanced wage structure in an organization. This is possible as job

hierarchy is established. The purpose is fixation of satisfactory wage differentials among

various jobs.

Objectives:

1. To establish by impartial judgement the logical and accurate relationship of each

job to other jobs within the firm.

2. To establish satisfactory wage and salary differentials.

3. To select employees more accurately and train, promote or transfer them within

the firm objectively and impartially.

4. To provide them information for work organization, employees selection,

placement and other similar problems.

5. To promote employee goodwill, strengthen and maintain morale and loyalty and

provide an incentive for efficiency.

6. To determine the rate of pay for each job that is fair and equitable in relation to

other jobs in the plant.

Advantages / Importance:

1. Job evaluation clearly indicates the relative worth of different jobs in the

organization.

2. It establishes a hierarchy of jobs and evolves a graduated wage scale for

employees.

3. It is useful for introducing a satisfactory, rational and balanced wage structure in

an organization. It is also useful for simplifying wage administration.

4. It promotes employees goodwill, strengthens and maintains high morale and

loyalty of workers and also provides incentives for raising efficiency.

5. It provides a scientific base for promotions and transfers of workers in an

organization.

6. It avoids injustice to workers as regards wage payment, promotions and transfers.

7. It simplifies wage administration and facilitates merit rating and training

programmes for employees.

8. It removes grievances and disputes among employees over relative wages and

makes the wage system acceptable to all employees.

COMPONENTS OF COMPENSATION

Job-Analysis

Job analysis is a systematic approach to defining the job role, description,

requirements, responsibilities, evaluation, etc. It helps in finding out required level

of education, skills, knowledge, training, etc for the job position. It also depicts the

job worth i.e. measurable effectiveness of the job and contribution of job to the

organization. Thus, it effectively contributes to setting up the compensation package

for the job position.

Importance of Job Analysis

Job analysis helps in analyzing the resources and establishing the strategies to

accomplish the business goals and strategic objectives. It forms the basis for

demand-supply analysis, recruitments, compensation management, and training

need assessment and performance appraisal.

Components of Job Analysis

Job analysis is a systematic procedure to analyze the requirements for the job role

and job profile. Job analysis can be further categorized into following sub

components.

        

Job Position

Job Worth

Job Worth refers to estimating the job worthiness i.e. how much the job contributes

to the organization. It is also known as job evaluation. Job description is used to

analyze the job worthiness. It is also known as job evaluation. Roles and

responsibilities helps in determining the outcome from the job profile. Once it is

determined that how much the job is worth, it becomes easy to define the

compensation strategy for the position.

Therefore, job analysis forms an integral part in the formulation of compensation

strategy of an organization. Organizations should conduct the job analysis in a

systematic at regular intervals. Job analysis can be used for setting up the

compensation packages, for reviewing employees’ performance with the standard

Job position refers to the designation of the job and employee in the organization. Job

position forms an important part of the compensation strategy as it determines the

level of the job in the organization. For example management level employees

receive greater pay scale than non-managerial employees. The non-monetary benefits

offered to two different levels in the organization also vary.

Job Description

Job description refers the requirements an organization looks for a particular job

position. It states the key skill requirements, the level of experience needed, level of

education required, etc. It also describes the roles and responsibilities attached with

the job position. The roles and responsibilities are key determinant factor in

estimating the level of experience, education, skill, etc required for the job. It also

helps in benchmarking the performance standards.

level of performance, determining the training needs for employees who are

lacking certain skills.

Pay-Structures

Once job analysis has been done organizations need to decide upon the pay

structures. Pay structure refers to the process of setting up the pay for a job in an

organization. The process deals with internal and external analysis to estimate the

compensation package for a job profile. Internal equity, External equity and

Individual equity are the most popular pay structures. Job description provides the

in depth knowledge about the job profile and its worth.

Pay structures are the strong determinant of employee’s value in the organization.

It helps in analyzing the employee’s role and status in the organization. It provides

for fair treatment to all employees. Pay structures also include the estimation of

incentives.The level of incentives also depends on the level of job position in the

organizational hierarchy.

Internal Equity

The internal equity method undertakes the job position in the organizational

hierarchy. The process aims at balancing the compensation provided to a job

profile in comparison to the compensation provided to its senior and junior level in

the hierarchy. The fairness is ensured using job ranking, job classification, level of

management, level of status and factor comparison.

External Equity

Here the market pricing analysis is done. Organizations formulate their

compensation strategies by assessing the competitors’ or industry standards.

