1. Human Resource Management By Dr. Debashish Sengupta

2. Compensation & Benefits12
CHAPTER
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3. Key Terms Compensable Factors Compensation Factor Comparison Method
Gratuity
Job Evaluation
Provident Fund
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4. What is Compensation?
Payments made in cash, benefits, reward, etc. to the employee in return of his/her contribution in the organization, with an objective of motivating the employee and improving organizational effectiveness.
Human Resource Management

5. Factors Governing Compensation
The various factors governing compensation for a job are: 1. Industry: Across industry the compensation for a job may vary and hence for determining compensation for a job it is important to understand the nature of business, a firm is in. 2. Stage of Maturity: The stage of maturity of affirm is also important to determine the compensation. Normally more mature organizations shall have broadbands (defined later in the chapter).
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6. Objectives of a Compensation System
The two primary objectives of a Compensation system are: 1. Equity Equal pay for work of equal value. a. Internal Equity: Requires that pay be related to the relative worth of a job so that similar jobs get similar pay. b. External Equity: Paying worker what other firms in the labor market pay comparable worker. The external equity is established through wage and salary surveys.
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7. 2. Efficiency The efficiency in a compensation system entails to: a
2. Efficiency The efficiency in a compensation system entails to: a. Linking compensation to productivity/ profit/ individual performance. b. Attracting rewarding, motivating and retaining highly capable and efficient. c. Maintaining market competitiveness. d. Ensuring compliance with laws and regulations. e. Building employer brand.
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8. Components of a Compensation Package
It is important to understand the laws of the land and taxation policy to understand the components of compensation and compensation strategies. Organizations always pay for the work done (job) and less for the individuals. Job is the nucleus for determining a compensation. However for simplicity the components of jobs shall look like: 1. Base Pay Structure (Fixed component); 2. Variable Pay Programs; 3. Benefits; 4. Rewards & Recognition.
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9. Base Pay Structure (Fixed component)
Salaries and wage are the periodic assured payments made to the employees. Salaries are generally paid to the permanent employees on the monthly basis, whereas wages are paid to temporary or contractual workers on the daily basis. Base Pay is the fixed component and generally consists of the following:
Basic Component
HRA (House Rent Allowance)
DA (Dearness Allowance)
Leave Travel Allowance
Mobile Expenses
Medical Allowance/Reimbursements, etc.
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10. Variable Pay Programs
Variable Pay Plans for Sales Variable pay plans for sales represents a pay-mix that may be a or or plan. Here the 30, 40 or 50 represents the variable portion of the pay and is linked to the targets. Variable Pay Plans for Non-Sales The variable pay is based on jobs and levels of job. Sometimes such plans may be covered under company-wide plans and the entire variable portion may be broken under employee performance,
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11. Bonus Bonus is generally post-facto
Bonus Bonus is generally post-facto. The bonus can be paid in different ways. It can be fixed percentage on the basic wage paid annually or in proportion to the profitability. The Government also prescribes a minimum statutory bonus for all employees and workers. Commissions Commission to Managers and employees may be based on the sales revenue or profits of the company. It is always a fixed percentage on the target achieved. For taxation purposes, commission is again a taxable component of compensation.
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12. Mixed Plans
Incentives Incentive is clearly defined, target-related and upfront. Piece rate wages are prevalent in the manufacturing wages. Sign on Bonuses The latest trend in the compensation planning is the lump sum bonus for the incoming employee. A person, who accepts the offer, is paid a lump sum as a bonus. Profit Sharing Payments Profit sharing is again a novel concept nowadays. This can be paid through payment of cash or through ESOPS.
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13. Benefits
Types of Benefits i. Paid time off (also referred to as PTO) It is earned by employees while they work. They may be a) holidays (governed by the law), b) Leaves (governed by the shop and establishment act) like Casual Leaves, Sick Leaves, Earn or privilege leaves, etc. ii. Insurance Programs The insurance programs may include health insurance, life insurance, personal accident insurance, disability insurance, family-health insurance, etc.
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14. iii. Fringe Benefits Fringe benefits include a variety of non-cash payments that are used to attract and retain talented employees and may include educational assistance, flexible medical benefits, child-care benefits, and non-production bonuses (bonuses not tied to performance). iv. Social Security Social security benefits are aimed at protecting employees against all types of social risks that may cause undue hardships to them in fulfilling their basic needs.
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15. Rewards & Recognition
At the end of the day we are all human beings and like to compete and do better than others. This creates a natural urge to be rewarded and recognized.
