Human Resource Human Resource ManagementManagement

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Mahendra SrivastavaMahendra Srivastava

COMPENSATIONCOMPENSATION

Everyone likes to be paid. Whatever else Everyone likes to be paid. Whatever else does, money still can be turned into terms does, money still can be turned into terms most people want. Of course the most people want. Of course the psychological dimensions of the psychological dimensions of the compensation a person receives are compensation a person receives are important too.important too.

Compensation is frequently directly tied to Compensation is frequently directly tied to the labor market. the labor market.

When certain workers are in short supply, When certain workers are in short supply, offering higher compensation may offering higher compensation may increase the number of persons hired. increase the number of persons hired.

When the economy is slower, more people When the economy is slower, more people are happy to have a pay cheque.are happy to have a pay cheque.

At the peak of the last hiring boom “pay envy” At the peak of the last hiring boom “pay envy” presented a significant problem.presented a significant problem.

Stock options, performance pay and signing Stock options, performance pay and signing bonuses created ambiguities in systems and bonuses created ambiguities in systems and caused problems. caused problems.

Current employees hired without signing Current employees hired without signing bonuses like those given to new employees bonuses like those given to new employees were enviouswere envious

Employees with master’s degrees making Employees with master’s degrees making less than new IT hires with no degrees less than new IT hires with no degrees were envious.were envious.

Some managers who made less than new Some managers who made less than new hires they supervised were envious too. hires they supervised were envious too. Employees doing the same job may have Employees doing the same job may have had salary differences of USD 20,000 or had salary differences of USD 20,000 or more.more.

New hires were paid top dollars just for agreeing New hires were paid top dollars just for agreeing to come to work, while current employees had to come to work, while current employees had their experience and loyalty rewarded by getting their experience and loyalty rewarded by getting more work instead of more money.more work instead of more money.

In one survey, more than 50 per cent workers In one survey, more than 50 per cent workers indicated that they believed that they were paid indicated that they believed that they were paid too little, while only 23 per cent expressed too little, while only 23 per cent expressed satisfaction with their pay.satisfaction with their pay.

One factor driving the confusion was that One factor driving the confusion was that wages went up rapidly for those in high wages went up rapidly for those in high demand, but not everyone was in high demand, but not everyone was in high demand. Also, paying people based on demand. Also, paying people based on their individual performance often created their individual performance often created “winners” and “losers”.“winners” and “losers”.

All this attention to compensation meant All this attention to compensation meant that even people who did not worry about that even people who did not worry about the topic before are tuning into it now.the topic before are tuning into it now.

Employees often had no choice but to turn Employees often had no choice but to turn to new and different compensation to new and different compensation approaches in order to compete for approaches in order to compete for employees. employees.

Many HR professionals and managers Many HR professionals and managers now admit these approaches have caused now admit these approaches have caused problems. problems.

Pay envy dampens morale and team-Pay envy dampens morale and team-work, causes turnover and creates a “cast work, causes turnover and creates a “cast system” in the company. system” in the company.

One former Apple Vice President recounts how a One former Apple Vice President recounts how a new hire came in at USD 115,000 plus a USD 30,000 new hire came in at USD 115,000 plus a USD 30,000 hiring bonus right out of college, but star performers hiring bonus right out of college, but star performers in the company made about USD 80,000 at the time. in the company made about USD 80,000 at the time. “If you bring in someone at a big salary and then “If you bring in someone at a big salary and then turn out to be a good hire it can be a catastrophic,” turn out to be a good hire it can be a catastrophic,” he notes.he notes.

This illustrates that life is never fair in a tight labour This illustrates that life is never fair in a tight labour market, especially when compensation is skewed. market, especially when compensation is skewed. Neither is it fair when the economy sliding down.Neither is it fair when the economy sliding down.

In year 2001-02, the catered lunches, In year 2001-02, the catered lunches, signing bonuses, free laptops and cell signing bonuses, free laptops and cell phones, and other generous perks phones, and other generous perks designed to entice and keep many designed to entice and keep many employees during the high times went employees during the high times went away. Some workers who liked the away. Some workers who liked the amenities willingly gave up such amenities willingly gave up such indulgences if it meant their businesses indulgences if it meant their businesses stayed alive and they continued to have stayed alive and they continued to have pay cheques.pay cheques.

