Compensation Management Overview

Study Notes

Refers to both monetary and non-monetary rewards provided to an employee in exchange for their services
Includes salary, wages, commission, incentives, and perks

Refers to the establishment and implementation of sound policies, programs, and practices regarding employee compensation
Involves a systematic and scientific approach to fairly, equitably, and logically compensate employees for their work

It is a core function of Human Resource Management
Helps analyze current pay practices and assess their competitiveness across industries and locations
Ensures compliance with current employment and state laws

Encompasses all forms of pay received by employees arising from their employment
Direct Financial payments: wages, salaries, incentives, commissions, bonuses
Indirect Financial payments: employer-paid insurance, vacations
Non-Financial: recognition, appreciation

Wages and salary: hourly, daily, or monthly pay
Incentives: payments based on results, individually or as a group, linked to productivity, cost reduction, and sales profit
Fringe Benefits: provident fund, gratuity, medical care, canteen facilities, uniform, accident relief
Perquisites: company car, club membership, paid holidays, furnished house
Non-monetary: working conditions, flexible timing, etc.

Reinforcement and Expectancy Theory (Vroom):
- Links work and reward, emphasizing attractive rewards from the job
- Employees are driven by the certainty of achieving positive outcomes for superior performance
Agency Theory:
- Views the employer as the principal and managers as agents
- Focuses on creating ownership interests among managers
- Utilizes unique compensation schemes like stock options
Equity Theory (Adams):
- Focuses on ensuring a fair balance between an employee's contribution to the job and rewards received
- Input greater than output leads to low employee satisfaction and motivation
- Output greater than input leads to high employee satisfaction and motivation

External Equity: Comparing compensation to other organizations
Internal Equity: Comparing compensation within the organization across different jobs
Employee Equity: Comparing compensation for individuals performing the same job within the same organization

Compensation includes both monetary and non-monetary benefits.
Incentives are also called "payments by results".
Gratuity is paid only at the time of an employee's exit after serving more than five years.
"A behavior which has rewarding experience is likely to be repeated" is postulated by the Reinforcement and Expectancy theory.
"A fair day's work for a fair day's pay" denotes a sense of equity felt by employees.

Compensation is the monetary and non-monetary rewards provided to an employee in exchange for their services.
Compensation management refers to establishing and implementing sound policies, programs, and practices for employee compensation.
The goal of compensation management is to ensure fair, equitable, and logical compensation for employees' work.

Essential function of Human Resource Management (HRM)
Helps analyze pay practices and determine if they're competitive across different industries and geographic locations.
Ensures compliance with employment and state laws.

Direct Financial Payments: Wages, salaries, incentives, commissions, bonuses.
Indirect Financial Payments: Employer-paid insurance, vacations.
Non-Financial: Recognition, appreciation.

Wages and salaries: Hourly, daily, or monthly pay.
Incentives: Payments based on results, individual or group performance, productivity, cost reductions, and sales profit.
Fringe Benefits: Provident fund, gratuity, medical care, canteen facilities, uniforms, accident relief.
Perquisites: Company car, club membership, paid holidays, furnished housing.
Non-monetary: Working conditions, flexible work schedules.

Reinforcement and Expectancy Theory (Vroom): Links work and rewards, emphasizing the importance of attractive rewards for motivation. Employees are more motivated when confident in achieving positive outcomes.
Agency Theory: Employer is the principal, and managers are the agents. Encourages managerial ownership through compensation schemes like stock options.
Equity Theory (Adams): Stresses the importance of a fair balance between employee contributions and rewards received. Input exceeding output leads to low employee satisfaction and motivation; output exceeding input leads to high employee satisfaction and motivation.

External Equity: Comparing compensation to other organizations in the same industry.
Internal Equity: Comparing compensation within the organization across different job roles.
Employee Equity: Comparing compensation for individuals performing the same job within the same organization.