Organizations set the compensation packages of their employees aligned with the

prevailing compensation packages in the market. This entails for fair treatment to

the employees. At times organizations offer higher compensation packages to

attract and retain the best talent in their organizations.

Salary-Surveys

Organizations have to bridge the gap between the industry standards and their salary packages. They cannot provide compensation packages that are either less than the industry standards or are very higher then the market rates. For the purpose they undertake the salary survey. The Salary survey is the research done to analyze the industry standards to set up the compensation strategy for the organization.

Organizations can either conduct the survey themselves or they can purchase the

survey reports from a reputed research organization. These reports constitute the

last 2-5 years or more compensation figures for the various positions held by the

organizations. The analysis is done on the basis of certain factors defined in the

objectives of the research.

Objectives of Salary Survey

To gather information regarding the industry standards

To know more about the market rate i.e. compensation offered by the

competitors

To design a fair compensation system

To design and implement most competitive reward strategies

To benchmark the compensation strategies

Types of Compensation Surveys

There are two types of compensation surveys undertaken by the organizations.

Standard Surveys

Standard surveys are undertaken by organizations on a regular basis. These surveys

are conducted annually based on the organizational objectives. These surveys

attempt to cover the same companies every year and provide the same time of

analysis. The reports are published annually by the research organizations. The

organizations willing to formulate their compensations strategies based on the

surveys purchase the reports from the research organization.

Custom Surveys

At times, a few organizations need to know some specific information. The

surveys which cater this need are known as custom surveys. The organizations

either higher research organizations to conduct theses surveys for them or they

themselves conduct the survey by sampling few of the competitors on their own.

These surveys do not have any time interval. They are undertaken as the need

arises. They focus on important issues usually one or two.

Survey Reports

The survey reports consist of the analysis and conclusion drawn from the

evaluative data based on the objectives of the study. The reports also include the

data, facts and figures to support the analysis and conclusion. The supportive data

and annexure provided in the report form the basis for the un-biased conclusion

and validation of the analysis.

 

IMPORTANCE OF COMPENSATION

Compensation can include monetary and non-monetary components. Compensation often

includes an employee’s base salary and additional benefits, such as health insurance,

retirement plans and performance bonuses. The compensation packages a business offers

to employees affects the company’s recruitment rate, retention rate and employee

satisfaction. Several federal laws affect the compensation that businesses offer. A

business owner should understand the importance of compensation and the prevailing

laws to remain competitive in the market.

Recruitment

The compensation packages that businesses offer to employees play an important role in

the company’s ability to attract top talent as job candidates. Top-performing employees

greatly impact the competitiveness and productivity of a small business. The specific

components of an attractive compensation package vary per employee. A high base

salary may attract a top job candidate that is 20-something and single, while a job

candidate with a family may consider a flexible work schedule extremely important.

According to John Rossheim of Monster.com, recruiters should research a job candidate's

current or prior salary and benefits to get an idea of what is important to the candidate.

Motivation

Compensation often impacts an employee’s motivation and job satisfaction, although it is

not the only factor. According to an article written by Mae Lon Ding of Personnel

Systems Associates, compensation systems positively impact a large percentage of

workers' performances. Many employees feel motivated to help their companies succeed

if the employer shares its profits with employees, such as with bonuses or profit-sharing

plans. The greatest impact of money on productivity and performance is in jobs where

performance is directly related to compensation. For example, the knowledge of

receiving a bonus after achieving a certain sales quota will likely motivate a salesperson

to increase productivity.

Retention

Retaining productive employees is critical to running a successful business. Retaining

employees saves companies money in training costs and helps maintain an efficient and

knowledgeable workforce. Health insurance and retirement packages are benefits that

many employees desire from their employers. Companies that offer these benefits have a

much better chance of retaining workers than businesses that fail to offer benefit

packages. Other ways to retain employees is through regular promotions, which not only

provide an employee with a higher base salary, but also the ability to take on more

responsibility in the workplace.

The Compensation system has a great significance in a business organization. Men is the

most important factor among four M’s, i.e. Men, Material, Machine and Money. The

responsibility of managing the other three factors is handed over to Men. So, nobody can

imagine a business process without Men.

Labourers bring motion to the process of production/business in an organization.

Moreover as a human being, they also have expectations, emotions, ambitions and egos

for which they want to have a fair share in the production process. Therefore a fair

compensation system is must for every business organization which helps in the

following way:

1. An ideal compensation system has a positive influence on the efficiency of employees

and encourages the employees to perform better and achieve the preset standards.

2. It augments the job evaluation process which in turn helps in setting up the more

realistic and achievable standards.

3. Such a system is well defined and uniform to all the employees of an organization as a

general system.

