Managing Manpower and Compensation
(MPC)
Project On
Issues Related To Compensation
What Is Compensation?
Compensation of employees is the total remuneration, in cash, payable by an enterprise to an
employee in return for work done by the latter during the accounting period.
Compensation of employees has two main components:
(a) Wages and salaries payable in cash;
(b) The value of the social contributions payable by employers: these may be actual social
contributions payable by employers to Social Security schemes or to private funded social
insurance schemes to secure social benefits for their employees; or imputed social
contributions by employers providing unfunded social benefits.
Employee
Compensation…
Compensating an employee is not simply a process of settling
upon a mutually agreeable salary. There are a number of
regulations and reporting requirements that need to be met.
Here is some information a variety of issues surrounding
compensation that you need to be aware of.
Competitive Wages:
• When deciding pay rates for skilled workers, it may be helpful to keep tabs on the going
rates for your industry and area.
Minimum Wages Requirements:
• The Fair Labor Standards Act (FLSA) establishes current minimum wage requirements for
employees.
• Exceptions include lower wages for employees under 20 years of age for a defined period
of time, certain full-time students, apprentices, interns and workers with disabilities.
Overtime Wages:
• The rate for all hours worked over a 48 hour workweek are at least double the wages.
Wage Garnishment:
• Wage garnishment occurs when an employer withholds the earnings of an individual for
the payment of a debt as the result of a court order or other equitable procedure.
Objectives of Compensation
System…
• Large sum of money is invested on the people.
• Design rests on what must the company achieve.
• System therefore needs to attract good employees by structuring
packages that tempt people to do the job.
Designing a Compensation
System…
• Traditional way of paying was done by ignoring the interaction of
organizational members and buying employees time by the hour.
• No incentives, no rewards, etc.
• Today the employees are valued.
• In a rewarding environment, people work hard.
Fixation of wages are done by …
• Collective Bargaining.
• Government Legislation.
• Top Managements philosophy regarding pay.
• Top managements willingness to recognize effort and ability.
Components of Salary …
Basic
Allowances
Incentives
Benefits
Reimbursements
JOB ANALYSIS PAY STRUCTURE
SALARY SURVEY
Principles of value –chain
compensation
• Companies need to look at compensation as a value-creating
function.
• It creates value for the organisation and employees.
• Balances the four major compensation objectives which include:
• Sustaining management
• Motivating performance
• Building employee commitment
• Encouraging growth in employee’s skills
Principles of Reward Strategy…
• Pay for Performance.
• Links to other levers of organisational change such as providing
recognition when deserved.
• Match incentives to the company culture
• Keep incentives clear and simple
• Over-communicate the reward strategy for the best results
• The greatest incentive is the work itself as employees want to be
recognised for the work they do and the contributions they make
Model for compensation system...
Analyze present compensation structure
Formulate salary policies
Select compensation system
Develop implementation plan
Evaluate and monitor
Job- Based compensation plan route...
Conduct job analysis
Identify compensable factors
Develop a job hierarchy
Construct job grades
Carry out compensation survey
Establish final pay policy
Types of Compensation…
• Compensation provided to employees can direct in the form of
monetary benefits and/or indirect in the form of non-monetary
benefits known as perks, time off, etc.
•Compensation does not include only salary but it is the sum total of
all rewards and allowances provided to the employees in return for
their services. If the compensation offered is effectively managed, it
contributes to high organizational productivity.
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.
MEDICAL
REIMBURSME
NT
BASIC
SPECIAL
SALARY
ALLOWENCE
DIRECT
COMPENSATI
ON
HOUSE RENT BONUS
ALLOWANCE
LEAVE
CONVEYANCE TRAVEL
ALLOWANCE
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.
OVERTIME
POLICY HOSPITALISATI
ON
LEAVE
POLICY
INDIRECT
COMPENSATI INSURANCE
ON
FLEXIBLE
TIMINGS
RETIREMENT
BENEFITS
HOLIDAY LEAVE
HOMES TRAVEL
Traditional Pay System…
• Traditionally people were paid primarily through base salaries
determined by specific job, the need to maintain a certain level of
internal pay equity an the need to pay externally competitive salaries.
• Employees were not encouraged to develop skills.
• This had to change
TRADITIONAL CHANGE IN MODERN
COMPENSATION COMPENSATI COMPENSATION
SYSTEM ON SYSTEM SYSTEM
Change in Compensation
System…
• 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,
•social needs,
•psychological needs,
•safety needs,
•self-actualization, etc.
• 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.
Today’s Compensation System…
• Today the compensation systems are designed aligned to the business goals and
strategies.
• Today the compensation systems are designed aligned to the business goals and
strategies.
• 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.
Emerging Pay Systems…
• Pay for knowledge and skills
• Pay for competencies
• Performance based pay
• Incentive pay systems
Employee Benefits…
Items in the total package offered to employees over and above salary
which increase their wealth or well-being at some cost to the employer
Mandatory Benefits…
•Compensation for injuries and diseases
Voluntary Benefits…
•Most of these benefits have certain legislative minimums.
•Vacation leave
•Paid public holidays
•Time for personal matters
•Sick leave
•Maternity leave
•Health and life insurance
•Medical Aid Schemes
•Pension Funds
•Employee Services e.g.. Canteens, social and recreational services
Our Survey…
This is a brief idea of about the payroll compensation of various organizations.
Barista Coffee Company
This is the salary of a Brew Master- 1(fresher):
Basic salary: Rs 2250per month.
HRA: Rs 1125 per month.
Conveyance allowance: Rs800 per month.
Uniform(washing)allowance: Rs 327 per month.
Meal allowance : Rs625 per month.
Companies contribution to P.F 12% of basic salary: Rs270 per month.
Employees contribution to P.F 12% of basic salary: Rs270 per month
Companies contribution to ESI:4.75%(basic+hra+conveyance+spl allowance+meal
allowance):Rs228per month.
Companies contribution to ESI:4.75%(basic+hra+conveyance+spl allowance+meal
allowance):Rs84per month.
