What Is Compensation?

The term Compensation refers to all form of financial returns and tangible benefits that
employees receive as a part of an employment relationship. As the business environment
increasingly becomes complex and global, the challenge to create and maintain effective
compensation programs, given cost constraints, also requires greater professional expertise,
organisational understanding, creativity and vision than ever before.

Types of Compensation

Compensation typically is divided into two parts, namely Direct Compensation and Indirect
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.
 Graphical Breakup of Monthly Payroll

Deductions such as tax and loan/advances taken by the employee from organizations are
deducted only where applicable. Dearness Allowance and House rent allowance is provided
at a fixed rate stated by the employment law. Provident fund is deducted from the gross
salary of employee on the monthly basis as per the employment law, which is provided later
to the employee. Organizations also contribute the same amount to the provident fund of the
employee.

Need of Compensation

 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 fulfil. 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.

Compensation in Banking Sector

Banking and finance sector is currently experiencing high growth rate nearly all over the
world including India. With increased FDI and high inflation rates, finance sector is enjoying
high deposits. Financial institutes and commercial banks are expanding their business and
going for large scale recruitments. The banks are collaborating with insurance units to
provide insurance coverage to their clients. Few of the banks are also dealing in gold and
silver.

Nationalized banks are preferred more as they provide for job security. Compensation
packages in banks have always been lucrative. Incentives, special allowances, travel leaves,
concessions, paid vacations, paid leaves, retirement benefits are also offered along with basic
salary and other allowances such as house rent allowance, transportation vehicle etc.

Compensation package in finance and banking sector depends on the level of knowledge and
experience an individual have.

Top players in India such as nationalized banks- Bank of India, SBI, Indian Overseas Bank,
Bank of Baroda, Punjab National Bank, HDFC, ICICI and other private banks, financial
institutes such as Bajaj Capital, Kotak Mahindra, etc, are offering high salary packages with
lucrative incentives to attract and retain their talented work force.

COMPENSATION ON THE BASIS OF EXPERIENCE

In the context of Indian Banking sector, it is seen that as age increases, the compensation also
increases proportionally.
ENTRY LEVEL COMPENSATION PACKAGES

Indian finance & banking sector offers jobs in various segments. The managerial level jobs
are held by management professionals, commerce graduates and finance professionals.

Apart from pay packages finance professionals also get high incentives and perks. The
industry provides for special allowances such as annual bonus, house rent allowances, mobile
allowances, transportations, travel leaves, paid vacations, etc.
* The salary figures provided are for the business development executives and marketing &
sales executives

Management Level Compensation

Finance sector is a promising sector where compensation is considered. The sector has
witnessed 17% average increase in the salary packages in the year 2006. The compensation
packages offered to managerial level employees are very much lucrative. Besides the basic
salary employees are also provided with heavy perks and incentives with special allowances.
They are offered club memberships, company’s vehicle, travel leaves, paid vacations, other
allowances and non-monetary benefits.

Organizations also conduct training and development programs for their employees’
professional growth. Organizations provide for certification courses and online degree
courses for the employees.

At higher level employees are given employee stock options. Individuals are given equal
preferences on the basis of their performance.

Nationalized banks offer job security and private financial institutes provide high lucrative
packages. With the globalization, liberalization, business expansion, more number of
competitors, jobs in the financial sector are also demanding too much hard work. Earlier bank
jobs were considered very comfortable ones but now the scenario has been changed. Indian
banking sector is heading for 24*7. Some of the nationalized and private banks have started
working 8 to 8.
Dearness Allowance for workmen and officer employees in banks

>> Dearness Allowance for workmen and officer employees in banks

Payable for the Year Payable for the months Average CPI No. of slabs % of pay
2007-08 Nov/Dec/Jan 3028 185 33.3
2007 Aug/Sep/Oct 2944 164 29.52
2006-07 May/Jun/Jul 2907.06 154 27.72
2006-07 Feb/Mar/Apr 2898.84 152 27.36
2006-07 Nov/Dec/Jan 2836 137 24.66
2006 Aug/Sep/Oct 2768 120 21.6
2006 May/Jun/Jul 2716.28 107 19.26
2002 Feb/Mar/Apr 2312.17 157 0
2002 May/Jun/Jul 2307.23 155 0
2002 Aug/Sep/Oct 2346.67 161 0
2002-2003 Nov/Dec/Jan 2391.05 174 0
2003 Feb/Mar/Apr 2386.11 178 0
2003 May/Jun/Jul 2400.9 177 0
2003 Aug/Sep/Oct 2450.21 188 0
2003-2004 Nov/Dec/Jan 2460.07 194 0
2004 Feb/Mar/Apr 2474.86 198 0
2004 May/Jun/Jul 2484.71 200 0
2004 Aug/Sep/Oct 2524.15 205 0
2004-2005 Nov/Dec/Jan 2578.38 220 0
2005 Feb/Mar/Apr 2568.53 224 0
2005 May/Jun/Jul 2588.25 226 0
2005 Aug/Sep/Oct 2604 79 14.22
2005-2006 Nov/Dec/Jan 2672.05 93 16.73
2006 Feb/Mar/Apr 2711.5 106 19.08
SBI first one to open ESOP locker for employees

Employees of state-owned banks will soon get rid of their tag of being considered as poor
cousins of their counterparts in new-age private and foreign banks in terms of remuneration
packages. According to the top official with knowledge of the issue said that the Cabinet has
given the approval to a proposal for a stock option plan for staffers of the country’s largest
bank, State Bank of India, marking a first in the Indian banking industry and perhaps for any
state-owned company.