4. It is easy to implement and abide by the principle of equal pay.

5. The system is so simple and flexible that an employee can compute his compensation

receivable by himself.

6. The compensation system tries to give appropriate return to the workers for their

contributions to the organization.

7. It arouses an environment of morale, efficiency and cooperation among the workers

and provides satisfaction to the workers.

8. The compensation system is designed complying with the various labour acts and

therefore does not result in disputes between the employee’s union and the management.

This builds up a peaceful relationship between the employer and the employees.

9. It stimulates the employees to perform better and show their excellence.

10. It forces the employees to work hard and efficiently to survive in the competitive

environment. The system also provides the growth and advancement opportunities to the

deserving employees.

11. The perfect compensation system is a source of happiness and satisfaction for the

workforce that minimizes the labour turnover and confers a stable organization

12. The adequate compensation system helps in retaining the best talent in an

organization and thereby stops the switching over of employees to another job. This in

turn facilitates the expansion and growth of the business organization owing to the

support of skillful, talented and happy workforce.

13. A sound compensation system is treated as the hallmark for the success and

prosperity of an organization as it can satisfy the employees with the adequate pay-

packages.

14. If compensation is not provided, employees gets demotivated.

TYPES OF 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. They are given at a regular interval at a definite time.

House Rent Allowance

Basic Salary

Salary is the amount received by the employee in lieu of the work done by him/her

for a certain period say a day, a week, a month, etc. It is the money an employee

receives from his/her employer by rendering his/her services. Organizations either

provide accommodations to its employees who are from different state or country

or they provide house rent allowances to its employees. This is done to provide

them social security and motivate them to work.

Conveyance Allowance

Organizations provide for cab facilities to their employees. Few organizations also

provide vehicles and petrol allowances to their employees to motivate them.

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.

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.

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.

Special Allowance

Special allowance such as overtime, mobile allowances, meals, commissions,

travel expenses, reduced interest loans; insurance, club memberships, etc are

provided to employees to provide them social security and motivate them which

improve the organizational 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.

Leave Policy

It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

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.

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.

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.

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.

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.

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.

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.

 

FACTS AND FINDINGS

Information Technology Sector

Indian IT industry is witnessing a high growth rate. The sector is recruiting more and

more technical and professional people. With the immense recruitments and high attrition

rate, organizations focus on higher competitive packages.

The compensation package for an employee is based on various factors such as his/her

educational level, relevant experience in the industry, job’s position in the hierarchy,

skills and attributes and job related technicality. The average salary offered as per the

experience level of the candidate is as follows:

Figure: Average salary offered in IT Sector Based on Experience

Dataquest-IDC has reported following as the top 20 highest salary payers in Indian IT

sector.

o HCL Infosystems Limited

o Hexaware Technologies

o RMSI Private Limited

o Cadence Design Systems

o Tata Consultancy Services

o Aztecsoft Limited

o Nucleus Software

o Induslogic

o Kanbay International Inc

o Cybage Software Private Limited

o Accel Frontline Technologies

o Geomatric Software Solutions Co. Ltd.

o Sierra

o Flextronics

o Computer Sciences Corporation

o Interra Systems

o Sasken Communication Technologies Limited

o NIIT Technologies

o Wipro Limited

o Infosys Technologies Limited

Entry Level Compensation Packages

Indian IT industry provides a lucrative compensation package provided for entry level

jobs. Top players like TCS, Wipro, Infosys, Sasken, IBM, Accenture and other

multinationals and locally owned organizations are providing most competitive packages

to attract and retain talented human resource.

Indian IT sector offers various job openings to fresh engineers or diploma holders. The

candidate aspiring to join an IT organization should posses certain technical and non-

technical skills and attributes.

Attainment of qualified degree or diploma certificate from a reputed institute/university

would be an added advantage. The desired skills are:

• Effective Communication Skills

• Sound Technical Knowledge

• Strong Commitment Level

• Strong Analytical Skills

• Ability to meet deadlines

Besides the pay packages, employees are also given certain monetary and non-monetary

benefits such as allowances, accommodations, respective positions, perks, incentives,

insurances, etc. These benefits differ from organization to organization.

Figure: Average Salary offered by Top Players in Indian IT Sector for Entry Level Jobs

 

Management Level Compensation Packages

IT industry offers lucrative growth prospective to its employees. Top players of the

industry such as TCS, Wipro, Sasken, IBM, Infosys, Accenture, Oracle, HCL, Satyam,

Sify and other organizations are providing heavy perks and handsome pay packages to

retain their talented workforce. Apart from basic salary and special allowances,

employees are given some other monetary and non-monetary benefits like club

memberships, annual bonus, and other special allowances.

