Compensation Management: Meaning, Objectives and Components Management YouTube Lecture Handouts

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Compensation Management: Meaning, Objectives and Components Management

Meaning

  • The employee needs to be compensated for the services which they render to an organization. It is not an easy task to workout out a suitable compensation package for an employee.
  • So various techniques are used in order to compensate employees depending on their performance. Performance linked benefit also known as Incentive is the most common one.
  • Compensation Management refers to the establishment and implementation of sound policies, programmers and practices of employee compensation.
  • In India, the government is also playing a very important role by several labor laws which makes it compulsory for the employer to provide certain welfares or benefits to the employee.

Objectives

  • To retain the current workforce by paying competitive remuneration to then.
  • To attract competent and also qualified candidates towards organization by offering them fair and decent wages and incentives.
  • To improve the production, profitability and thereby the market share of the organization.
  • To establish fair and equitable remuneration so as to avoid pay disparities among the workforce.
  • To minimize unnecessary expenditure and to control cost through a device of internal check and establishment of standard.
  • To enhance the reputation and thereby augmenting the corporate image.
  • To maintain and also improve the good relations between the employer and employee through a process of payment of bonus, profit sharing and other fringe benefits like insurance, medical faculties etc.
  • It also aims to ensure prompt and regular payment of salaries to the employees and thereby gaining the trust and respect from the employees

Components

In India compensation or pay structure generally consists of the following components:

  • Wage or Salary
  • Dearness Allowance
  • Incentives
  • Fringe benefits and Perquisites

Wage and Salary

  • The term Salary refers to the remuneration paid to the employees appointed on a regular basis. Thus, it refers to the monthly payment made to the employee.
  • Whereas, wages refer to the remuneration paid to the workers appointed on hourly, daily or weekly basis.

Dearness Allowance

  • It has been mentioned under section 3 of the Minimum wages act that DA will be the cost-of-living allowance.
  • Along with DA other allowances like House Rental Allowance, Conveyance allowance can be paid but it depends on the nature and terms and conditions of the job.

Incentives

  • It is a reward paid in addition to the salaries or wages. It can be monetary or non-monetary but is always linked to the performance of the employee.
  • Payment of incentive depends on the productivity, sales, profit and performance of the employee.

Fringe Benefits and Perquisites

  • Fringe benefits include the gratuity, medical care, insurance cover, hospitalization facility. It is there for every employee of the organization.
  • When we talk about perquisites, they are generally given to the high rank employee. They include, personal care facility, membership of clubs, hotel passes etc.

MCQs

Which among the following is linked to performance of an employee?

1. Dearness Allowance

2. Incentive

3. Fringe benefits

4. Perquisites

Answer: 2

What among the following is not common to all the employees?

1. Fringe benefits

2. Dearness Allowance

3. Salary or wage

4. Perquisites

Answer: 4

Manishika