Page 161 - DMGT406_HUMAN_RESOURCE_MANAGEMENT

Human Resource Management

Notes Introduction

Compensation is what the employees receive in exchange for their contribution to the organisation.
Generally, employees offer their services for three types of rewards. Pay refers to basic wages and
salaries normally receive. Compensations forms such as bonus, commission and profit sharing
plans are incentives designed to encourage the employees to produce the results beyond the
normal expectation. Benefit such as insurance, medical, recreational, retirement etc represent a
more indirect type of compensation. So the term compensation is a comprehensive one including
the pay, incentives, benefits offered by employees for hiring the services of employees.

10.1 Objective of Compensation Planning

1. Internal equity: to ensure the more difficult jobs are paid more.
2. External equity: to ensure that jobs are fairly compensated in comparison to similar jobs
in the labour market.
3. Individual equity: to pay equal for equal job.
4. Attract talent.

5. Retain talent.
6. Control cost.
7. Comply with legal rules.

8. Ease of operation.
10.2 Components

10.2.1 Wages

In India, different Acts include items under wages, though all the Acts include basic wage and
dearness allowance under the term wages. Under the Workmen's Compensation Act, 1923,
"wages for leave period, holiday pay, overtime pay, bonus form part of wages."
Under the Payment of Wages Act, 1936, Section 2(vi), "any award of settlement and production
bonus, if paid, constitutes wages."

Under the Payment of Wages Act, 1948, "retrenchment compensation, payment in lieu of notice
and gratuity payable on discharge constitute wages."
However, the following types of remuneration, if paid, do not amount to wages under any of
the Acts:
1. Bonus or other payments under a profit-sharing scheme which do not form a part of
contract of employment.
2. Value of any house accommodation, supply of light, water, medical attendance traveling
allowance, or payment in lieu thereof or any other concession.
3. Any sum paid to defray special expenses entailed by the nature of the employment of a
workman.

4. Any contribution to pension, provident fund, or a scheme of social security and social
insurance benefits.

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