Effective communication skills, good analytical skills and sound technical knowledge are

must to have a respectable position in IT sector.

People working in IT sector should be willing to work at stretch, they should be able to

work in pressure and meet deadlines. Also, the level of experience determines one’s level

of compensation package and position in the industry.

Figure: Average Salary offered in Indian IT Sector for Managerial Level Positions

Insurance Sector

Privatization has brought in lot of surprises for insurance sector. In India, insurance

sector is at the booming stage as only 40% of the population is insured. Private

organizations are striving hard and hard to develop the sector. Organizations are coming

up with newer insurance plans to attract the market such as accidental insurance, medical

insurance, medi-claims, family-health insurance, dental insurance, diabetes insurance,

auto insurance, etc. Government is also supporting the insurance sector to increase the

Gross Domestic Product ratio from the sector.

From the government jobs to private organizations openings, work environment, job

profiles, pay packages and career growth options have been changed. From basic salary

with small incentives, compensation systems have been grown to increased salaries,

incentives, perks, allowances, accommodations, etc.

Figure: Average Salary offered in Indian Insurance Sector based on Experience

Following are the top players of the insurance sector offering most competitive packages

to their employees:

• Life Insurance Corporation

• New York Life

• Prudential

• Met Life

• Birla Insurance

• Kotak Mahindra

• ICICI

• HDFC

Entry Level Compensation Packages

Insurance sector is at the growth stage recruiting more and more people in the industry.

Organizations are providing most competitive packages to attract and retain the talent.

Most of the jobs in the insurance sector are part time, providing the opportunity for the

employees to earn extra apart from their regular income. The compensation is also

performance based, depending upon the insurance amount and premiums.

Candidate who wishes to join the insurance sector has to complete a graduation degree. A

PG diploma in insurance can get him/her position of agent or insurance advisor in some

reputed organization.

Since most of the jobs offered in the sector are in the marketing segment, candidates with

marketing skills would have better career prospects. Following are the key skill

requirements for the job profile in the sector:

Excellent communication skills

Excellent marketing skills

Good interpersonal skills

Good public relations

Target-oriented approach

Analytical skills

Top players in the sector offers the following compensation packages at entry level:

Figure: Average salary (in lakhs) offered to entry level employees

Management Level Compensation Packages

Indian insurance sector is growing at a fast pace and offering lucrative career options.

Both private and public organizations offer part time and full time employment in the

sector. Life Insurance Corporation of India, Birla Insurance, Max New York Insurance,

ICICI Prudential, and Met Life Insurance are some of the leading organizations in the

sector. Educational institutes are also coming up with certificate courses in insurance

management. The course offers managerial positions and excellent growth perspective in

the sector.

Excellent marketing skills and communications skills with appropriate experience level

would help any individual to score well in the industry. Compensation package in the

industry includes heavy perks and incentives part from basic salary structure and other

special allowances. Most of the jobs in the sector are categorized in the retail and

marketing segment.

Figure: Average Salary offered in Indian Insurance Sector for Managerial Level Positions

IT Enabled Services

With IT industry at the boom, Indian IT-enabled services are also enjoying the returns.

Recruitments are taking place at a high rate. It has also given rise to the outsourcing

industry. IT-enabled services cover a rage of service sectors like BPO, KPO, Hardware

and Software. The compensation packages in the sector vary from job-job and company

to company. Experience level also forms an integral part of the compensation package.

Compensation Packages in BPO & KPO

BPO and KPO units have entered the Indian markets with lucrative compensation

packages and high incentives.

Most of the organizations in the segment are foreign-owned. Few of the Indian

organizations have also come with the BPO and KPO units. The organizations are

attracting young talent by offering lucrative compensation packages.

Figure: Average salary offered in BPO and KPO

Compensation Packages in Software & Hardware Services

Software & Hardware services have created lots of jobs in the sector. Fresh and

experienced engineers are offered jobs with high packages. Top players like Microsoft,

Oracle, IBM, HCL, Infosys, Satyam, Sify, Wipro, LG, and Samsung are offering

lucrative packages to attract and retain talented workforce

Figure: Average salary offered in BPO and KPO

Entry Level Compensation Packages

BPO & KPO have come up with lots and lots of jobs for fresh graduates with handsome

salary packages and incentives. They are attracting young talent. Outsourcing industry

has come up with new job prospects for graduates. But it demands hard work and skilled

labour. The desired skills for BPO & KPO services are:

• Effective Communication Skills• Strong Commitment Level• Strong Analytical Skills• Ability to meet deadlines

Despite the fact that KPO & BPO do not offer job securities, the recruitment rate in the

segment is very high. Most of the job profiles are target based. High recruitment rate is

due to high average salary being offered to fresh graduates also.

