gross payment). This is done for several reasons. Sociologically and ethically, people feel that “equal work should carry equal that wages should be commensurate with their efforts, that they are not exploited, and that no distinction is made on the basis of caste, color, sex or religion.”. Beyond “equal pay for equal work” is the idea of “comparable pay for comparable work” called comparable worth. To ensure stable earning and growth of the employees 3. Setting up tribunals to pass on fair judgement on compensation grievances, iii. Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. The employees, therefore, are anxious to minimise the income tax incidence. With the rapid growth of industries’ business trade, there is a shortage of skilled resources. The consideration for which labor is exchanged is called compensation. A balance is to be struck between these two parties – employer and employee with regard to compensation. Maintain compensation le… Regardless of the company or social policies, employers must make a profit to survive. Facilitate understanding. They include income distribution through narrowing of inequalities, increasing the wages of the lowest paid employees, protecting real wages (purchasing power), the concept of equal pay for work of equal value compensation management … This is also known as the ‘comparable wage’ or ‘going wage rate’, and is the most widely used criterion. Employees serve organizations in exchange for a reward. Compensation may be defined as money received in the performance of works, plus the many kinds of benefits and services that organizations provide their employees. Generally, the more difficult a job, the higher are the wages. Compensation or reward management is concerned with the formulation and implementation of strategies and policies which are to reward peopl… They are not subject to the uniform reimbursement requirement. All these things are nothing but the compensation the employees receive in return for their contribution to their organisation. It is also known as wage and salary administration or remuneration management. Human Resource Management, Employees, Compensation, Compensation Management. Benefits. Develop reward structures that are equitable with logical and fair pay relationships between differently valued jobs. Compensation or paying employees for their work is an important responsibility of human resource managers. Preferably below 30 years. Sociologically and ethically, people feel that “equal work should carry equal wages,” that “wages should be commensurate with their efforts,” that “they are not exploited, and that no distinction is made on the basis of caste, colour, sex or religion.”. To establish fair and equitable remuneration so as to avoid pay disparities. Direct compensation consisting of pay received in the form of wages, salaries, bonuses, and commissions provided at regular and consistent intervals. This results in a considerable uniformity in wage and salary rates. Compensation management has become one of the issues both for employees and employers around the world due to its importance. The government sets minimum wage, overtime pay, equal pay, child labor, and record-keeping requirements. Further administrative effi… Compensation Management is concerned with the compensation to employees for their work and contribution for attaining organisational goals. Without effective compensation management, workers could be overpaid or underpaid. This function, therefore, takes care of career plans and training and development activities. Indirect compensation can be thought of as the nonmonetary benefits an employee gets from the organization. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Internal consistency involves payment on the basis of the criticality of jobs and employees’ performance on jobs. A significant change has come into the compensation management system over the last few years. 3. Naturally, employees want to get more remuneration for their work as where employers want to pay as minimum as they can. Compensation is the reward or remuneration paid to the employees in return for the service rendered. The Government’s statutory responsibility is to protect the sweating workers, ensure social justice and formulate and enact legislations to control exploitation and provide security to the employed persons. 10. Even the most rational methods of determining pay must be tempered by good judgment when challenges arise. However, for those remaining on the payroll, a real gain is often achieved as a consequence of a trade union’s stronger bargaining power. However, successful compensation packages are the ones which are more like a total rewards system that contains nonmonetary, direct, and indirect elements. In a narrow sense ‘wage’ is the remuneration paid to blue-collar workers for their services, usually on hourly rate or daily rate. In India it has become integral part of the wage system. Allure suitable staff. Recently, there have been a number of cases where very large organizations have been caught for not deducting tax at source properly. for motivation. 8. The ultimate objectives of compensation administration are: efficient maintenance of a productive workforce, equitable pay, and compliance with federal, state, and local regulations based on what companies can afford. Wage and salary administration or compensation management is considered as one of the vital areas of “Human Resource Management”. It can meet specific business objectives and goals. To attract competent and qualified persons towards organization by offering fair wage and incentive. A degree or diploma in Labour Law is desirable. 