Compensation and Benefits

( Session 2)

Source : Personnel Management by C.B.Memoria & Strategic human resource

management (publisher prentice hall)
 Employee Compensation
The term employee compensation includes remuneration,
incentives, fringe benefits and retirement benefits
The term employee remuneration includes both wages and
salaries.
 Wages are commonly considered as the price of labour paid to
the workers for the services renderd to the organisation
employing them.
Where the quantum of services rendered is difficult to measure
the payment is called salary.
Generally the wage period is shorter that the salary period.
 Definitions : Compensation, wage &
salary
Compensation : money received in the performance of work
plus benefits and services that organization provide.
Money comes under direct compensation
Benefits are indirect compensation
Salary refers to the weekly / monthly rates paid to clerical,
administrative & professional employees (White collar
workers)
Wage (pay) : is the remuneration paid for the service of labor
in production, periodically to an employee/ worker
Wages usually refer to the hourly rate paid to such group as
production and maintenance employees (Blue collar employees)
 Definitions : Wage levels & structure

Wage levels represent the money an average worker makes in

a geographic area or in his organization
Wage levels are only a average: specific markets or firms and
individual wages can vary wildly from the average
Wage structure is used to describe wage / salary relationships
within a particular grouping
The grouping can be according to occupation or organization
 Three Concepts of Wages
1) Minimum Wage – A Minimum wage which is sufficient
tosatisfy at least the minimum needs of a worker
2) Fair Wage – Fair wage are equal to that received by workers
performing work of equal skill, difficulty or unpleasantness.
3) Living Wage – Is the highest amount of remunrationa dn it
would includes the amenities which a citizen living in a modern
civilised socially is entitled to expect, when tha econmoy of the
country is sufficiently advance and the employer is able to
meet the expanding aspirations of his workers.
 Purpose of Compensation

Contribution based Ensure Equity

Remuneration

Attract talent Effective Administratively

Compensation Efficient Legal
Institutionalized Compliance
Processes
Motivate &
Retain Staff Reward Valued
Behavior
Factors influencing wage & salary
structure
The organizations ability to pay
Profits
Economic conditions
sector
Supply & demand of labor
The prevailing market rate
What competitors pay
Laws
Trade unions want parity irrespective of geographies
Functionally related firms need to pay same pay for same skills
Quantity & quality gets affected if prevailing market rate is not
given
Cost of living
Minimum pay criterion
Escalator clauses
Living wage
Higher than minimum wages
Based on opinion on how much needed to sustain worker &
family
Sore point in negotiations
Productivity
Difficult to pinpoint who / what is responsible
Trade union’s bargaining power
Stronger unions force high hikes
If subsequent productivity rise is not enough, company will
lose our
Job requirements
Difficult jobs pay better
Skill, effort, responsibility & job conditions help to grade jobs
Managerial attitudes
What the CEO desires
Psychological and sociological factors
Wage levels are equated with success
Goals of Compensation Plans
• Employers are able to attract and retain employees who will
contribute to the organization’s success
• Employees feel they are compensated/rewarded
fairly/equitably for their efforts and contributions to an
organization’s success
 Employee Benefits