Figure: Average Salary offered by Top Players in Indian IT-Enabled Services for Entry

Level Jobs

Management Level Compensation Packages

Employees need to work hard and achieve their targets in order to be in the lime light.

High attrition rate has caused organizations offer high compensation package.

Compensation plays an important part here. When the employees are provided with good

packages they produce well and maintain their stability but if not they cause high attrition

rate.

KPO, BPO, software and hardware services offers handsome salary packages and high

incentives to managerial level positions.

The project managers and other top management employees enjoy monetary and non-

monetary benefits from the organization. The organizations offer lucrative benefits to

retain the talent in the competitive environment. With The software and hardware

industry is in need of talented programmers, testers, developers and analysts to improve

their productivity. Educational institutes are updating their syllabi every year to deliver

updated and skilled human resource. The organizations are also providing for educational

programmes for their employees or their development to reduce the recruitment cost.

Figure: Average salary offered in BPO and KPO

Telecommunication Sector

Indian telecommunication sector is witnessing a growth rate of more than 25%. With the

upcoming of new upgraded technologies such as 3G, the sector will be experiencing a

growth rate of more than 100%. Public players and private players are competing with

each other and are developing themselves to produce more quality and deliver advanced

technologies. Top players in the segment such as Bharti Airtel, Reliance

Communications, Tata Teleservices, Idea Cellular, Hutchison, Essar, Nokia, Siemens,

LG, Motorola, etc are investing in new projects to accommodate the 3G technology.

With the business expansion and globalization of Indian organizations more and more

recruitments are taking place in the sector. The sector has also provided jobs in

marketing, installation and construction segments. Immense competition has led the

organizations hire more and more skilled labour, be it for upgrading their technologies or

marketing their products. Organizations are offering most competitive packages to attract

and retain talented human resource.

Figure: Average salary offered in Telecommunication Sector Based on Experience

Entry Level Compensation Packages

The sector is offering openings in banking, insurance, capital market, venture capital,

mutual funds, bonds, commodities markets, etc. Compensation provided to fresh

management graduates is also very lucrative. The sector is open for CA, CS, accountants,

MBA in finance and commerce graduates.

• Effective Communication Skills

• Sound Technical Knowledge

• Strong Commitment Level

• Strong Analytical Skills

Apart from pay packages marketing people also get high incentives and perks. The

industry provides for special allowances such as annual bonus, house rent allowances,

mobile allowances, transportations, travel leaves, paid vacations, etc.

Figure: Average Salary offered in Indian Telecommunication Sector for Entry Level Jobs

Management Level Compensation Packages

Telecommunication provides for excellent growth opportunities. In the global

competitive environment experienced people have an upper hand in selecting an

organization. Organizations need to offer most competitive packages and heavy perks to

attract and retain the talented work force.

Effective communication skills, good analytical skills and sound technical knowledge are

must to have a respectable position in telecommunication sector. Organizations such as

Idea Cellular,

Tata Teleservices, Reliance Communications, Bharti Airtel, Nokia, Siemens, ericcson,

Motorola, etc are advancing their technologies and providing most competitive

compensation packages. People working in telecommunication sector are asked to work

at stretch and in pressure. Also, the level of experience determines one’s level of

compensation package and position in the industry.

Figure: Average Salary offered in Indian Telecommunication Sector for Managerial

Level Positions

Banking & Finance Sector

Indian banking and finance sector is currently experiencing high growth rate. With

increased FDI and high inflation rates, finance sector is enjoying high deposits. Financial

institutes and commercial banks are expanding their business and going for large scale

recruitments. The banks are collaborating with insurance units to provide insurance

coverage to their clients. Few of the banks are also dealing in gold and silver.

Nationalized banks are preferred more as they provide for job security.

Compensation packages in banks have always been lucrative. Incentives, special

allowances, travel leaves, concessions, paid vacations, paid leaves, retirement benefits are

also offered along with basic salary and other allowances such as house rent

allowance,transportation vehicle etc. Compensation package in finance and banking

sector depends on the level of knowledge and experience an individual have.

Top players such as nationalized banks- Bank of India, SBI, Indian Overseas Bank, Bank

of Baroda, Punjab National Bank, HDFC, ICICI and other private banks, financial

institutes such as Bajaj Capital, Kotak Mahindra, etc, are offering high salary packages

with lucrative incentives to attract and retain their talented work force.

