Compensation

Compensation includes topics in regard to wage and/or salary programs and structures, for example, salary ranges for job descriptions, merit-based programs, bonus-based programs, commission-based programs, etc.

Compensation can refer to:
Financial compensation
Remuneration, such as a wage or salary to pay people for their work
Executive compensation
Deferred compensation
Damages - legal term referring to the financial compensation recoverable by reason of another's breach of duty; the money paid or awarded to a plaintiff
Workers' compensation, to protect employees who have incurred work-related injuries. Example is the Radiation Exposure Compensation Act.
Nationalization compensation, compensation paid in the event of nationalization of property
Defence mechanism, as in psychology
Compensation (psychology)
Compensation (engineering)
Compensation (chess), various advantages a player has in exchange for a disadvantage
Biological compensation, the characteristic pattern of bending of the plant or mushroom stem after turning from the normal vertical position.

Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing rapidly to include, for example, flexible benefit plans.

Compensation management

Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees.

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees.

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Components of Compensation System
Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities.

Components of a compensation system are as follows:

Types of Compensation
Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity.
Direct Compensation
Indirect Compensation

Need of Compensation Management
A good compensation package is important to motivate the employees to increase the organizational productivity.

Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals.

Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose.

The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards.


Strategic Compensation
Strategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In today’s competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems.


Compensation and Reward system
Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour expects wages from the process.

Labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos.

Labour therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a must for every business organization.

The fair compensation system will help in the following:
An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed.

It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable.

Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system.

The system should be simple and flexible so that every employee would be able to compute his own compensation receivable.

It should be easy to implement, should not result in exploitation of workers.

It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.

Such system would help management in complying with the various labor acts.

Such system should also solve disputes between the employee union and management.

The system should follow the management principle of equal pay.

It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel.

Sound Compensation/Reward System brings peace in the relationship of employer and employees.

It aims at creating a healthy competition among them and encourages employees to work hard and efficiently.

The system provides growth and advancement opportunities to the deserving employees.

The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.

The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job.

The business organization can think of expansion and growth if it has the support of skillful, talented and happy workforce.
refer
The sound compensation system is hallmark of organization’s success and prosperity. The success and stability of organization is measured with pay-package it provides to its employees.


Types of compensation

Direct compensation

Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Basic Salary
Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.

House Rent Allowance
Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees. This is done to provide them social security and motivate them to work.

Conveyance
Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.

Leave Travel Allowance
These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization.

Medical Reimbursement
Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for them and their family members. These medi-claims include health-insurances and treatment bills reimbursements.

Bonus
Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to one month’s salary of the employee.

Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.


Indirect compensation

Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

Leave Policy
It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

Overtime Policy
Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc.

Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.

Insurance
Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.

Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free.

Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age.

Holiday Homes
Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house.

Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.