The official said the bank, which is preparing for a rights offering of over Rs 16,000 crore
this fiscal, might in a good position now to unveil an employee stock options plan (ESOP)
aggregating up to 0.7% of its capital base of Rs 526 crore. Officials had informed ET that the
bank will be discussing on the proposal of merging all its associate banks with the parent in
January. Till now no official confirmation is available on whether the board of the bank and
its associates would consider this proposal.

The proposal, which intends to reward value creators for state-owned banks just like their
peers in private banks based on a defined performance criterion, has been in the making for
long. A couple of years ago the government had discussed the proposal with the banking
regulator, though it’s only now that it has been able to get the proposal off the ground. The
government is the leading shareholder in 28 banks in the country with stakes ranging from
100% to 53%.

By offering stock options, it is believed that it could bring motivation among the employees
which could reflect on the performance of their organizations. However in a stock market,
which has posted spectacular gains over the last few years, this can prove to be one of the
best tools to both retain and attract talent in state-owned banks given their inability to offer
substantial pay packets.

A convincing reason now for giving the nod for stock options can be the imminent opening
up of the banking sector to foreign investors a year down the line and increased competition
in the local markets. Officials are of view that the decision taken to allow SBI to offer stock
options will open the way for other state-owned banks and units to come up with similar
offers. SBI has over two lakh employees on its rolls spread across over 9,500 branches in
India and 84 offices abroad in 32 countries.
UTI AMC, which in a sense is a quasi-government entity, has guided the way by offering
shares to all its employees numbering over 1,000. Officials of SBI, however, said the ESOP
would be independent of the rights offering. This means that it would be unveiled perhaps in
the next fiscal only as the details need to be fleshed out.

Last weekend, the government issued a letter to SBI through which it has given signal of its
willingness to subscribe to its entitlement of the rights issue. The government has 59.73% of
the equity holding in the bank; it will issue securities aggregating Rs 10,000 crore to SBI to
fund its subscription. A securities redemption fund which might be created will be built out of
the dividends and tax receipts which the government will receive from SBI. The fund will
enable the government to cash in the securities on maturity.

Officials stated that the SBI chairman had discussions with the finance ministry last week on
the modalities of the proposed rights offering. The rights issue is aimed at strengthening the
capital of the bank. SBI will require the capital to fulfil the Basel II norms and new
accounting standards and to fund credit growth.
Compensation structure in Industrial Development Bank of India Limited
(IDBI):-

COVERAGE

• Compensation

• Loan Facilities, etc,

Total Emoluments incl. Reimbursement for the post of Assistant manager

• Gross Salary Rs.16, 900/- p.m.

• Reimbursements# Rs. 5400-8300/- p.m.

• Total (approx) Rs.23, 300 – 25,200/- p.m.

• Annual Gross emolument Rs.2.79 – 3.02 lakh (approx)

In addition, bank housing/ leased accommodation is provided. (Lease rentals varying between
Rs. 2750 – 8000/- p.m.)

# Include Reimbursement towards medical, newspaper, telephone, petrol, LTA, etc. -

Periodical reimbursement as per policy.

Reimbursement (details)

• Medical Expenses:

• Unlimited for self and dependent family members.

• Additional Rs.2,500/- p.a. on declaration basis.

• Cleaning Expenses: Rs.1,000/- p.m.

• Conveyance Expenses:

• Petrol: Rs.5,280/ 2400 p.m for Four wheeler/Two wheeler and insurance cost.

• Non-vehicle owners - Rs. 600/- p.m.

• Newspaper Expenses: Rs.400/- p.m.

• Telephone Expenses: Rs.1,154/- bi monthly

• LTA: Rs.20,000/- once in 2 years on declaration

• Brief case: Rs.2,000/- once in 3 years

Superannuation & other benefits

• Provident Fund: 10% contribution by the employee

• Pension: Eligible as per Rules.

• Gratuity: Eligible as per Rules.

Loan facilities

• Housing Loan:

-After 3 years of confirmation. (Including probation period)

-80 times of basic pay OR 90% of the cost subject to maximum of Rs.15 lakh.

- Rate of Interest: 5% p.a.

• Festival Advance:

- Rs.20,000/- after 6 months of service

(Interest free) once in a calendar year.

- Repayable in 10 monthly instalments.

• Consumer Advance:

Eligible: 2 years of confirmation (including probation period)

- Amount: Rs.40,000/-

- Rate of Interest: Prevailing Bank rate at the time of disbursement.

• Computer Advance:

- 1 year after confirmation

- Amount: 90% of cost of PC OR Rs.75,000/- whichever is less.

- Rate of Interest: Prevailing Bank rate at the time of disbursement

• Vehicle Advance:

I) Car:

- 3 years of confirmation.

