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What is compensation Planning:

Compensation planning is the process of defining and
implementing the strategies that will be used to attract,
motivate, and retain talent. It typically involves salary,
bonuses, benefits, and other types of compensation.
It's important to balance what employees deserve and what
employers can afford when deciding about compensation
plans.
Compensation planning is an aspect of talent management.
Compensation planners work closely with other
departments, such as finance, accounting, and legal. They
ensure the company's compliance with tax law and other
regulations.
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Purpose of Compensation Planning:
Compensation planning is essential for all HR systems. It
helps provide direct compensation for overtime, productivity,
and other related activities not directly related to job duties.
In other words, compensation planning allows employees to
earn compensation for their work beyond their contracted
hours. It helps them get compensated without spending a
great deal of their time managing their compensation
accounts.
The overall goal of any business is to make a profit. To do so,
you need to spend less than what you make. When it comes to
compensations, a few different areas need to be addressed for
the company to stay profitable.
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The first step is understanding how much your employees cost you.
Once you have a clear picture of where your money goes, you can
begin planning for the future and set goals for your employees.
Compensation Planning Process:
The key to successful compensation planning is identifying the
contributing factors early on in the process. Let's look at the crucial
steps you need to take in compensation planning.
 Outline your Objectives
It's important to have a clear, well-defined plan of action before
you start. You need to set the objectives and targets that will dictate
the success of your compensation plan.
The outline should include specific plans for how you'll allocate
money to your team members based on their roles. After that,
create job descriptions for each person on the team and set a
budget.
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The job descriptions will help you define each position's job
on the team. And a budget will help you define how much to
pay your employees.
 Appoint A Manager
In order to make sure that your compensation plan is
effective, you need someone to oversee and implement the
compensation plan.
The compensation manager should work with your human
resources team to determine employee pay options based on
factors such as:
• Company's budget
• Industry pay benchmark
• Company's organizational hierarchy
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 Determine A Compensation Goal
Having a goal and vision set for your compensation plan
will drive your compensation strategy. You do this so you
can offer a package that will attract the very best talent.
Ask yourself this: how competitive do you want to be in the
job market? Do you want to offer low pay and some great
benefits, or do you want to offer above-average pay with
below-average benefits?
 Organize Jobs in A Matrix By Ranking Them
You need to rank jobs and place them within categories. It's
important to organize jobs based on their level of
importance and then assign them to a tier. It will help you
determine your pay structures for your employees.
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For example, you need to create different pay scales for
mid-level executives versus entry-level executives.
While doing this, it is equally important that you should
consider the jobs, the markets, and what you think people
might expect.
 Develop A Grade System According To The Seniority
Within each job classification, develop a seniority, or grade,
system that will allow for both— opportunities for
advancement and changes in compensation.
Create a career ladder for each job role so that employees
can achieve a position of influence and responsibility over
time. Meanwhile, your compensation planning should allow
the best performers to advance and grow in their careers.
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 Decide On Your Compensation Strategy
Once you have your outline for your compensation plan and
objectives, assign pay rates and a salary range for each
position and job classification. This is when you fine-tune
your organizational budget.
You can pay compensation in various ways, such as straight
salary, salary plus commission, hourly rates, and overtime pay.
 Ensure All Policies Are in Place
A compensation plan will impact many policies related to
payroll, fringe benefits, and other pay-related matters.
For example, companies often have policies for paid holidays,
healthcare benefits, payroll administration, and company-
issued pay advances. They need to factor into, or at least align,
all of these with, the company's compensation plan.
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 Get the Approval
Once you have a plan in place, it's important to get approval
from your company's other leaders before moving forward.
It's also important to keep your team members engaged and
involved in the process.
You can do this by making sure they know what you're
working on, why it matters, and what their roles are.
Once your company is aligned with your vision, you'll be
able to launch the program with confidence.
In order to have a successful employee compensation plan,
you'll need the support of your company's other leaders.
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 Plan A Communication Strategy
One of the most important aspects of any competitive
compensation program is ensuring that all employees are
aware of it.
To do this, you must communicate the plan to them using a
variety of methods. Some examples are email, group
gatherings, social media posts, flyers in common areas.
If some employees do not speak English as a first language,
ensure they receive this message in their native language.
This will ensure that they can make an informed decision
about their future with your company. It will also give you
insight into how to improve your compensation package for
next year.