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16. Pricing the Jobs Job Evaluation
Pricing the jobs simply means determining the compensation for a particular job. Job evaluation is the process by which the relative worth of various jobs in an organization is determined.
Job Evaluation
Job evaluation is a process of determining the relative worth of various jobs in an organization.
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17. Compensable Factors
Factors in a particular jobs which should be compensated for they directly or indirectly contribute in successful completion of that particular job are called compensable factors.
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18. Non Quantitative Techniques of Job Evaluation
Ranking Method In this method a job is ranked related to other jobs in an organization. First detailed information about various jobs in an organization is obtained, then jobs are grouped based on their similarity and difference. There after the compensable factors are selected, after which the jobs are ranked. Job Classification Method In job classification method the committee groups similar jobs together in groups or classes based on the amount or degree of compensable factors that they contain. These groups or classes then help in determining the value of different jobs.
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19. Quantitative Methods of Job Evaluation
1. Point Method Point method of job evaluation is used widely and consist of the following steps: A. Identifying Compensable Factors for the Benchmark Jobs: Benchmark jobs are those that are commonly found in the market. B. Assigning Point Values to Compensable Factors: There after the job evaluation committee determines the relative weight-age of various compensable factors and assigns point values to them.
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20. Factor Comparison Method
Factor Comparison method is another quantitative approach for job evaluation. It uses wages of the existing key jobs, which provide standard against which all other jobs are compared. The factors used for analysis and evaluating jobs are: (1) skill, (2) mental effort, (3) physical effort, (4) responsibility, and (5) working conditions. A composite score is obtained for all factors. The jobs under consideration are evaluated using factor-by factor in relation to the key jobs on job comparison scale. Then each job is evaluated and compared with other jobs in terms of each factor.
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21. Market Pricing/ Benchmarking
Market pricing or benchmarking is a comprehensive and time-consuming process. Generally market pricing/Benchmarking is done through salary surveys, done by third party like Mercer, The market pricing or benchmarking is done through following steps – i. Defining the jobs (Job analysis) ii. Deciding the job families. Similar jobs in the same family
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22. iii. Identifying a third party for carrying out the salary surveys. iv
iii. Identifying a third party for carrying out the salary surveys. iv. Matching the job analysis information with the standard job descriptions available with the third party and deciding appropriate scale of each job. v. Choosing the benchmark companies. Generally for each job-family separate set of benchmarking companies are choosen. vi. Survey & sharing of information – the third-party consultant conducting the survey operates on strict confidentiality and does not disclose any company-specific information to the client- company. Then how is the information shared?
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23. Pay Fairness (Pay Equity)
In a casual survey I conducted, workers said that they expected wages to: (1) cover basic living expenses, (2) keep up with inflation, (3) leave some money for savings or recreation, and (4) increase over time. Workers also become concerned later in their careers about supporting themselves during their retirement years. Personnel who have lived in farm provided housing will find it especially difficult to afford payments on a new home after they retire. Although beyond the scope of this work, farmers may want to look into retirement and tax deferred plans to cover some of these future needs.
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24. What is Behind Pay Differences?
Philosophical differences affect judgments employers make about their wage structures. Some think all members of a society should receive enough income to meet their necessities. Such employers may base pay more on the needs than on the contributions of the individual worker. To some, all jobs contribute equally to farm productivity and, therefore, all employees should be compensated equally. By this standard, pay differences are based on how well a job is performed rather than what job is performed. In a contrasting system the nature of the job— besides the quality of performance—is an important part of how pay differences are set at the ranch.
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25. Job Evaluations and Market Consideration
You can arrive at appropriate wages for positions on your farm on the basis of two main management tools: Job Evaluation A farmer such as Cecilia who pays different rates for different jobs usually first classifies the jobs on her ranch. Through a job evaluation she rates the jobs on the farm according to their relative “importance.” Each job might be given its own rate, or jobs of comparable importance may be grouped or banded into a single wage classification, or pay grade.
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26. Market Considerations In practice, results of job evaluations are often compromised—or even overshadowed—by market considerations. Labor market supply and demand forces are strong influences in the setting of wages. No matter what your job evaluation results may indicate, it is unlikely you will be able to pay wages drastically lower or higher than the going rate. Reconciling Market & Job Evaluations In wage setting, it is usually more beneficial to reconcile market information and job evaluation results than to singly rely on either. Unique jobs are more appropriately priced on the basis of job evaluations. You may depend more heavily on the job market for common jobs.
Human Resource Management