Write up on compensation

vikram chawla

Vikram Chawla
Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. It may achieve several purposes assisting in recruitment, job performance, & job satisfaction.

It is concerned with designing and implementing total compensation package. The traditional concept of wage and salary administration emphasized on only determination of wage and salary structures in organizational settings. However, over the passage of time, many more forms of compensation as discussed earlier, entered the business field which necessitated to take wage and salary administration in comprehensive way with a suitable change in its
nomenclature.

Components of Compensation system:

The literal meaning of compensation is to counter-balance. In the case of HRM, compensation is referred to as money and other benefits received by an employee for providing services to his employer. Money and
benefits received may be in different forms-base compensation in money fonn and various benefits, which may be associated with employee's service to the employer like provident fund, gratuity, and insurance scheme, and any other
payment which the employee receives or benefits he enjoys in lieu of such payment.Various components of it as follows:

Wage and Salary:

Wage and salary are the most important component of compensation and these are essential irrespective of the type of organization. Wage is referred to as remuneration to workers particularly, hourly-rated payment. Salary refers to as remuneration paid to white-collar employees including managerial personnel. Wages and salary are paid on the basis of fixed period of time and normally not associated with productivity of an employee at a particular time.

Incentives:
Incentives are the additional payment to employees besides the payment of wages and salaries. Often these are linked
with productivity, either in terms of higher production or cost saving or both.
These incentives may be given on individual basis or group basis.

Fringe Benefits:
Fringe benefits include such benefits which are provided to the employees either having long-term impact like provident fund, gratuity, pension; or occurrence of certain events like medical benefits, accident relief, health and life insurance; or facilitation in performance of job like uniforms, Canteens, recreation, etc.

Perquisites:
These are normally provided to managerial personnel either to facilitate their job performance or to retain them in the organization. Such perquisites include company car, club membership, free residential accommodation, paid holiday trips, stock options, etc.

Wages:
According to economic theory, wages are defined broadly as any economic compensation paid by the employer to his laborers under some contract for the services rendered by them. In its actual sense which is prevalent in the practice, wages are paid to workers which include basic wages and other allowances which are linked with the wages like dearness allowances, etc.

Traditionally, in the absence of any bargaining power possessed by laborers, they did not have any say in the determination of wages paid to them. This has led to the development of several theories of wages such as subsistence
theory by Ricardo, wage fund theory by Adam Smith, surplus value theory by Karl Marx, residual claimant theory by Frascis Walker, marginal productivity theory by Philip Wickstted and John Clark, bargaining theory by John Davidson
and behavioral theory by James March and Herbert Simon. Each theory tries to explain how wages are determined. In the Indian context, soon after the independence, Government of India set up a Committee on Fair Wages in 1948 which has defined various concepts of wages which govern the wage structure in the country specially in those sectors which can be termed as underpaid and where workers do not have bargaining power through unions.
 

vikram chawla

Vikram Chawla
Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a compensation system are as follows:
1. Job Analysis
2. Pay Structures
3. Salary Surveys

Types of Compensation

Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity.

Direct Compensation
Indirect Compensation

Direct Compensation: Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Indirect Compensation: Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.
 
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