Human Resource

Management
Prof. Maninder Singh
Compensation
“I began to realize how simple life could be if one
had a regular routine to follow with fixed hours, a
fixed salary, and very little original thinking to
do.” —Roald Dahl
Defining Compensation
Compensation refers to all financial returns
and tangible benefits that employees receive
as part of an employment relationship.
 Support the achievement of the organization’s objectives
by aligning the compensation directly

Motivate all employees

Drive and support the desired behavior

Objectives of
Compensation Encourage the organization to compete in the
employment market

Promote flexibility by introducing flexible pay structures

Provide value for money by conducting cost-benefit

analyses
 Establish pay levels on the basis of their
Establish competitiveness, relevant labor markets and their
internal value

Regularly reward employees for exceptional

Reward
performance

Objectives of
Distribute Distribute pay equitably and consistently
Compensation
Maximize effectiveness of funding based upon
Maximize
employee, retention and motivational outcomes

Ensure accountability for compliance within rules &

Ensure
regulations and statutory requirements
Total Compensation Process
 A compensation strategy lays out organization’s point of
view on how organization will determine pay and benefits
for employees.

It aligns all compensation resources to business goals,

helps org. decide where org. want to compete, how
Compensation competitive org. need to be and what org. choose to
Strategies reward.

A compensation strategy forms the backbone of

company’s compensation plan.

With a solid strategy in place, organization can quickly

make sound decisions about compensation.
 A compensation strategy should:
Have strong employee focus
Be clear, concise and well-written
Follow market practices
Compensation
Help employee choose from available benefits
Strategies
Have a mix of fixed and variable pay
Be easy to administer
Focus on the reward base
Kinds of Compensation
Kinds of Compensation
FINANCIAL COMPENSATION
Direct financial compensation consists of the pay that a
person receives in the form of wages, salaries, commissions,
incentives and bonuses.
Indirect financial compensation consists of benefits like
financial rewards and a wide variety of rewards & benefits
(which are not part of the direct financial compensation) that
is received indirectly by an employee.
NON-FINANCIAL COMPENSATION consists of the satisfaction
that a person gets from the job and the physical and
psychological environment of the workplace.
 Total Compensation Equation
TC=(BP+AP+IP)+(WP+PP)+(OA+OG)+(EI+QL)+X
 The Compensation Programme

Base wage and Wage and salary Incentive

Allowances
salaries add-ons payments

Employee Performance-
Profit sharing,
benefits and related variable
gain sharing
services pay
 Base Wage and Salaries
• Most important part of compensation
• Determination and administration of base
wages and salaries
Details of the Wage and Salary Add-ons:
Compensation
• Includes shift differentials, overtime pay, pay
programme for working weekends etc

Incentive Payments:
• Payment for a specified output
• Output is measured and pay in directly tied to
the measured output
 Employee Benefits and Services
• Legally required programs: Pension, health benefits
etc.
• Flexible programs: Company car, childcare,
recreational activities
Details of the
Compensation Performance-related Variable Pay
programme • Based on performance of the firm and employees
• As a result, is not a committed amount

Profit & Gain sharing, Equity Plans

• Sharing success of the organization
• Arrangement to share profits and ownership
through stock options
Determining Compensation: The Wage Mix
INTERNAL FACTORS EXTERNAL FACTORS
1. Employers’ compensation strategy 1. Manpower market conditions
2. Relative worth of a job 2. Area wage rates
3. Employee’s relative worth 3. Cost of living
4. Employer’s ability to pay 4. Collective bargaining
 Job analysis
• Job analysis yields a lot of information about the job.
• Documents are made about job description and job
specification.
Job evaluation
• A process of ascertaining the relative worth of jobs.
Phases of • Methods like job ranking, job grading, factor comparison
Compensation and point system are used to do this
Salary survey
Management
• A salary survey yields information about the trends in the
external industry so that an attractive compensation can be
designed
Matching
• Compensation structuring is achieved through the job
evaluation process and a salary survey. The decision on
how to match these together is the next step.
 Planning the data collection
Planning • Determine external pay rates
• Identify the market’s pay policy
• Establish the market’s pay policy