2. This plan converts what would otherwise be after-tax employee contributions to pre-tax contribution by means of an employee’s election prior to the beginning of the year, to reduce pay and to have the company contribute the amount of the reduction to pay for the coverage selected by the employee. However, these efforts have not proved very helpful to the management as it continues to remain under stress – whether the methods being used in compensation, are part of tax planning or tax avoidance and at the same time, is it able to satisfy the employees and maintain positive image among its employees as well as in the society at large or not. 11. Share Your Word File Need and Significance 5. These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. The satisfaction or dissatisfaction is a gap between the expectations of an employee and the feeling or the experience of worth. Share Your PPT File, The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. The factors affecting the determination of fair and equitable compensation are many and are very complex. It is typically an additional compensation component, alongside fixed pay. Cascio has defined compensation as follows; “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.”. Payment of incentive depends on productivity, sales and Profit of the organization. There are few objectives of Compensation Management in HRMthat are as follows- Attract Talent- The motive of giving good Compensation is to attract those talents that can give excellent results. In some organizations, employees can choose compensations suitable to them from a wide variety of compensation elements designed by the employer. Productivity is another criterion, and is measured in terms of output per man-hour. This is called as ‘direct compensation’. For this purpose, minimum wage must provide some measures of education, medical requirements and amenities”. A common strategy is to give nonunion workers the same raises that are given to unionized employees; this often is done to prevent further unionization. Obviously, it is concerned with designing and implementing total compensation package. To retain and motivate employees, employee compensation must be fair. To effectively administer and manage the compensation and satisfaction of the employees. Compensation refers to all forms of financial returns: tangible services and benefits employees receive as part an employment relationship, which may be associated with employee’s service to the employer like provident fund, gratuity, insurance scheme and any other payment which the employee receives or benefits he enjoys in lieu of such payment. Progressive HR mangers can create compensation packages by combining many of these compensation alternatives to make them employee-friendly. The other alternative is to pay higher wages if the labour supply is scarce; and lower wages when it is excessive. Employers want to pay as little as possible to keep their costs low. Incentive schemes are playing another important role in this competitive era, and different types and forms of productivity and personal growth schemes are operating in our country. Competitive analysis (what are people in similar jobs making per hour, week, or year?). It can be a monthly or annual salary, hourly wage or any performance-based pay that an employee receives, such as profit-sharing bonuses. This is known as the ‘comparable wage’ or ‘going wage rate’, and is the widely used criterion. 3. Regarding benefits to the employees, especially to executives and above, stock option schemes, interest free loans for housing or conveyance, free medical insurance and foreign tours are likely to gain momentum in future. The methods of appraisal of employees have been worked out to match the performance of the employees with proper compensation, but without complete success. The employees are no more interested in knowing how much the company is spending on each of them but they are keen to known how much would be available to them in their hands. Variable pay, which covers performance and target, linked bonuses and sales or marketing incentives have been increasing in Indian industries after introduction of MNCs. Policy Aims. Acquire qualified personnel. A strike or a threat of a strike is the most powerful weapon used by it. Skill in writing job descriptions, conducting job analysis interviews, making group presentations, performing statistical computations ability to conduct meetings, to plan and prioritize work. The cost for development and administration exceeds those for traditional plans. To improve production, productivity and profitability of the organization. Thus, although theoretically it is a sound compensation criterion, operationally many problems and complications arise because of definitional measurement and conceptual issues. Considering that the current trend in many … Second, various government laws and judicial decisions make the adoption of uniform wage rates an attractive proposition. In other words, compensation refers to all forms of financial returns, services and benefits received by the employees from their organisation as a part of their employment relationship. To ensure prompt and regular payment of wage and salary to all the