(Including probation period)

- 100% of the cost subject to maximum of

Rs.3,00,000/-(Rate of Interest : 7% p.a.)

II) Two wheeler:

- 3 years of confirmation.

(Including probation period)

- 90% of the cost subject to maximum of

Rs.40,000/- (Rate of Interest : 7% p.a.)

• Advance for Consumer Durables for furnishing residence (Lease facility):

- 2 years service

- Rs.30, 000/-

- Recovery of Rs.1020/- p.a.

Other facilities (Examples of Indirect Compensation)

In addition, Employees are also provided facilities such as:

• Reimbursement of fees for pursuing professional courses.

• Holiday home facility at various locations all over the country.

PAYMENT STRUCTURE OF BANK OF INDIA

The monthly remuneration received by each of its officers and employees, including the
system of compensation as provided in its regulations

The pay scales of employees of the Bank are fixed by IBA in consultation with Government
of India, Ministry of Finance, New Delhi. The scale of pay of its employees as of now is
given below:

Scales of Pay of Officers:

Scale I = Rs.10000 - 470/6 - 12820 - 500/3 - 14320 - 560/7 - 18240

Scale II = Rs.13820 - 500/1 - 14320 - 560/10 - 19920

Scale III = Rs.18240 - 560/5 - 21040 - 620/2 - 22280

Scale IV = Rs.20480 - 560/1 - 21040 - 620/5 - 24140

Scale V = Rs.24140 - 620/4 - 26620

Scale VI = Rs.26620 - 680/4 - 29340

Scale VII = Rs.29340 - 680/2 - 30700 - 900/1 - 31600 - 1000/1 - 32600

Scales of Pay of Clerical Staff:

Rs.4410 - 215/3 - 5055 - 335/3 - 6060 - 470/4 -7940 - 500/3 - 9440 - 560/4 - 11680 - 970/1 -
12650 - 560/1 - 13210.

Scales of Pay for Subordinate Staff:

Rs.4060 - 105/2 - 4270 - 115/2 - 4500 - 135/2 - 4770 - 165/3 - 5265 - 195/4 - 6045 - 235/3 -
6750 - 270/3 -7560
PAYMENT STRUCTURE OF A PRIVATE SECTOR BANK

ICICI BANK

Job title: Head NRI Private & Retail Banking (India)

Location: Mumbai, India

> Cost to company per year INR 2 million.

> Esops: Are given every year in the grade.

> Vacation time: 30 days.

> Car with 5 years written down value.

> Company owned staff quarters at subsidised rates.

> Canteen facility at subsidised rates.

Job title: AM I, Location: DELHI, India

”package structure is very different as gross and net amt varies. Make it very clear about take
home as gross may sound to be very attractive due to the bonus components. Yearend bonus
depends upon the yearly performance and the kind of rating you get at the end of the year”.

Job title: HR MANAGER (PERSONNEL)

Location: CUTTACK, INDIA

Approximate date of offer: 9/2004

Submitted on: SEP 17, 2004

GROSS SALARY: RS.14, 500/- PER MONTH,

LTA: RS.12, 000/- PER YEAR,

MEDICAL REIMB: RS.12, 000/-PER YEAR.

The current structure in ICICI -- bottom-up -- consists of assistant manager, manager, chief
manager, assistant general manager, deputy general manager, joint general manager, general
manager, senior general manager and executive director.
CONCLUSION

Banks play a crucial role in determining the economic wellbeing of an economy and the same
is true for India also. In its context, we find the segment differentiated into segments like the
public and the private sector. Post liberalization phase has seen a massive change in the
working of these institutions. All of them have realized the cut throat competition and for the
same, they all are focusing on excellence in performance in all spheres of work. To ensure the
same with the workforce, a sea change has been seen in the human resource policies of the
banking sector.

This becomes the reason why the compensation schemes have been modified. Earlier,
basically the direct component on the compensation formed the essential part of the payment.
Now also it is so, but the components of direct compensation have been modified. The idea is
to drive excellence, and for this, concepts like incentive component, sales based commissions
among others are gaining prominence in determining the magnitude of net compensation of a
bank staff.

Regular and effective performance appraisals help the employers to determine the
effectiveness of the bank staff and accordingly fine tune the compensation as the net salary is
heavily affected by the performance based payment factor. This is one of the reasons why
some private sector banks have seen exponential growth in sales figure in the recent past. The
Indian Banks’ Association, along with the finance ministry and the RBI, which plays a
pivotal role when the public sector banks determine compensation strategies, has also taken
clue from their counterparts and has thus come up with performance based incentives.

It has been accepted that a motivated employee can help create an efficient organization and
money in most case becomes the driving force. This becomes relevant for the present
competitive banking scenario also. This realization has given rise to the changes in the
compensation schemes in this sector. As the market undergoes further modifications directed
by the changes in local as well as the global economy, it becomes a challenge for the HR
managers to work out more efficient compensation schemes.
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on 22/01/08

Ramani V.,March 2007,Executive Compentation-Theory and Practice,H.R.M.

ICFAI Press,pg 61-65.

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