Basis for Compensation fixation

1. Basis for Compensation fixation Submitted By : Pravin Pathrabe 8364 Anuja Kharote 8204

2. Flow Of Presentation • What is Compensation ? • Nature &Purpose Of Compensation. • Compensation Dimensions • 3-P Compensation Concept. • Strategic Compensation Policies. • Basis For Compensation Fixation.

3. What is Compensation ? • Defined as money received in the performance of work plus the many kinds of benefits &services that organization provide their employees. • Compensation Provides • Reward for past service • Stimulus for performance in future • The progressive organization utilizes compensation as effective tool to develop, build & maintain human capital for Competitive Advantage.

4. Types Of Compensation • Direct Compensation • Money in the form of wage & Salaries. • E.g.- D.A., Travelling Allowance Commission, Bonus. • Indirect Compensation • Health insurance • Mediclaim • provident fund • Gratuity • Pay for vacation & illness

5. Nature & Purpose…. • To establish &maintain equitable wage & salary structure. • Maintain equitable labour cost structure. • Conflict minimization & Optimal balancing of personnel interest. • Compensation with financial aspect of need, motivation and reward. • To retain employees in Organization & attract qualified applicant to organization.

6. Compensation Dimension • Pay for work & performance. • Pay for time Not worked. • Continuation of income in event of physical disability. • Differed income. • Spouse(family)income continuation. • Health, Accident & Liability protection. • Income Equivalent payments.

7. 3-P Compensation Concept • Pay for Position • Pay for Person • Pay for Performance

8. Strategic Compensation Policies • Basic Work of Top Level Executives • Internal Consistency • External Competitiveness • Employee Contribution • Administration

9. Basis for Compensation Fixation • Organizations ability to pay. • Supply & Demand of labour. • Prevailing market rate. • Trade unions bargaining power. • Job requirements. • Managerial attitudes. • Cost of living. • Productivity

10. Continue…….. • Pay for performance. • Skills level available in market. • Psychological & Sociological factors. • Region & Area in practice. • Attraction & Retention. • Merit & Seniority progression.

11. 1.Organization’s ability to pay • Companies with good sales & profits tends to pay higher compensation. • In the long run it is important because in prosperity time ,employers pay high to carry profitable operation. But in depression wages & compensation are cut down due to non availability of funds. • Where ever minimum wages legislation is applicable organization should pay, irrespective of their capacity to pay.

12. 2.Supply & Demand of labour • Labour market condition always operate at National, Regional& local level. • Higher demand & low supply of skilled person results in rise in compensation. • Lower demand & higher supply results in decrease in compensation.

13. 3. Prevailing Market rates • Also known as Comparable wage or Going wage rate. • Going rate system involves fixing wage/salary rate in tune with what is paid by different units of an industry in a locality. • Going rates are generally paid in the initial day of company and plant operation.

14. 4. Trade Unions Bargaining Power • Generally stronger & more powerful the trade union ,higher the wages and compensation. • But the concept is changing with collective bargaining and strong Industrial relation.

15. 5. Job Requirements • More difficult the job, Higher the Wages & Compensation. • Measure of Job difficulty, used with relative value of job to another Organization (Comparison). • Job Grading • Relative Skills • Efforts • Responsibility • Job Conditions

16. 6. Managerial Attitude • Decisive Influence on Compensation Management • Whether Firm should pay • Below Average Rate • Above Average Rate • What Job Factors used to reflect Job Worth • Performance or Length of Service • These matters requires approval of Top Executives.

17. 7. Cost of Living • Known as Automatic Minimum Equity Pay Criteria • Based on Cost of Living Index • DA and CCA are the Integral Part of it • Negative Effect • Increase in Cost of Living usually possess additional burden on Employer without corresponding improve in Productivity

18. 8. Productivity • Measured in terms of Output per hour • Technical Improvement • Better Organisation & Management • Better Methods of Production • Greater Skills by Labour • Negative • Productivity Calculation & Definitional Measurement and Conceptual Issues

19. 9. Pay for Performance • Linking Pay to Performance • Jobs & Work Flows • Continues Appraisal • Incentive Methods

20. 10. Skills level available in market • With growth of Industries, Business & Trades all over the world results in Shortage of Skilled Resources • Technological Advancement • Automation of Work Process • Computerization

21. 11.Psychological & Sociological factors • These determine significant measures • How hard a person work for Compensation • What Pressure he exerts to get increased Compensation • Psychological • Level of Wages as success of Life • Feeling of Security • Sociological • No distinction on the basis of Colour, Caste, Religion

22. 12. Region & Area in practice • Differentiation on the basis of various Cities • Metro • Tier 1 • Tier 2 • Landscape and Hardship of Living • Hilly Region

23. 13. Attraction & Retention • Employee Retention Strategy through Perks & Fringe Benefits • Policy of Wage Leaders in the Organization

24. 14.Merit & Seniority progression • Practice of Rewarding according to one’s Contribution • Based on Annual Performance Appraisal • Include Production Incentive • Profit Sharing Scheme • Bonus & Promotion • Logic for Seniority Progression is that Person gains Experience, his skills get sharpened

25. Thank You