Collecting the survey information

Wage Surveys Collecting • Salary and company surveys and published data
is reviewed

Analyzing the information

Analyzing • Benchmark jobs are identified
• Market information about compensation
policies are used to frame pay policies.
 Compensation Structuring
Provides a framework within an organization and defines the various
levels of jobs

This is followed by defining compensation or pay within these job levels

Grade Structure – Job evaluation provides several inputs for grading

jobs in a company. The most pervalent of the many is ‘Broadbanding’
 It is the compression of a hierarchy of pay grades
and job grades or salary ranges, into a small
number of wide brands.
Why firms use broadbanding:
Competence
Broadbanding Flexibility
Decentralization
Result-oriented
Traditional Compensation
Features include:
Pay was entitlement-driven
Increase in the upper ceiling
Demotivater
Employees cost calculations were hidden and
partial
Lack of employee involvement
Why is Variable Pay Used?
Motivation – Pay related to performance and skill
motivates people to achieve their goals
Message – Drives home the message that
performance and skill have a great level of
importance and helps in driving important
business imperatives
Equity – Pay must be related to people’s
performance, competence, contribution and skill
Different Types of Variable Pay
1.Performance-based pay
• The most frequently used
• Used to perk output
2.Pay for knowledge and skill
• Rewards people having lot of knowledge in a specific
curriculum
• Found in continuous development settings
3.Competency-based pay
• A method of compensating and rewarding people with
reference to the level of competence they demonstrate
• Competencies=knowledge, skills, behavior are evaluated
 1.Merit pay
2.Profit sharing
3.Gain sharing
4.Piecework
5.Incentives
Performance- 1.Small group
Based Pay 2.Individual
3.Long-term
4.Team-based
6.Rewards
Lump sum payments
Recognition programmes
 Pay for knowledge
It rewards professional employees for successfully
learning specific curricula. Such a programme is often
found in continuous development settings, such as
those that use assembly lines where one employee’s
Knowledge and job depends on the work of at least another employee.
Skills-based Pay Skill-based pay
It links the pay to the level of skills used in the job, and
sometimes the acquisition and application of
additional skills by the person carrying out the job. It is
usually concerned with definite skills used by the
worker.
 Why is it used?
• High-performance organizations need high
competence to remain efficient
• Supports good work culture and ethic
• Delivers positive and motivational messages to
Competency- employees
Based Pay Core competencies:
• Team-centred
• Result-driven
• Client-committed
• Innovative
• Fast cycle
Executive Compensation
Having answers to these elements is
imperative:
◦ Degree of risks
◦ Performance measures
◦ Degree of ownership
◦ Total remuneration
 Current/Annual Core
• Base Pay
• Bonuses
• Discretionary Bonuses
• Performance Bonus
Main • Deferred Bonus
Components of • Target Plan Bonus
Executive • Short-Term Incentives
Compensation Deferred Core
• Golden Parachute
• Stock Options
Fringe
• Other Benefits
• Prerequisites
 1. Host Country Nationals (HCNs): These are foreign
national citizens who work in Indian companies,
its branch offices being in their home countries.
International 2. Third Country Nationals (TCNs): These are foreign
national citizens who work in Indian companies,
Compensation branch offices in foreign countries—excluding
India and their own home countries.
3. Parent Country Nationals (PCNs): These are
Indian citizens employed in India with work
assignments outside India.
 Base Salary
1. Going rate approach
Key
2. Balance sheet approach
Components of
International Taxation

Compensation 1. Tax equalization

2. Tax Protection
 Allowances
 Different kinds of allowances given as a part of
expatriate compensation are:
COLA
Key Housing allowance
Components of Home leave allowance
International Education allowance
Compensation Relocation allowance
Foreign service premiums
Hardship allowances
Mobility allowances