Total Compensation
3770 Beardshear Hall
Human Resource
Services

Employee Corporate
Supportive Satisfaction
Culture
Executive
Sponsorship

Rewards Benefits
• Bonus • Health Plans
• Salary Increases • Retirement Plans
• Promotions • Vacation/ time off
• Equity Offerings Salary • Paid Training
• Awards • Pay • Working Hours
• Recognition • Overtime (if in non-exempt
classification)
• New job assignments
What Factors Determines Pay
• Employer considerations
– Where employers compete for talent – local or national
– What talents an employer competes for – the skill/knowledge
level
– How strongly the employer wants to compete
• Lead the market
• Meet the market
• Lag the market
Employer Challenges
• Structuring employee benefit packages that meet the needs of
a diverse workforce – one size does not fit all
• Helping existing employees understanding the “value” of
their benefits
• Administering benefit programs – costly and time-
consuming. Not a profit-making venture!
• Continued rising health care costs
• Limited budgets – Benefits average 25% - 40% of Payroll in
most organizations
• Government restrictions/legislation/public policy
General Concepts
• Publicly traded companies will tend to structure pay/benefits that
incorporate more equity (stock options, savings match in
company stock, bonus tied to company performance, etc)
• Non-publicly traded companies/organizations will spend more
on non-cash incentives
• Governmental organizations will on average spend more on
benefits in lieu of salary
 Fringe Benefits
The term fringe benefits refers to various extra benefits
provided to the employees, in addition to the compensation
paid in the form of wage or salary.
 Types of Fringe Benefits
For Employment Security – Unemployment insurance, technological
adjustment pay, leave travel pay, over time pay, maternity leave,
holidays, jobs to sons / daughters etc.
For Health Protection – Accident Insurance, Disability Insurance,
Health Insurance, Hospitalisation, Life Insurance, Medical care, Sick
Benefits, Sick Leave etc.
For Old Age & Retirement – Deferred Income plans, Pension,
Gratuity, Provident Fund, Old Age Assistance, Medical for retired
employees, travelling concessions to retired, jobs to children of the
deceased etc.
For Personal Identification , Participation & Stimulation – Anniversary
Awards, Attendance bonus, canteen, Co-op Credit Societies,
Educational facilities, housing, recreational , safety measures etc.
 Laws Affecting Employee Benefits
and Compensation
• Fair Labor Standards Act (FLSA)
• Employee Income Retirement Security Act of 1974 (ERISA)
• Age Discrimination and Employment Act (ADEA)
• Family Medical Leave Act (FMLA) of 1996
• Economic Growth and Tax Relief Reconciliation Act
(EGTRRA) of 2001
• Health Insurance Portability and Accountability Act of 1996
(HIPAA) (and amendments)
• Pension Protection Act of 2006
• many, many others
 Evolution of Industrial Policy
 Industrial Policy Resolution 1948 Outlined the approach to
industrial growth and development Emphasized the importance of
securing a continuous increase in production and ensuring its
equitable distribution.
 active role for the State in the development of Industries. State
monopoly: Arms and ammunition, atomic energy and railway
transport State exclusively responsible for the establishment of new
undertakings in six basic industries-except where, in the national
interest, the State itself found it necessary to secure the cooperation
of private enterprise.
 Industrial Policy Resolution 1948 Rest of the industrial field open to
private enterprise though the State would also progressively
participate in this field.
 Industrial Policy Resolution 1956 - Objectives: Improvement in
living standards and working conditions for the mass of the people.
Reduction in income and wealth disparities Prevention of private
monopolies and concentration of economic power in different fields in
the hands of small numbers of individuals.
 Industrial Policy 1973 - Certain structural distortions called for
policy changes in IPR 1956. Compulsory export obligations, merely
for ensuring the foreign exchange 
 Industrial Policy 1977 - Emphasis on developing smalll scale
industries and making adequate marketing arrangements. upgrading
the technology of small units. Promoting the development of a system
of linkages between nucleus large plants and the satellite ancillaries 
 The Industrial Policy Statement 1980 - Formulated wrt the Industrial Policy
Resolution of 1956 to provide for (i) Optimum utilization of installed capacity; (ii)
Maximum production and achieving higher productivity; (iii) Higher employment
generation; (iv) Correction of regional imbalances; (v) Strengthening of the
agricultural base through agro based industries and promotion of optimum inter-
sectoral relationship; (vi) Promotion of export-oriented industries
 INDUSTRIAL POLICY 1991 - Govt . recognizes the need for social and economic
justice, to end poverty and unemployment and to build a modern, democratic,
socialist, prosperous and forward-looking India India to grow as part of the world
economy and not in isolation Greater emphasis placed on building up ability to pay for
imports through our own foreign exchange earnings development and utilization of
indigenous capabilities in technology and manufacturing as well as its up gradation to
world standards.
 Reward Management
Definition - Reward Management is concerned with the
formulation and implementation of strategies and policies that
aim to reward people fairly, equitably and consistently in
accordance with their value to the organization”(Armstrong and
Murlis 2004)
Objectives of Reward Management
Support the organisation’s strategy
Recruit & retain
Motivate employees
Internal & external equity
Strengthen psychological contract
Financially sustainable
Comply with legislation
Efficiently administered
Basic Types of Reward
Extrinsic rewards
satisfy basic needs: survival, security
Pay, conditions, treatment
Intrinsic rewards
satisfy higher needs: esteem,development
Reward Options
Base pay--fixed or minimum wage/salary
Plussage--capability, qualification
Premia/Overtime
Performance related pay
Indirect pay--benefits, non-cash, shares
Non-monetary: recognition, advancement
“Total Reward” Pay, non-pay, flexible hours, cafeteria
benefits
Rewards by Individual, Team,
Organisation
Individual: base pay, incentives, benefits
rewards attendance, performance, competence
Team
team bonus, rewards group cooperation
Organisation
profit-sharing, shares, gain-sharing
 Closing Thoughts
• How employees are “compensated” takes many forms –
salary, benefits, working conditions,
challenging/stimulating work, co-workers, etc. The right
“mix” for each person is different
• Pay policies will differ for every employer – some will
focus on cash compensation and some will focus on Total
Compensation
• The employer’s main goal is structuring compensation and
benefit programs is to be able to attract and retain the right
employees needed to help the employer be competitive
 Closing Thoughts
• Employee benefits have huge budget impacts to employers
• Benefits are the “hidden paycheck” for employees
• Employees need to understand the “total compensation” an
employer provides – not just the “salary.” Employers need to
sell Total Compensation – not just salary
• Employees need to be “educated consumers” of benefit
programs – especially health care and retirement programs
• Employees should take advantage of retirement plan offerings
and save early (time value of $$) – and always save enough to
at least take advantage of employer’s matching contribution