Compensation
"Compensation is what employees receive in exchange
for their contribution to the organisation. Generally, employees offer their
services for three types of rewards. Pay refers to the base wages and salaries
employees normally receive. Compensation forms such as bonuses, commissions and
profit sharing plans are incentives designed to encourage employees to produce
results beyond normal expectation. Benefits such as insurance, medical,
recreational, retirement, etc., represent a more indirect type of compensation.
So, the term compensation is a comprehensive one including pay, incentives and
benefits offered by employers for hiring the services of employees.
Employee Compensation may be classified into two types – Base Compensation and Supplementary Compensation.
Base Compensation refers to monetary payments to employees in the form of wages and salaries. The term "wages" implies the remuneration of workers who perform manual labor measured in terms of the number of hours worked. The term "salaries" (payment related to a specific period regardless of the number of hours worked, payment generally made at the end of the month) is generally defined as Compensation to office, managerial, technical and professional personnel.
Supplementary Compensation means incentive payments based on the actual performance of an employee or a group of employees. The term "Compensation Administration" or wages and salary administration denotes the process of managing a company's Compensation program. The goals of Compensation management are to design a profitable pay structure that attracts, motivates and retains competent employees.
Objectives of Compensation Administration:
1. Establish fair and equitable remuneration by offering similar remuneration for similar work.
2. Attract qualified and competent personnel.
3. Retain current employees by keeping salary levels in line with competing units.
4. Control labor and administrative costs according to the payment capacity of the organization.
5. Improve employee motivation and morale and improve union-management relations.
6. Project a good image of the company and comply with legal needs regarding wages and salaries.
Principles or Features of Ideal Wage and Salary Administration:
1. Wage and salary plans must be flexible enough.
2. The job evaluation must be done scientifically.
3. The wage and salary management plans must always be consistent with the general plans and programs of the organization.
4. The plans and programs for the administration of wages and salaries must be in accordance with the social and economic objectives of the country such as the achievement of equality in the distribution of income and the control of inflationary trends.
5. Wage and salary management plans and programs must respond to changing local and national conditions.
6. These plans should simplify and speed up other administrative processes.
Wage Policy in India:
From the employee’s point of view ‘wages’ determine
his standard of living. Wage policy, therefore, is an important issue and recognising
its importance the Constitution of India guaranteed ‘equal pay for equal work’
for both men and women (Article 39) and reiterated that the State must
endeavour to secure for all workers a living wage and conditions of work which
ensure a decent standard of life (Article 43).
Minimum
Wage: Minimum wage is that wage which must invariably be
paid whether the company, big or small, makes profits or not.
Fair
Wage: It is that wage which is above the minimum wage but
below the living wage.
Living Wage: According to the Committee on Fair Wages, the living wage is the highest among the three. It must provide (i) basic amenities of life, (ii) efficiency of worker and (iii) satisfy social needs of workers such as medical, education, retirement, etc." (V S P Rao)
Categories of Compensation:
A. Salary And Wages- A salary (or wage) is a fixed sum paid in return for a representative's administrations. For full-time representatives, Compensation is commonly portrayed in yearly, month to month, every other week or week after week sums. For low maintenance representatives, it is commonly depicted as an hourly sum. To decide a fitting compensation or potentially pay go that your organization is happy to pay for a position, you should.
i) Establish the estimation of the position dependent on your authoritative necessities.
ii) Understand what the market is paying for a comparable position.
B. FringeBenefits- An employment benefit given additionally to one's wages or salary. The term "fringebenefits" was coined by the War Labor Board during World War II to explain the assorted indirect benefits which industry had devised to draw in and retain labor when direct wage increases were prohibited.
Old age payments, Paid vacations, survivor payments, Disability and health insurance, Profit sharing, Pension plans, Bonuses, Life insurance, Education payments, Dental insurance, Worker's Compensation, Accident insurance, Unemployment Compensation, Discounts on goods/services purchased from the company and Child care. Certain benefits are: housing (employer-provided or employer-paid), group insurance (health, dental, life etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit sharing, funding of education, and other specialized benefits (Transportation facility/ Company Car, telephone facility, Free electricity, or Petrol allowance).
C. Vacations- Employee benefits include vacations for workers sure enough period of time during the employment. Jobs under present corporate environment are stressful which eventually affect the performance of the worker over a period of time. Vacations makes employee re-energize and makes employee to chuck work stress what they’d faced in the job because, vacations are often spent with their friends or family. Now a days companies are offering vacation packages to their key employees, good performers and people who be productive to company. Vacations for workers act as the motivating factor and also helps to retain employee for long period in the organization.
D. Paid Time Off- “On average, employed adults in India get 17 days paid holiday days per year. Despite that, 42 per cent are often concerned with the mounting load of the work while the other 26 per cent are unable to find the time to disengage from the official responsibilities. Close to 30 per cent are unable summon the courage to ask for leave, as a large share believe that two-week holidays are frowned upon or discouraged by their workplace,” British Airways said in a release. Employers know that their employees need a clear stage once in a while. Employers do several things to deal with personal time off. Organizations are streamlining their vacation time, sick time, personal days, holidays, and volunteer time into a single "paid time off" category. That's why companies offer paid time off (PTO) in the form of vacation days, holidays, personal leave, and sick leave. Many companies have done away with "sick leave" and "vacation" as employee benefits and have replaced them with "paid time off" (PTO). The definition of paid time off is any time not worked by an employee that the regular rate, a hard and fast or a prorated amount of pay, is accrued and paid to the worker. As mentioned above, some employers value more highly to give their employees a paid time off plan. This is often a more flexible arrangement that provides the worker a collection amount of days off to be used at the employee's discretion. These days can be used for sick time, personal days, vacations, or for whatever reason the employee may need time off. Like vacation and other forms of time off, the amount of days off generally accumulates through years of service and therefore the level of the employee within the organization.
E. Perquisites- The term perqs (also perks) is commonly used colloquially to sit down with those benefits of a more discretionary nature. Often, perks are given to employees who do notably well and/or have seniority. Common perks are take-home vehicles, hotel stays, free refreshments, leisure activities on time period (golf, etc.), stationery, allowances for lunch, and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling.
F. Employee Health Insurance Benefits- The foremost fundamental of all basic employee benefits is health insurance, which should be provided so staff members can visit the doctor once they fall ill. Not only does this help the worker economize, but it also helps the employer by encouraging staff members to induce treatment, thus allowing them to return to figure more quickly and not spread illness to the rest of the staff.
G. Paid Leave- The same as employee health insurance benefits, paid leave allows sick employees to remain home and recover without jeopardizing their pay checks. Paid leave, like paid vacation, can take many forms. For example, maternity and paternity leave, examples of paid sick leave, are given to new parents who have to stay home with newborn children. Paid leave may apply to employees who come down with the common cold or flu. In some cases, these basic employee benefits are called "personal days," which means that they will be used for reasons aside from injury or illness. Some employees simply need a mental health day to recuperate from the stress at work; personal days give them that option.
H. Retirement Plans- A retirement plan allows employees to organise for his or her futures, securing their financial stability after they have aged out of the work force. Furthermore, it’s easier for businesses to offer retirement benefits than most people think.
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