employees. Any dissatisfaction may result into a conflict or a dispute. To encourage and motivate the employees to grow with the organization … So, wage includes basic wage and also allowance like overtime pay, holiday pay etc. Components 6. Companies that have good sales and, therefore, high profits tend to pay higher those who are running at a loss or earning low profits because of a higher cost of production or low sales. This results in a considerable uniformity in wage and salary rates. It varies according to physical and mental requirement of the job. While benefits that come under indirect compensation may consist of life, accidents and health insurance, pay for vacation or illness, retirement benefits and so on. In India compensation or pay structure generally consists of the following components: The term wage refers to the remuneration paid to the workers appointed on hourly, daily or weekly basis in return for the service rendered. Regarding the human resource requirements of a job, there is scope for disagreement. It is the net amount of salary received by an employee after making all the deductions towards the payment of income tax, LIC premium and contribution to P.F. Manage pay structures to mirror inflationary effects. Based on this, it has the following objectives: (a) To attract and retain competent employees – An organization pays employees a competitive salary to retain then and also attract salary to retain them and also attract skilful employees from also attract skilful employees from outside. Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure; have an inferiority complex, seem inadequate or feel the reverse of all these. OBJECTIVES OF COMPENSATION MANAGEMENT. When unions represent a portion of the workforce, they may be able to obtain wage rates that are out of proportion to the relative worth of the jobs. The compensation should be designed in such a fashion that the organization is able to attract, motivate, and retain competent employees and at the same time the employees perceive it fair and equitable. Every organisation requires suitable human resources to achieve its objectives. It is that wage which is sufficient to meet the basic need of a worker and his family. Employee compensation might have been initially anchored by the relative worth of jobs and the prevailing wage rates in the local market. Welcome to EconomicsDiscussion.net! The HRM of every organization is required to make some systems to scrutinize the wage and salary differentiations or disparities to ensure a motivated environment in the organization. (i) Employees can choose benefits that meet their individual needs and adjust those choices annually as needs change. Compensation is what employees receive in exchange for their work. International Compensation Management Compensation management can be defined as the provisions of monetary and non-monetary rewards, including base salary, benefits, perquisites, … Thus the wage levels of skilled employees are constantly changing, and an organization has to keep its level up to suit the market needs. Jobs are graded according to the relative skill, effort, responsibility, and job conditions required. Personnel Management: Definition, Nature, Role, HRM Vs Personnel Management, Green HRM: Definition, Advantages, Green HRM Practices, Policies, Employee Turnover: Definition, Types, Causes of Employee Turnover, needs some creative techniques for compensation, ← E-HRM: Definition, Advantages, Practices, Creative Compensation: Non-Monetary / Non-Traditional Compensation →. Compensation Management is one of the important jobs of human resource management. The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. Compensation analysts must focus not only on equity but on competitiveness too. The expensive growth of some of the sectors like IT, Telecom, BPOs and financial institutions has triggered off huge demand for talent at all levels. iii. The perceptions of employees and employers about compensation are changing and the emphasis is being laid on how important is pay for the employees and how it affects investment to hire competitive employees and how it compares with three main factors, namely, job contents, work environment, and pay attraction to retain an employee. This feeling or experience is an outcome of efforts offered to perform, comfort felt at work place, cushion for inflation in compensation, and appreciation perceived by the employee. Therefore, a company cannot pay its workers more than the workers give back to the firm through their productivity. Most organizations have compensation strategies and policies that cause wages and salaries to be adjusted. Employees want to get as high as possible. (4) The Retention Function – Today, human resources are being considered as a valuable asset to the organization and because of retaining and developing the knowledge bank, the retention of employees has become an important function of compensation management. Measures of job difficulty are frequently used when the relative value of one job to another in an organisation is to be ascertained. Share Your PDF File Mescon says- “The supply and demand compensation criterion is very closely related to the prevailing pay, comparable wage and ongoing wage concepts since, in essence, all of these remuneration standards are determined by immediate market forces and factors.”