CHAPTER 9
COMPENSATION
AND BENEFITS
PREPARED BY: KRISZANNE DE GUIA, LPT,RPM,MAIP
INTRODUCTION
• Compensation is a tool used by
management for a variety of
purpose to further the existence
of the company. It is a
remuneration that an employee
receives in return for his or her
contribution in the organization.
So, the employee compensation
programs are designed to attract
capable employees to the
organisation, to motivate them
towards superior performance
and to retain their services over
an extended period of time.
MEANING AND DEFINITION OF
COMPENSATION
• According to Wendell French,”
Compensation is a
comprehensive term which
includes wages, salaries and all
other allowance and benefits.”
Wages are the remuneration paid
for skilled, semi-skilled and
unskilled operative workforce.
Salary is the remuneration of
those employees who provides
mental labour to the employer
such as supervisor, office staff,
executive etc wages are paid on
daily or hourly basis where as
salary is paid on monthly basis
FACTORS AFFECTING COMPENSATION
PLANNING FACTORS
• determining compensation of an
employee considerable amount of
guess word and negotiation are
involved. But following are the certain
factors which have been extracted as
having an important bearing upon the
final decision:
• A) SUPPLY AND DEMAND OF LABOUR:
• Whatever the organization produces as commodity
they desire services and it must pay a price that of
workers acting in concert. If more the labour is
required, such as at war time prosperity, there will
be tendency to increase the compensation;
whereas the situation when anything works to
decrease the supply of labour, such as restriction
by a particular 123 labour union, there will be a
tendency to increase the compensation.
• B) ABILITY TO PAY:
• Labour Unions has often demanded an increase in
compensation on the basis that the firm is
prosperous and able to pay
• Management’s Philosophy:
• Management’s desire to maintain or improve
moral, attract high calibre employees, reduce
turnover, and improve employees standard of living
also affect wages, as does the relative importance
of a given position to a firm.
• Legislation:
• Legislation related to plays a vital role in
determining internal organization practices. Various
acts are prescribed by government of country for
wage hours laws. Wage-hour laws set limits on
minimum wages to be paid and maximum hours to
be worked.
VARIOUS MODES OF COMPENSATION
VARIOUS MODES OF COMPENSATION ARE AS FOLLOWS:
• a) Wages and Salary- Wages represent hourly
rates of pay and salary refers to monthly rate of pay
irrespective of the number of hours worked. They
are subject to annual increments. They differ from
employee to employee and depend upon the nature
of jobs, seniority and merit.
• b) Incentives- These are also known as payment
by results. These are paid in addition to wages and
salaries. Incentive depends upon productivity, sales,
profit or cost reduction efforts. Incentive scheme are
of two types:
• Individual incentive schemes.
• Group incentive schemes.
• c) Fringe Benefits- These are given to
employees in the form of benefits such as
provident fund, gratuity, medical care,
hospitalization, accident relief, health
insurance, canteen, uniform etc.
• d) Non- Monetary Benefits- They include
challenging job responsibilities, recognition of
merit, growth prospects, competent
supervision, comfortable working condition,
job sharing and flexi time
• INCENTIVES
• Incentives are monetary benefits paid to
workmen in lieu of their outstanding
performance. Incentives vary from individual to
individual and from period to period for the
same individual. They are universal and are
paid in every sector. It works as motivational
force to work for their performance as incentive
forms the part total remuneration. Incentives
when added to salary increase the earning thus
increase the standard of living. The advantage
of incentive payment are reduced supervision,
better utilization of equipment, reduced scrap,
reduced lost time, reduced absenteeism and
turnover & increased output.
• The advantage of incentive payment are
reduced supervision, better utilization of
equipment, reduced scrap, reduced lost time,
reduced absenteeism and turnover &
increased output
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