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 Adapt Or Evolve As Needed
Monitoring and adjusting your compensation can help you
to maintain compliance and remain competitive.
It's important to understand the legal implications of
compensation decisions to ensure that they align with state
and federal regulations.
You should also periodically review what you pay
employees to remain competitive.
Monitor your pay practices to see if any adjustments are
necessary to remain legally compliant and competitive. The
changes may be small, but might be important, so be
prepared for them.
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Objectives of sound compensation Management:
 To acquire qualified competent personnel.
 To retain the present employees.
 To secure internal equity and external equity.
 To ensure desired behaviour
 To keep labour and administrative cost in line with ability to
pay
 To protect the public as a progressive employers and to comply
with the wage legislations.
 To facilitate pay roll administration of budgeting and wage and
salary control.
 To simplify collective bargaining procedures and negotiations.
 To promote organisation feasibility
Principles of Compensation Management:
There are several principles of compensation plans and
practices. The important ones among them are:
1. Wage and Salary plans should be sufficiently flexible.
2. Job evaluation must be done scientifically.
3. Wage and Salary administration plans must always be
consistent with overall organizational plans and
programmes.
4. These plans and programmes should be in conformity
with the social and economic objectives of the country
like attainment of equality in income distribution .
5. These plans should be responsive to the changing local
and national conditions.
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The Elements of Wage and system:
•Identifying the available salary opportunities, their costs,
estimating the worth of it’s members, of their salary
opportunities and communicating them to employees.
•Relating salary to needs and goals.
•Developing quality, quantity and time standards related to
work and goals
•Determining the effort necessary to achieve standards
•Measuring the actual performance
•Comparing the performance with the salary received
•Measuring the job satisfaction of the employees
•Evaluating the unsatisfied wants and unrealized goals
aspirations of the employees
•Finding out the dissatisfaction arising from unfulfilled
needs and unattained goals.
 Factors Influencing Compensation Levels:
1. Job Needs:
2. Ability to pay:
3. Cost of Living:
4. Prevailing Wage Rates:
5. Unions:
6. Productivity:
7. State Regulation:
8. Demand and Supply of Labour:
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Pay Structure:
A comprehensive understanding of the salary structure is crucial for
both HR and finance teams, as well as for candidates assessing job
opportunities.
A clearly outlined salary structure not only clarifies pay distribution,
but also supports organizational objectives.
What is a Salary Structure or a Pay Structure?
A salary structure also known as compensation structure or pay
structure, refers to the framework that displays how employees are
paid.
It further provides a systematic approach to establishing pay levels for
different roles and responsibilities within a company. Salary structure
includes various components such as base salary, allowances, bonuses,
benefits, deductions, perks.
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Moreover, a pay structure consists of salary grades or pay
grades, which group together jobs with similar pay levels in
the market. It offers valuable insights into creating a
competitive and fair compensation framework.
Types of Pay Structures
Global pay structures can vary significantly based on factors
such as industry norms, company size, and geographical
presence. Each structure may additionally have its advantages
and challenges.
 Traditional and Hierarchical Structure
This is a commonly used pay structure. Employees move up in
the hierarchy based on performance, experience, and seniority.
Consequently, the salary increases at each level. Though this
approach rewards loyalty and longevity, it may discourage
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 Graded Structure
In this structured approach, jobs are categorized into specific
grades. Employees accordingly progress through these grades
annually or bi-annually as part of their performance reviews.
This system strongly motivates employees by providing clear
advancement opportunities based on their performance and
achievements.
 Step Structure
The Step Structure rewards employees based on their tenure,
thus aiming to encourage loyalty with incremental pay raises.
However, its focus on tenure may limit career advancement
opportunities compared to structures emphasizing
performance or skills. Nonetheless, it effectively
enhances employee retention and stability in organizations
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 Broadband Structure
The Broadband Salary Structure reduces pay grades and widens
salary ranges, allowing flexibility in setting salaries based on
experience and performance.
While this may lead to larger salary disparities among
employees in similar roles and quick salary cap reach, but it
remains popular for its adaptability to market conditions and
organizational needs.
 Market-based Structure
This approach sets salaries based on industry standards, job
demand and regional factors. Thus this strategy may attract top
talent and improve retention rates.
However, it may increase labor costs and potentially discourage
internal career growth and promotions due to competitive
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 Skill-based Structure
A skill-based structure pays employees based on their skills and
qualifications. It values each employee’s abilities and
encourages them to develop professionally.
