Page 180 - DMGT406_HUMAN_RESOURCE_MANAGEMENT

Unit 10: Compensation and Benefits

10.8 Summary Notes

 Compensation administration intends to develop the lowest-cost pay structure that will
not only attract, inspire and motivate capable employees but also be perceived as fair by
these employees. Establishing strategic pay plans involved four main decisions: pay level
decision, pay structure decision, differential pay decision and administration decision.
 Knowledge-based organizations these days follow a performance-based payment plan
offering awards to employees for cost saving suggestions, bonuses for perfect attendance
or merit pay based on supervisory appraisals. The benefits and services offered by various
organizations in India may be broadly put into five compartments. Payment for time not
worked, employee security, safety and health, welfare and recreation facilities and old
age and retirement benefits. Organisations face many challenges while deciding on
remuneration of a employee. These may be seen as different options present before them.

10.9 Keywords

Benefit: An indirect reward given to an employee or group of employees as a part of organisational
membership.

Compensation: It refers to the financial and non-financial rewards to the employees for their
services rendered to the company.
Earnings: Total amount of remuneration received by an employee during a given period.

Fringe Benefit: The term 'fringe benefits' covers statutory bonus, social security measures,
retirement benefits like provident fund, gratuity, pension, workmen's compensation, housing,
medical, canteen, co-operative credit, consumer stores, educational facilities, recreational facilities,
financial advice and so on

Gratuity: It is payable to all the employees who render a minimum continuous service of five
years with the present employer.
Pay Equity: An employee's perception that compensation received is equal to the value of work
performed.
Pay Grades: Groups of jobs within a particular class that are paid the same rate.
Provident Fund: Provident Fund Scheme of the act provides for monetary assistance to the
employees and/or their dependants during post retirement life. Employees in all factories
under Factories Act, 1948, are covered by the Act.
Salaries: Remuneration paid to the clerical and management personal employed on a monthly
or yearly basis. However, the distinction between wages and salaries need not be observed in
actual usage. Both may mean remuneration paid to an employee for services rendered.
Variable Pay: Tying pay to some measure of individual, group or organisational performance.

10.10 Review Questions

1. If we pay predominantly for jobs rather than people, how can we reward the truly
exceptional performing employee?
2. 'If the employees believe that subjectivity and favouritism shape the pay system in an
organisation, then it does not matter that the system was properly designed and
implemented'? Discuss.

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