Figure: Average salary offered in Banking & Finance Sector Based on Experience

ENTRY LEVEL COMPENSATION PACKAGES

Indian finance & banking sector offers jobs in various segments. The managerial level

jobs are held by management professionals, commerce graduates and finance

professionals. However at the entry level there are more jobs for graduates in marketing

segment. The positions are for customer care executives, marketing executives in credit

card department, loan department, verification department, recovery department.

In other departments like audit, credit, advances, foreign exchange, etc individuals are

professionals such as CA, CS, MBA-finance, commerce graduates, B.com, M.Com etc.

Software packages such as tally certification guarantees jobs in the finance sector.

Getting into nationalized banks is quite difficult, but if the candidate has desired skills

and willingness, he/she has to pass an entrance exam followed by personal interview and

medical inspection. These exams are conducted by the respected banks only.

Packages offered to individuals are based on their knowledge level and training

experience. The profile of the candidate also matters. However the candidates looking for

a career in finance should possess the necessary skills. They are:

Effective Communication Skills

Commerce Background

Excellent Marketing Skills

Strong Analytical Skills

Ability to meet deadlines

Apart from pay packages finance professionals also get high incentives and perks. The

industry provides for special allowances such as annual bonus, house rent allowances,

mobile allowances, transportations, travel leaves, paid vacations, etc.

Figure: Average Salary offered in Indian Banking & Finance Sector for Entry Level Jobs

* The salary figures provided are for the business development executives and marketing

& sales executives

Management Level Compensation

Finance sector is a promising sector where compensation is considered. The sector has

witnessed tremendous increase in the salary packages in the last few years. The

compensation packages offered to managerial level employees are very much lucrative.

Besides the basic salary employees are also provided with heavy perks and incentives

with special allowances. They are offered club memberships, company’s vehicle, travel

leaves, paid vacations, other allowances and non-monetary benefits.

Organizations also conduct training and development programs for their employees’

professional growth. Organizations provide for certification courses and online degree

courses for the employees. At higher level employees are given employee stock options.

Individuals are given equal preferences on the basis of their performance.

Figure: Components of Compensation Packages at Managerial Level in Banking &

Finance Sector

Nationalized banks offer job security and private financial institutes provide high

lucrative packages. With the globalization, liberalization, business expansion, more

number of competitors, jobs in the financial sector are also demanding too much hard

work. Earlier bank jobs were considered very comfortable ones but now the scenario has

been changed. Indian banking sector is heading for 24*7. Some of the nationalized and

private banks have started working 8 to 8.

Figure: Components of Compensation Packages at Managerial Level in Banking &

Finance Sector

Hospitality Sector

In next 10 years Indian hospitality sector is expected to grow at fast rate. The emergence

of Government voluntary schemes such as Incredible India has caused more and more

tourists pouring in Indian holiday destinations. This has caused more and more

development of the hospitality sector. The sector can be categorized into two sub

industries- hotel industry and travel & tourism industry.

The sector offers jobs in various segments customer care executives, marketing,

servicing, house keeping, kitchen management, faculties, cabin crew, finance, help desk,

management, etc. Hospitality sector offers lucrative compensation packages. The

compensation package in the sector includes heavy incentives, meals, accommodation,

and travel allowances along with basic salary. Usually basic salary is less but the

incentives and perks known as tips provides for handsome earnings.

The compensation packages in the industry are based on the brand and position an

individual is working for. There’s a huge gap between the compensation provides by a 5

star hotel and an ordinary 1 star hotel. The package and position is also depicted on the

basis of the educational background of the candidate. A person with hotel management

degree will earn more than an individual with no certifications in hotel management.

Figure: Distribution of Compensation Packages in Hotel Industry*

* The figures are determined after analyzing the compensations offered in various

segments within the hotel industry.

For example, Front Desk Executives get very less compensation packages (including

perks and incentives).

Figure: Distribution of Compensation Packages in Tourism Industry*

* The figures are based on the proportion of compensation packages offered in the sub

segments of tourism industry.

Entry Level Compensation Packages

Hospitality Sector offers lucrative packages to fresh graduates. An individual needs to

complete a full time or part time degree or certification course to enter the promising

industry. The compensation packages offered vary from job to job, segment to segment

and brand to brand. For example, a pilot in some private airlines gets a very high package

than a driver in a roadways organization. But the industry offers heavy returns to the

owners of the business enterprises.

Hotel Industry

An individual who wish to join the hotel industry needs to have a certification course or

diploma/degree in hotel management.