However, it might create competition instead of teamwork and
could lead to differences in wages among employees based on
their skills.
 Flat Structure
This gives every employee the same base pay, no matter their
role, experience, or tenure. Performance bonuses or profit-
sharing may be added, but everyone starts with an equal base
salary.
Moreover, this fairness aims to foster teamwork, but it might
not motivate top performers who could feel their efforts aren’t
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Reward:
Organisations expect efficient performance from their
employees in order to contribute to the attainment of the
individual goals. Organisation reward their employees who
contributed to the achievement of organisational goals.
Types of Rewards:
Intrinsic rewards are the satisfiers that the employees get
from the job itself. These rewards include, pride in ones
work, having a feel of accomplishment, being a member of a
team, job enrichment etc.
Extrinsic rewards include wage/salary, fringe benefits,
welfare measures, promotions, incentives etc. These benefits
are external to the job and come from management.
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Financial vs Non financial Rewards:
Rewards are two types viz., financial rewards and non financial
rewards. Financial Rewards include wages/salaries, allowances,
incentive payments, bonuses, profit sharing and the like.
Non financial rewards include canteen facilities, conveyance
facilities, medical care, paid vacations, paid sick leave etc.
Performance based vs Membership based Rewards:
The rewards that the organisation allocates are based on either
performance criteria or membership criteria. Performance based
rewards are exemplified by the use of commissions, incentive pay,
piece work, pay plans, group bonuses etc.
Membership rewards are allocated to all employees as they are the
employees of the organisation. These include: basic salary/pay,
dearness allowance based on the cost of living index, HRA, City
compensatory allowance etc.
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Real wage: Real wage is the amount of wage arrived after
discounting nominal wage by the living cost. It represents the
purchasing power of money wage.
Take Home Salary: It is the amount of the salary left to the
employees after making authorised deductions.
Minimum Wage: It is the amount of the remuneration which could
meet the “ normal needs of the average employee regarded as a
human being living in a civilized society”
Statutory Minimum Wage: It is the amount of the remuneration
fixed according to the provision of Minimum Wages Act 1948.
Living wage: According to the committee on fair wages, the living
wage is the highest amount of remuneration and naturally it would
include the amenities which a citizen living in a modern civilized
society is entitle to expect, when the economy of the country is
sufficiently advanced and the employer is able to meet the expanding
aspirations of his workers.
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The fair wages: Fair wages are equal to that received by
workers performing work of equal skill, difficulty or
unpleasantness.
Incentive wages: This is the amount of remuneration paid
to a worker over and above the normal wage as an incentive
for employees contribution to the increased production or
saving in time or material.
Wage Rate: It is the amount of remuneration for a unit of
time excluding incentives, over time pay etc.
Standard wage Rate: It is the amount of wage fixed for a
unit of time fixed on the basis of job evaluation standards.
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Terminology and Concepts:
Wage: Wage and Salary are often discussed in a loose sense,
as they are used interchangeably. According to ILO wage as
the remuneration paid by the employer for the services of
hourly, daily, weekly and fortnightly employees. It also
means that remuneration paid to production and
maintenance or blue collar employees.
Salary: The term salary is defined as the remuneration paid
to the clerical and managerial personnel employed on
monthly or annual basis.
Earnings: Earning are the total amount of remuneration by
an employee during a given period.
Nominal Wage: It is the wage paid or received in monetary
terms. It is also known as money wage.
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Employee Benefits:
Objectives of fringe benefits:
1. To create and improve sound industrial relations.
2. To motivate the employees by identifying and satisfying their
unsatisfied needs.
3. To provide security to the employees against social risks like
old age benefits and maternity benefits.
4. To protect the health of the employees and to provide safety to
the employees against accidents.
5. To promote employees welfare
6. To create a sense of belongingness among employees and to
retain them.
7. To meet the requirements of various legislations relating to
fringe benefits.
Types of Fringe benefits:
a. Payment for time not worked:
1).Hours of work
2). Paid holidays:
3). Shift Premium:
4). Holiday Pay:
5). Paid vacation:
b). Employee Security:
c). Safety and Health:
d). Workmen’s Compensation:
e). Health Benefits:
f). Welfare and Recreational benefits:
g). Old age and retirement benefits:
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Stress Management:
Stress is the way human beings react both physically and
mentally to changes, events, and situations in their lives.
People experience stress in different ways and for different
reasons.
