Compensation
Management & Reward
System
Prof. B C Barik
Compensation & Reward
Compensation: It refers to monetary payment given to
an individual in exchange for his services.
In the workplace, compensation is what is earned by
employees.
Or any payment given by an employer to an employee
during their period of employment
It can be in the form of a salary, wage, benefits,
bonuses, paid leave, pension funds, and stock options,
incentives and more that come with the given
employee's position.
Common synonyms of compensate are indemnify, pay,
recompense, reimburse, remunerate, repay, and satisfy
Compensation & Reward
Salary & Wage
Salary is a definite amount a company or
business must pay its employees regardless of
the nature of their work
Wages are remuneration a person receives based
on the time he/she spends on a particular work.
1. Fair wage
2. Living Wage
3. Minimum wage
Compensation & Reward
Types of Wages
Minimum Wages
As the name suggests, the minimum wage is the lowest wage an
employer can provide to its employees for their service. With a
minimum wage, an employee can meet his/her necessities
Living Wages
These wages are sufficient to serve the basic requirements of an
employee and his/her family. The Committee on Fair Wage
defines a living wage as the minimum amount that covers all
basic amenities that a person and his/her family can afford to
live in a modern society.
Fair Wages
This is considered the mean wage between the minimum wage
and the living wage of an individual.
Compensation: Objectives
Attract Talent
Retain Talent
Ensure Equity: Pay should equal the worth of a job
New and desired behaviour: Should reward loyalty,
commitment, experience, risks taking, initiative and other
desired behaviours.
Control Costs: should neither be over paid nor underpaid
Comply with legal rules
Ease of operation: CMS should be easy to understand and
operate
Compensation & Reward
Reward:
A monetary acknowledgment that is given in return
for good / hard work done or for some service or
attainment.
Reward is the attractive and motivational property
of a stimulus that induces appetitive behavior, also
known as approach behavior, and consummatory
behavior.
An award is an accolade given to somebody for
achieving something exceptional.
Employee compensation
components
Includes several components that together form the
overall remuneration package for an employee.
1.Base Salary or Wage: The fixed amount of money an
employee earns, either annually, monthly or hourly,
serving as the foundation of their compensation.
2.Bonuses: Additional financial incentives based on
performance, company profits, or reaching specific goals.
3. Commissions: Payment based on sales or performance
metrics, often associated with sales roles.
4. Benefits: Non-wage compensations such as health
insurance, retirement plans, life insurance, disability
insurance, and more.
Employee compensation
components
5. Stock Options or Equity: Opportunities for employees
to purchase company stock at a predetermined price,
aligning their interests with the company’s success.
6.Paid Time Off (PTO): Vacation days, sick leave, holidays,
and personal days that employees receive without loss of
pay.
7.Allowances: Compensation for specific expenses, such as
travel, meals, or work-related costs.
8.Flexible Work Arrangements: Compensation in the
form of work-life balance benefits such as remote work
options, flexible hours, or reduced workweeks.
Employee compensation
components
9.Professional Development: Funding for training,
certifications, or education to enhance an employee’s
skills.
10.Recognition Programs: Non-monetary awards or
recognition (like employee of the month programs)
that acknowledge employee contributions.
Financial Compensation
Financial Compensation
• Types:
• Base Pay
• Variable Pay
• Bonuses
• Incentives
• Strategies: Ensuring equity, competitiveness, and
performance alignment
Non-Financial Compensation
Non-Financial Compensation
• Components:
• Benefits (health insurance, retirement plans)
• Work-Life Balance (flexible working hours, remote
work options)
• Recognition Programs (employee of the month,
awards)
• Career Development (training, professional
growth opportunities)
Compensation Management
Goal:
a. To ensure that employees are motivated, retained,
and fairly compensated for their work,
b. To Align their contributions with the organization's
goals
Compensation Management is the strategic process
of planning, organizing, and controlling the
compensation provided to employees in an
organization.
Includes all forms of financial returns, tangible
services, and benefits employees receive as part of
an employment relationship.
Basis of Compensation
Management
• Principles:
• Equity
• Competitiveness
• Alignment with Organizational Strategy
• Internal Factors: Job value, employee
performance.
• External Factors: Market trends, economic
conditions.
Principles of Compensation Management:
1. Equity:
1. Internal Equity: Ensures that employees perceive fairness in compensation
within the organization.
2. External Equity: Ensures that the compensation offered is competitive with
similar jobs in the labor market/ Industry. This helps in attracting and
retaining talent.
2. Competitiveness:
Compensation packages should be competitive with the market to attract
and retain skilled employees. This involves regularly benchmarking pay
levels against industry standards and adjusting them as necessary
3. Alignment with Organizational Strategy:
Should be aligned with the overall strategic goals of the organization.
A company aiming to be a leader in innovation, might offer higher pay or
incentives for creative roles.
Compensation strategies should support the organization's mission, culture,
and business objectives.
PAY Structure
A framework that outlines how employees are compensated within an
organization.
Pay structure based on factors such as job roles, experience,
education, performance, and market conditions
Components of a pay structure
Salary Grades or Bands
Pay Scale / Range
Base Pay
Variable Pay (Bonuses, Commissions)
Pay-for-Performance
Market Pay Comparison
Benefits and Allowances
Seniority and Experience Adjustments
Importance to have both direct and
indirect compensation
Attracting Talent
Employee Retention
Motivation and Performance
Work-Life Balance
Building a Strong Employer Brand
Cost Efficiency for Employers
Catering to Diverse Employee Needs
Compliance with Legal and Ethical Standards
Key Points on Legal Compliance in
India
Applicable Acts
1. Minimum Wages Act, 1948
Employers must pay at least the government-notified minimum
wage.
Varies by state, sector, and skill level.
Revised periodically.
2. Payment of Wages Act, 1936
Ensures timely payment of wages without unauthorized
deductions.
Applies to employees earning below a specified wage threshold.
Key Points on Legal Compliance in
India
3. Equal Remuneration Act, 1976
Equal pay for equal work, irrespective of gender.
Prohibits gender-based discrimination in recruitment
and employment conditions.
4. Employees' Provident Fund and Miscellaneous
Provisions Act, 1952
Employers must contribute to the employee provident
fund.
Aims to ensure financial security post-retirement.
Government defines contribution rates.
Key Points on Legal Compliance in
India
5. Payment of Bonus Act, 1965
Mandates annual bonus payments based on profits
or productivity.
Applicable to establishments with 20+ employees.
6. Payment of Gratuity Act, 1972
Employees entitled to gratuity after 5 years of
continuous service.
Gratuity based on last salary and years of service.
Key Points on Legal Compliance
in India
7. Maternity Benefit Act, 1961
Provides up to 26 weeks of paid maternity leave.
Applicable to establishments with 10+ employees.
8. Industrial Disputes Act, 1947
Governs layoffs, retrenchments, and worker
compensation.
Requires severance pay in specific termination cases.
Key Points on Legal Compliance in
India
9. Shops and Establishments Acts (State-Specific)
Regulates working hours, holidays, overtime, and leave
policies.
Applicable to shops and commercial establishments.
10. Code on Wages, 2019 (Upcoming Framework)
Consolidates 4 major labor laws: Minimum Wages,
Payment of Wages, Equal Remuneration, and Bonus
Acts.
Simplifies compliance with uniform definitions and
Importance of Legal Compliance
Avoids Penalties – Prevents legal fines and
regulatory action.
Ensures Fair Treatment – Guarantees employee
rights and benefits.
Promotes Equity – Supports gender equality in
workplaces.
Enhances Reputation – Reflects ethical and
responsible business practices.
Q&A
