This document discusses compensation and its importance for both employees and employers. It defines compensation as the remuneration an employee receives in return for their contributions. Compensation includes salary, benefits, and other perks. The goals of an effective compensation system are to attract, motivate, and retain capable employees. The document also outlines various components of compensation, factors that influence compensation policies, and considerations for determining appropriate salary levels.

1. Compensation
‘ Compensation’ in other terms also
called as ‘Employee Remuneration’.
Remuneration is the compensation; an employee
receives in return for his or her contribution to the
organization. Remuneration occupies an important
place in the life of an employee. His or her standard
of living, status in the society, motivation, loyalty,
and productivity depend upon the remuneration he
or she receives. For the employer too, employee
remuneration is significant because of its
contribution to the cost of production.

2. Aims of Employee Compensation
 Attract capable employees to the
organization.
 Motivate them toward superior performance.
 Retainment of their services over an
extended period of time.

3. Aims of Employee Compensation
1. Attract capable employees to the organization:-
Every organization looks for retaining capable employee with the organization.
Infact, retaining an employee is the most difficult function of HR Department.
So for retaining an efficient employee with the organization, he has to be
provided with better compensation. That compensation that he is going to
be provided should include better salary perks, increments, promotions etc.
So, a better compensation package is going to attract the efficient employee
who is very useful to an organization.
2. Motivate them toward superior performance:-
For any employee, money is the main motivator. If every employee of an
organization is provided with better compensation, every body will be
motivated to exhibit superior performance. The better the pay, the better the
performance. The compensation that is going to be provided to the
employees should include better salary, perks, increments, bonus etc. Even
though the remaining components like promotion are going to motivate the
employees, but the basic motivator is better compensation.
3. Retainment of their services over an extended period of time: -
Retainment of the services of an employee with an organization is the most
difficult job of HR. So, the retainment of the employee’s service over a long
period of time is possible only by providing them with better compensation.

4. Factors affecting compensation policy
 Supply and demand
 Cost of living
 Government
 Labor unions

5. Components of Compensation

6. Components of Compensation Conti.
 Direct- Wages, Salaries, Commissions, Bonuses
 Indirect- Insurance plans, Social Assistance,
Educational Assistance, Paid Absences
 The Job- Interesting Duties, Challenge,
Responsibility, opportunity for recognition, feeling of
advancement, achievement opportunity
 The Environment- Sound policies, Competent
supervision, Congenial coworkers, Appropriate
status symbol, Comfortable working conditions, flexi-
time, Job sharing, Cafeteria compensation

7. Factors Involved in Determining Salary
 Kinds and Levels of Required Skills.
The single most important factor influencing an individual’s rate of
pay is the kind of work performed. Some professions require a
high level of education which made the job a highly paid job.
 Supply and Demand of Labor.
Any job is worth what the marketplace will bear. Individuals with
certain skills may be in varying degrees of demand. Sometimes
the demands vary across specific locations. At other times, they
are national in scope. Those who have the particular knowledge,
skills, and credentials that are in high demand—a current
example is information technology professionals—can request
and will usually receive premium wages.
 Geographic Location
Levels of employment/unemployment do not affect all regions of the
nation equally. Certain areas where the cost of living is high have
historically paid higher wages.

8. Factors Involved in Determining Salary
 Profitability of the Organization
Employees working for a highly profitable business have a greater
chance of receiving higher wages than those working for a less
profitable enterprise.
 Employee Tenure and Performance.
Traditionally, an employee’s pay increases with years of service. A
widely held view is that, through experience, employees become
more effective problem solvers and are more dependable. However,
as the global economy increasingly demands ongoing business
change and higher levels of productivity, employers have looked at
how pay and reward systems can improve an organization’s
performance. For many employers, the goal now is to integrate the
organization’s compensation and reward philosophy with its strategic
initiatives regarding customers, profitability, and the development of
a strong, competitive work force focused on the success of the
organization.

9. Factors Involved in Determining Salary
 Employment Stability
We all want the security of knowing that we will have our job as long
as we want it. The idea of not having a regular job to pay debts
and day-to-day living costs is distressing. Employees who feel
that a job is secure are often willing to accept less than they
would be paid in a potentially unstable environment.
 Compensation Philosophy
Some employers are committed to a philosophy of paying their
employees above industry or area standards in order to attract
and retain the very best pool of skilled workers available. Others
pay at the 50th percentile; still others pay as little as they can.
Size of the Organization. Large organizations can often pay at a
higher wage rate than smaller ones.

10. WAGES
Minimum Wages
These are the wages that ensure more than just adequate
sustenance, these ensure certain medical & other essential
requirements of individuals catered to ensure:-
 1. 3 extra compensation unit to a family of a simple earning
member.
 2. 2700 calorie of food intake per member per day.
 3. 18 yards of cloth per member and for an unit of four members
i.e. 18 x 4 = 72 yards cloth per annum.
 4. To ensure land, shelter equivalent of what is provided by
industrial housing scheme.
 5. Amenities catered to by wages 20% of minimum wage.

11. WAGES
LIVING WAGES
 Ensure more than adequate sustenance to the extent that certain
greater needs like social needs, sanitations, health aspects, and
protections from misfortunes.
FAIR WAGES
These are fixed on the basis of: -
 1. Productivity of Labour
 2. Prevailing level of wages
 3. Industry Policy to wages & income distribution in the country.
 4. Contribution of industry to the economy
The upper limit is fixed on the basis of the above factors and ensures
minimum wages.

12. Wage Policy
Wage policy deals with remuneration of work rendered by
employees in any organization. Wages are that compensation
given to employees done for work in return. Wages are given to
the worker (blue color) who are the shop floor employees and
salaries are given to executive cadre (white color) according to
Public Policy, a good wage policy should look into the following:
 1. An equitable distribution of return between capital & labour.
 2. To establish justified wage differentials
 3. Equal pay for equal work
 4. To base wages on need basis

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