The reaction is based on your perception of an event or
situation. If you view a situation negatively, you will likely
feel distressed—overwhelmed, oppressed, or out of control.
Causes of Stress: The most frequent reasons for “stressing
out” fall into three main categories: 1. The unsettling effects
of change 2. The feeling that an outside force is challenging
or threatening you 3. The feeling that you have lost personal
control.
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Fred Luthans, stress is defined as an adaptive response to an
external situation that results in physical, psychological,
and/or behavioural deviations for organisational participants.
The following are the features of stress:
 Stress is both psychological and physical aspect.
 It is common to both the genders.
 It results from the deviation of expectations from actual
situation.
 It is symptomatic. Potential stress appears with the
symptoms. If the potential stress is ignored it leads to
actual stress.
 Stress is treated to be negative. Nevertheless, it has
positive consequences.
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 Stress is generic term. If it is applied to the context of
organisation, it is known as work stress or job stress.
 Stress occurs only when the human being feels mediation
of the internal or external factors.
 Stress is related to the attitude of the person. Stress does
not occur when the person is having an indifferent attitude
to the opportunity.
 Stress is associated with certain common biological
disorders such as heart attack, stroke, diabetic, blood
pressure, neurological disorders etc.
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The variables that convert potential stress into actual stress are known
as stressors. Thus, stressors can be intra- organisational and extra
organisational.
Intra-organisational stress arises out of individual, group, and
organisational factors.
Extra organisational factors relate to environment of the organisation.
Let us learn them in detail.
Individual Factors: Individual factors, which cause stress include:
personality and individual differences, family problems, economic
problems, life styles and role demands.
In modern organisations, number of factors create an environment of
stress. The changing environmental dynamics, globalisation,
organisational adjustments like mergers and acquisitions lead to stress
among employees.
In addition, a number of internal organisational factors cause employee
stress. Some of them are:
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poor working conditions, strained labour management
relations, disputed resource allocations, co-employee
behaviour, organisational design and policies, unpleasant
leadership styles of the boss, misunderstandings in
organisational communication, bureaucratic controls,
improper motivation, job dissatisfaction, and less attention to
merit and seniority.
Extra-Organisational Factors:
Environmental Factors: Environmental factors are extra
organisational. Nevertheless, they create job stress in the
individuals. These are internal and external factors. Most of
the internal environmental factors relate to the organisational
goals, management systems, structure, processes and design
of organisations. They are discussed in the preceding section.
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External environmental factors relate to the general
environment of the organisation. They are political,
economical, technological, legal, ecological, governmental,
social, cultural and ethical.
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Meaning and Concept of QWL: The phrase ‘Quality of
Work Life’ (QWL) connotes different meanings to different
people. Some consider it an industrial democracy or co-
determination with Meaning and Concept of QWL increased
employee participation in the decision making process.
For others, particularly managers and administrators, the
term denotes improvement in the psychological aspects of
work to improve productivity.
Unions and workers interpret it as more equitable sharing of
profits, job security, healthy and congenial working
conditions.
Still others view it as improving social relationship at
workplace through autonomous work groups.
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Management considers it as a broader view of changing the
entire organizational climate by humanizing work,
individualizing organizations, and developing the structural
and managerial systems.
Broadly, the concept of QWL involves four major aspects:
(i) safe work environment, (ii) occupational health care, (iii)
suitable working time, and (iv) appropriate salary.
The concept of QWL is based on the assumption that a job is
more than just a job; it is the centre of a person’s life. In
recent years there has been increasing concern for QWL due
to the following factors:  increase in education level and
consequently job aspirations of employees;
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 association of workers;
 significance of human resource management;
 widespread industrial unrest;
 growing of knowledge in human behavior, etc.
Michall Maccaoby identified four factors to measure the
QWL, such as (i) Security (right to work and working
conditions),
(ii) Equality (distributive justice),
(iii) Democracy (autonomy and opportunity to use abilities)
and,
(iv) Individualization (perception of uniqueness).
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Klott, Mundick and Schuster suggested 11 major QWL
issues. They are:
(i) pay and stability of employment,
(ii) occupational stress,
(iii) organizational health programs,
(iv) alternative work schedules,
(v) participative management and control of work, (vi)
recognition,
(vii) congenial worker supervisor relations,
(viii) grievance procedure,
(ix) adequacy of resources,
(x) seniority and merit in promotions and
(xi) employment on permanent basis.
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