2. Introduction
What employees receive in exchange for their
contribution.
It is a comprehensive term including pay, incentive and
benefits.
Compensation can come both directly through base pay
and variable pay or indirectly through benefits.
It is the total amount of the monetary and non monetary
pay provided to an employee in return of work
performed as required.
3. Definition
Compensation includes direct cash payments,
indirect payments in the form of employee
benefits and incentives to motivate employees
to strive for higher levels of productivity.
Wayne Cascio
5. Components of a Salary Slip
Basic Pay
Allowance
Dearness Allowance
House Rent Allowance
City Compensating Allowance
Transport Allowance/ Conveyance Allowance
Incentives
Fringe Benefits/Perquisites
6. Reflected on Pay Slip Allowances/Reimbur
sements
Non taxable-subject
to bills
Perquisites Retirement Benefits
Basic Pay 1. Servant
reimbursement
2. Conveyance
Reimbursement
3. Mobile Expenses
1. Company car-with or
without drivers
2. Motor Cycle
3. Club Membership
4. Telephone Bills and
Rentals
PF
12 % of Basic +DA
Equal contribution from
employer and employee
Dearness Allowance-Fully
Taxable
1.To face inflation
2.Calculated on COLI-
3.Fixed % on Basic Wage or Fixed amount
1. Entertainment
Allowance
2. Soft Furnishing
3. Medical
Reimbursement
( max 15000/-
pa )
4.Fuel
reimbursement
1. Furnished/ un
furnished houses
2. Free Electricity
3. ESOP-Lock in period
3 years after date of
allotment
Gratuity
Half month Basic +DA of the
last salary drawn for every
completed year of service
minimum 5 years
Gratuity is exempt from Tax
upto 3.5 L
HRA –Taxable unless rental
Calculated on Basic Salary +DA
1. Children
Education
allowance-Upto
1200 per child pm
( max 2 children)
2. Corporate Attire/
Newspaper
/periodicals
1. Mediclaim
2. Health Group
Insurance
3. Free paid vacations
Loans
1. House Loan
2. Marriage Loan
3. Motor Car/Scooter Loan
ESIC
Employees whose gross
salary is Rs 15000/- pm
Employer’s cont-4.75%
Employee’s-1.75 %
Conveyance
Rs 800 pm or Rs 9600/pa Not
Taxable
commuting between between the place of
residence to the place of duty
1. LTA –calculated
on Basic salary
in a block period
of 4 years
1. Refrigerator/Househ
old
2. Study Loan
F
I
N
A
N
C
I
A
L
7. Factors affecting wages and salary
The organisations ability to pay
Supply and demand of labour
Prevailing market rate
Cost of living
Ability of the organization to pay
Productivity
Trade union’s bargaining power
Job requirements
Managerial attitudes
Psychological and social factors
8. Fringe Benefits
It may be described as the various services
and programs that organizations provide to
their employees in addition to compensation in
the form of wages and salaries
It is sometimes referred to as the “The Hidden
Payroll” of organizations.
9. Definition
Any wage cost not directly connected with the
employee’s productive effort, performance,
service or sacrifice.
Balcher
10. Features of Fringe Benefits
They are a supplement to regular wages or salaries
It is not paid for any specific job or performance but to
increase their interest in work
It is a cost for the employers
They are meant to enhance the employee's standard of
living
It may be statutory or voluntary
11. Objectives of Fringe Benefits
Attracting and retaining talent
Negotiation tool
Promote organizational image
Satisfy employee needs
Increase satisfaction and morale
12. Types of Fringe Benefits
Payment for time not worked:
Paid holidays
Shift premium
Holiday Pay
Paid vacation
Employee Security
Safety and Health
Workmen’s Compensation
Health benefits
Voluntary arrangements
Welfare and Recreation Facilities
Old Age and Retirement Benefits
13. Incentives
Anything that attracts an employee and
stimulates him to work.
Incentives are of two types:
Financial
Non-financial
14. Definition
An incentive scheme is a plan or programme
to motivate individuals for good performance.
An incentive is most frequently built on
monetary rewards, but may also include a
variety of non-monetary rewards or prizes.
Burrack and Smith
15. Advantages
Inducement and motivation for higher efficiency
Enhanced employee earnings
Reduction in production cost
Increased production capacity
Attraction for management
Other advantages
16. Disadvantages
Quality determination
Problem in introduction f new machine or
methods
Demand for higher minimum wage
Disregard security regulations
Jealousies among workers
Problems in setting of piece or bonus rates
Problem in determining the standard
performance
17. Types of Incentives Plans
Financial incentives
Salary, rewards, bonus, etc
Non- Financial incentives
Job satisfaction
Job security
Respect and recognition
T&D
Opportunity for growth
Suggestion scheme, praise, etc.