Many forms of creative compensation, tossed in Many forms of creative compensation, tossed in to attract or keep employees during the “boom to attract or keep employees during the “boom time”, seemed frivolous in the weakened time”, seemed frivolous in the weakened economy amid stock market uncertainties. economy amid stock market uncertainties. “There is now a very clear distinction between “There is now a very clear distinction between ‘nice’ and ‘necessary’ when it comes to perks. ‘nice’ and ‘necessary’ when it comes to perks. We went a little too far,” a partner with a big We went a little too far,” a partner with a big accounting firm noted. Less number of jobs accounting firm noted. Less number of jobs reduced the need for signing bonuses and other reduced the need for signing bonuses and other recruiting perks necessary a few years ago.recruiting perks necessary a few years ago.

All these changes illustrate that All these changes illustrate that compensation practices must change. But compensation practices must change. But compensation continues to be important, compensation continues to be important, visible and often a concern in HR visible and often a concern in HR management.management.

The scenario is no different in India.The scenario is no different in India.

RemunerationRemuneration

Remuneration is the compensation an Remuneration is the compensation an employee receives in return for his or employee receives in return for his or her contribution to the organization. her contribution to the organization.

Remuneration occupies an important Remuneration occupies an important place in the life of an employee. His or place in the life of an employee. His or her standard of living, status in the her standard of living, status in the society, motivation, loyalty, and society, motivation, loyalty, and productivity depends upon the productivity depends upon the remuneration he or she receives.remuneration he or she receives.

For the employer too, employee For the employer too, employee remuneration is significant because of its remuneration is significant because of its contribution to the cost of production. contribution to the cost of production.

Besides, many battles (in the forms of Besides, many battles (in the forms of strikes and lockouts) are fought between strikes and lockouts) are fought between the employers and the employees on the employers and the employees on issues relating to wages or bonus.issues relating to wages or bonus.

For HRM too, employee remuneration is a For HRM too, employee remuneration is a major function. The HR specialist has a major function. The HR specialist has a difficult task of fixing wages and wage difficult task of fixing wages and wage differentials acceptable to employees and differentials acceptable to employees and their leaders. Since employee their leaders. Since employee remuneration is such an important subject, remuneration is such an important subject, considerable space is devoted in books considerable space is devoted in books and periodicals for detailed discussion of and periodicals for detailed discussion of wage-related and salary-related problems.wage-related and salary-related problems.

COMPONENTS OF COMPONENTS OF REMUNERATIONREMUNERATION

An average employee in the organized An average employee in the organized sector is entitled to several benefits-both sector is entitled to several benefits-both financial as well as non- financial. Typical financial as well as non- financial. Typical remuneration of an employee comprises- remuneration of an employee comprises- wages and salary, incentives, fringe wages and salary, incentives, fringe benefits, perquisites, and non-monetary benefits, perquisites, and non-monetary benefits.benefits.

Wages and SalaryWages and Salary

Hourly rates of payHourly rates of pay

Monthly rate of payMonthly rate of pay

Subject to annual incrementsSubject to annual increments

Differ from employee to employeeDiffer from employee to employee

Depend upon nature of jobDepend upon nature of job

Seniority, and Seniority, and

MeritMerit

IncentivesIncentives

Paid in addition to wages and salariesPaid in addition to wages and salariesDepend upon productivityDepend upon productivitySalesSalesProfitProfitCost reduction effortsCost reduction effortsIndividual incentive schemes------specific Individual incentive schemes------specific employee performance.employee performance.Group incentive programmesGroup incentive programmes

Fringe BenefitsFringe Benefits

Provident fundProvident fundGratuityGratuityMedical careMedical careHospitalizationHospitalizationAccident reliefAccident reliefHealth and group insuranceHealth and group insuranceCanteenCanteenUniformUniformRecreation and the likeRecreation and the like

PerquisitesPerquisites

Company carCompany car

Club membershipClub membership

Paid holidaysPaid holidays

Furnished houseFurnished house

Stock option scheme and the likeStock option scheme and the like

Often given to retain competent executivesOften given to retain competent executives

Non-monetary BenefitsNon-monetary Benefits

Challenging job responsibilitiesChallenging job responsibilities

Recognition of meritRecognition of merit

Growth prospectsGrowth prospects

Competent supervisionCompetent supervision

Comfortable working conditionsComfortable working conditions

Job sharing and flexi timeJob sharing and flexi time

Thank youThank you