Of course there are many low grade restaurants and other family restaurants and hotels

where these certifications are not required but there the compensation packages are very

less. The brand names such as ITC hotels, Hyatt Regency, Oberoi Hotel and Leela Hotels

offer high lucrative packages with heavy perks and incentives. But these organizations

look for diploma/degree holders. An individual must possess the following skills to fulfill

his/her salary expectations:

• Effective Communication Skills

• Specialized Skills

• Strong Commitment Level

• Willingness to Work at Stretch

• Team-oriented

• Willingness to Work in Shifts

Tourism Industry

Tourism industry also offers very promising compensation packages. There are various

job openings in the sector. One can start his/her career in any of the sub segments. There

are growth opportunities in railways, airlines, roadways and crews. There are both public

and private organizations dominating the sectors. Crews and Airlines offer most lucrative

packages to fresh graduates. They look for degree/diploma holders. Top players such as

Air India, Indian Airlines, Deccan Airways, Indian Railways, DTC, BEST, Shipping

Corporation of India Ltd are offering most competitive packages to their employees. One

needs to have some skills and attributes to start his/her career in the industry. The desired

skills are:

• Effective Communication Skills

• Specialized Skills

• Strong Commitment Level

• Willingness to Work at Stretch

• Team-oriented

• Willingness to Travel

• Willingness to Work in Shifts

Management Level Compensation Packages

Hospitality industry offers high packages. Although the basic salary in the sector is less

as compared to other sectors but the incentives and perks offered are very high that

makes the total amount a huge one. With relevant experience, diploma

certification/degree provides for an added advantage for the individuals working in the

hospitality industry.

Top management enjoys very high compensation packages in the hotel industry. The

packages include basic salary, incentives and bonus. Due to immense competition

packages are increasing at a high rate to attract and retain the talented workforce.

Big names such as Hyatt Regency, Leela Hotels, ITC Hotels, Oberoi Hotels are offering

lucrative packages. In the tourism industry airlines such as Air India, Kingfisher, Jet

Airways and Indian Airlines are offering higher packages to attract and retain best human

resource.

Figure: Average Salary Offered to Top Management in Hotel Industry

Hospitality sector provides for varied compensation packages. For example, hotels

located in center city and resort areas provide higher salary to their managers as

compared to hotels located along highways or in the suburbs. In a study it was found that

managers of a hotel located in center city earns an average of 125% more than the

manager working at a highway hotel. Industry is expected to grow at the rate of 8% that

predicts that compensation packages for the employees will also increase with the same

pace.

Healthcare & Medical Sector

Salary package is the core aspect for attracting and retaining employees. The immense

growth in the sector has caused the compensation packages in the industry increase at a

rapid pace. The compensation packages in the industry are reaching the same roof as of

IT sector in the country. The industry is booming and this has led the medical institutes to

offer lucrative packages to attract and retain skilled medical practitioners.

In recent study it was revealed that medical tourism is increasing in India.

It is expected that the Indian healthcare industry will grow by more than 40% in the next

5 years. This has caused more and more companies are entering the sector which is

demanding more and more professionals. Hence, the organizations offer most

competitive packages to acquire the best talent around. It has been found that that there

are many MNCs in the Indian healthcare industry who want to put the management on a

global scale.

Compensation Structure

The compensation package includes the following components. Apart from the regular

components, medical practitioners are also provided with the special benefits mentioned

below.

Figure: Components of compensation package in Indian Healthcare & Medicine Industry

Figure: Special Benefits offered in Indian Healthcare & Medicine Industry

The traditional aspect of equal pay in equal regions has been taken over by the new

phenomena of competitive pay across the industries. Globalization and business

expansions have caused the organizations to attract and retain the talented workforce.

They also keep in the mind the internal parity i.e. the pay structures are comparable with

respect to the job positions in the organizational hierarchy.

Entry Level Compensation Packages

Indian healthcare industry can be categorized in public and private sectors. The public

enterprises offer job security and the private institutes provides for lucrative packages.

The industry is creating opportunities in new areas to facilitate more health care services

such as health and fitness, wellness, rehabilitation, home healthcare, nutrition.

It is a challenge to the healthcare industry to restructure its compensation packages to

attract the young talent.

Young talent opts for performance based pay and incentives whereas old generation is

still demanding the heavy benefits. Organizations need to formulate a balanced strategy

to improve the organizational productivity and provide the most competitive pay-

packages.