. Employees want to get as high as possible. The other alternative is to pay higher wages if the labor supply is scarce and lower wages when it is excessive. Wages may be expressed in terms of money called nominal wages, or in terms of purchasing power with reference to some base year called real wages. 6. To recognize the values of all jobs and positions 4. Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing an organizational task. It includes such areas as job valuation, surveys of wages and salaries, analysis of relevant organizational problems, development, and maintenance of wage structure, establishing rules for administering wages, wage payments, incentives, profit sharing, wage changes and adjustments, supplementary payments, control of compensation costs and other related items.”. Compensation refers to the rewards, an employee gets after offering his/her mental and physical efforts, wherein he/she compares his/her worth. Third, trade union encourages this practice so that their members can have equal pay, equal work, and geographical differences may be eliminated. If the demand for certain skills is high and the supply is low, the result is a rise in the price to be paid for these skills. However, the employers hope that it will improve the understanding of the benefits provided. It is an employee’s base wage, which can be an annual salary or hourly wage and any performance-based pay that an employee receives. Ensure equity. Such compensation package includes both monetary and non-monetary components. Reviewing labour rates for different industries in the specific locations, iv. Setting the Goals and Objectives for Compensation&Benefits employees is crucial for the development of the modern Human Resources Management. The compensation is given in the following form: The dictionary meaning of the term ‘wage’ is the pay of artisans or labourers receiving a fixed sum by hour, day, week or month, or for a certain amount of work. Belcher and Atchison observe- “Some companies pay on the high side of the market in order to obtain goodwill or to insure an adequate supply of labour, while other organisations pay lower wages because economically they have to, or because by lowering hiring requirements they can keep jobs adequately manned.”. To minimise un-necessary expenditure and to control cost through a device of internal check and establishment of standard. However, employers do not generally favor using the concepts of a living wage as a guide to wage determination because they prefer to base the wages of an employee on his contribution rather than on his need. Let’s look into these issues more closely: Wage increases should be given by those organisations which can afford them. External equity means paying workers what comparable workers are paid by other firms in the labor market. Rewards and recognitions, promotions, responsibility, etc., are some factors that induce confidence in the employees and motivate them to perform better. Fair wage depends on several factors like: (b) The prevailing rates of wage in the same or neighboring localities. These objectives are mentioned in the following point. Compensation management can achieve its objectives by offering: It is not due to labour efforts alone. Fairness requires wage and salary administration to be directed to achieving equity. Thus, in short, compensation is direct and indirect monetary benefits and rewards received by employees on the basis of the value of the jobs, their personal contributions and overall performance. The employees work for rewards and the employers seek higher productivity to keep cost per employee low. The employee’s involvement in systems, schemes to encourage skill and level of development, considering consolidated allowances and flexible pay systems, and spelling out clearly career advance are being debated as the future needs of compensation management. Similarly, if there is a great demand for labor expertise, wages rise; but if the demand for workforce skills is minimal, the wages will be relatively low. Desires to improve or maintain morale, to attract high-caliber employees, to reduce turnover, and to provide a high living standard for employees as possible also appear to be factors in management’s wage policy decisions.”. Effective compensation plans reward performance, loyalty, experience, responsibility, and other behaviors. The organizations are findings newer and newer methods to help employees in planning their tax liability or how to minimise the tax payment by the employees. According to committee on fair wage “fair wage is the wage which is above the minimum wage but, below the living wage”. Of course, business performance cannot always be ensured by compensation. When prolonged and acute, these labour-market pressures probably force most organisations to “reclassify hard-to-fill jobs at a higher level” than that suggested by the job evaluation. The globalization of business affects compensation management. It is essentially the application of a systematic and scientific approach for compensating the employees for their work in a fair, equitable and logical manner. Beach has defined wage and salary administration as follows; “Wage and salary’ administration refers to the establishment and implementation of sound policies and practices of employee compensation. In broad sense, ‘wage’ refers to economic compensation paid by the employer to his workers in exchange for their labour / service, under some contract. 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