18. Continued…
Individual
Piecework
Standard hour plan
Bonus
Commissions
Perquisites
Stock options
Group
Productivity Gain Sharing plan
Profit sharing plan
19. Essentials of Good Incentive Plan
Proper climate
Cooperation of workers
Workers participation
Scientific standard
Simplicity
Equitable
Flexible
Less costly
Guarantee minimum wages
Ceiling on earning
Grievance settlement on time
Timely payment of incentive
20. Employee Welfare
It refers to various services, facilities and
amenities provided to employees for their
betterment.
To include such services, facilities and
amenities as may be established in or in the
vicinity of undertakings to enable the persons
employed in them to perform their work in
healthy, congenial surroundings and to
provide them with amenities conducive to
good health and high morale.
21. Types of Welfare Services
Intramural welfare services
Wash basins, bathrooms and humidity
Work place sanitation and cleanliness
Water coolers
Safety gears
Canteen
Basic medical aid
Library
Work and personal counseling
Child care centers and crèches
Extramural Welfare services
Housing
Transportation
Education facilities
Health services
23. Salary inequities at Acme
Manufacturing
Joe Black was trying to figure out what to do about a problem salary situation he had in his plant. Black recently
took over as president of Acme Manufacturing. The founder and former president, Bill George, had been
president for 35 years. The company was family owned and located in a small eastern Arkansas town. It had
approximately 250 employees and was the largest employer in the community. Black was the member of the
family that owned Acme, but he had never worked for the company prior to becoming the president. He had an
MBA and a law degree, plus five years of management experience with a large manufacturing organization,
where he was senior vice president for human resources before making his move to Acme.
A short time after joining Acme, Black started to notice that there was considerable inequity in the pay structure
for salaried employees. A discussion with the human resources director led him to believe that salaried
employees pay was very much a matter of individual bargaining with the past president. Hourly paid factory
employees were not part of this problem because they were unionized and their wages were set by collective
bargaining. An examination of the salaried payroll showed that there were 25 employees, ranging in pay from that
of the president to that of the receptionist. A closer examination showed that 14 of the salaried employees were
female. Three of these were front-line factory supervisors and one was the human resources director. The other
10 were non management.
This examination also showed that the human resources director appeared to be underpaid, and that the three
female supervisors were paid somewhat less than any of the male supervisors. However, there were no similar
supervisory jobs in which there were both male and female job incumbents. When asked, the Hr director said she
thought the female supervisors may have been paid at a lower rate mainly because they were women, and
perhaps George, the former president, did not think that women needed as much money because they had
working husbands. However, she added she personally thought that they were paid less because they
supervised less-skilled employees than did the male supervisors. Black was not sure that this was true.
24. Continued…
The company from which Black had moved had a good job evaluation system. Although he was thoroughly
familiar with and capable in this compensation tool, Black did not have time to make a job evaluation study at
Acme. Therefore, he decided to hire a compensation consultant from a nearby university to help him. Together,
they decided that all 25 salaried jobs should be in the same job evaluation cluster, that a modified ranking
method of job evaluation should be used, and that the job descriptions recently completed by the HR director
were current, accurate, and usable in the study.
The job evaluation showed that the HR director and the three female supervisors were being underpaid relative
to comparable male salaried employees.
Black was not sure what to do. He knew that if the underpaid female supervisors took the case to the local
EEOC office, the company could be found guilty of sex discrimination and then have to pay considerable back
wages. He was afraid that if he gave these women an immediate salary increase large enough to bring them up
to where they should be, the male supervisors would be upset and the female supervisors might comprehend
the total situation and want back pay. The HR director told Black that the female supervisors had never
complained about pay differences.
The HR director agreed to take a sizable salary increase with no back pay, so this part of the problem was
solved. Black believed he had for choices relative to the female supervisors:
1. To do nothing.
2. To gradually increase the female supervisors salaries.
3. To increase their salaries immediately.
4. To call the three supervisors into his office, discuss the situation with them, and jointly decide what to do.
25. Questions
1. What would you do if you were Black?
2. How do you think the company got into a
situation like this in the first place?
3. Why would you suggest Black pursue the
alternative you suggested?