Given below are the various openings the industry has for fresh medical professionals:

       

       

       

       

       

An individual should have a qualified degree from a reputed university to enter the

healthcare sector. He/she should possess the desired skills to gain the most competitive

packages:

• Effective Communication Skills

• Sound Technical Knowledge

• Strong Commitment Level

• Strong Analytical Skills

• Willingness to Work at Stretch

Besides the pay packages, employees are also given certain monetary and non-monetary

benefits such as allowances, accommodations, respective positions, perks, incentives,

insurances, etc. These benefits differ from organization to organization.

Management Level Compensation Packages

Organizations understand that only compensation package will not help them retain their

talented workforce but they need to provide excellent working atmosphere, growth

opportunity, and space for experimentation. The individual satisfaction level must also be

maintained. They should take measures to motivate employees. Like other industries in

healthcare industry too, the non-technical staff such as marketing team are receiving

lucrative packages.

Top Management Compensation Structure

The organizations are offering lucrative compensation packages to their senior

management. They try to balance the packages provided to the technical professionals

and non-technical professionals by offering annual bonuses and variable pay plans.

Companies are becoming competitive when it comes to luring top executives with a mix

of high basic salary, incentives, Employee Stock Ownership Plan and deferred pay. They

are also looking at performance-based salaries, with variable pay as a percentage of

salaries on the rise.

Figure: Compensation Package Offered to Senior Management in Indian Healthcare

Industry

Significant increase has been in salary packages in the industry. The average increase in

salary in the sector has been reported as 12% in the year 2006. Organizations have

offered car and accommodation benefits to their senior and middle management

employees. Given below is the average increase in the salary in the industry at various

segments:

Figure: Average salary increase in the Indian Healthcare Sector

The compensation in the industry also depends on the specialized area. Compensation is

decided with respect to the individual’s contribution to the organization.

LIMITATIONS

Everything has some pros and cons and so certain limitations of this study that we could

observe are as follows:

The area of project work is wide and include various sector so, the data or result may be

approximate as the conclusion is based on the survey method.

The organizations which have been studied and surveyed, the facts depend on various

web references.

Approximate data has been provided.

SCOPE

The scope of this project is to understand the concept of compensation management and

study of the strategies in various sectors in India.

RESEARCH METHODOLOGY

RESEARCH DESIGN

INTRODUCTION

A Research Design is the framework or plan for a study which is used as a guide in

collecting and analyzing the data collected. It specifies the methods and procedures for

acquiring the information needed to conduct the research effectively.

RESEARCH METHODOLOGY

TYPE OF DATA COLLECTED

Data is defined as data that is collected from original sources for a specific purpose.

These include books, the internet, the company website etc.

SWOT ANALYSIS

STRENGTH.

Superior customer service vs. competitors.

Services have required accreditations.

High degree of customer satisfaction.

Good places to work

Dedicated workforce aiming at making a long-term career in the field.

WEAKNESSES

Some gaps in range for certain sectors.

Customer service staff needs training.

Processes and systems, etc

Management cover insufficient.

Sectorial growth is constrained by low unemployment levels and

competition for staff

CONCLUSION

Today employees are treated as essential component of organization even more valuable

than other assets. Employee compensation hence is very critical process on part of

Human resource manager. In recent times a shift is observed in a way that employees are

being compensated. The compensation plan must be communicated easily to the

employees. Also fairness and transparency should also be taken into consideration while

designing compensation plan. Employees must be encouraged to participate in the design

of the compensation plan.

There are various factors on which compensation plan should be designed. Major factors

includes inter dependency of the jobs, accurate and objective measure of performance of

the employee , Organizational culture of the company, management support for the staff,

effective communication skills of the employee and employee flexibility towards various

responsibility given. Employees should be accessed on these parameters instead of being

accessed on basis of traits for the purpose for revision in compensation plan.

Today there is a paradigm shift in work culture with focus on team based approach as

compared to traditional approach of individualistic work approach. Now employees are

rewarded and paid compensation on basis of individual performance as well as

performance of the whole team. Thus rewarding of an individual should essentially be

combined with certain team based reward as well. The compensation plan should be able

to recognize the contribution of individual employee towards organization. Also

compensation plan should recognize collaborative efforts of the team. Thus individual

rewards should consider the fact that the employee has been a team player, thus fostering

an environment of cooperation and collaboration.

Compensation plan and reward systems are different in different organizations. There is

no thumb rule that can be placed in an organization to determine what kind of plan they

should place in the system or a plan that can be implemented in that particular

organization. Finding and hence formulating the correct compensation plan for any

particular organization will always remain the most difficult task to implement. But it can

be achieved successfully with a lot of planning thus finding the right mix of rewards for

the individuals and teams in their organizations.