INTRODUCTION OF COMPENSATION

Compensation If you pick the right people and give them the opportunity to spread their wings and put compensation and rewards as a carrier behind it- you almost dont have to manage them. -Jack Theylch

Compensation (Meaning) Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, and profit sharing, gain sharing.

How is compensation used? Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according to the business needs, goals, and available resources. Compensation may be used to:

Recruit and retain qualified employees. Increase or maintain morale/satisfaction. Reward and encourage peak performance. Achieve internal and external equity. Reduce turnover and encourage company loyalty. Modify (through negotiations) practices of unions.

CONTEXT OF COMPENSATION Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures.

Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs.

Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation.

Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method.

Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining.

Salary Surveys Collections of salary and market data may include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company.

Compensation policy The compensation policy is the basic document, which drives the detail of the compensation practices in the organization.

HOUSE RENT ALLOWANCE: Only bachelor accommodation will provide by the company. Family will be paid HRA at 40% of the basic salary. CONVEYANCE ALLOWANCE: Conveyance allowance will be paid as follows: Groups I II III IV V VI to VII Allowance(per month)

MEDICAL INSURANCE: Staff covers under the company Medical Insurance. LEAVE TRAVEL ASSISTANCE: Eligibility:

Staff will be entitled to LTA on completion of one year of service subject to confirmation of services.

For journeys performed by Air: Economy fair of airliners by the shortest route to the place of destination.

TELEPHONE ALLOWANCE: Groups I II III IV V Allowance(per month)

ELEMENTS/SUB-ELEMENTS OF COMPENSATION

The elements of compensation are as follows:

Base pay Which is nondiscretionary compensation that does not regularly vary according to performance or results achieved Variable pay Compensation that is contingent on discretion, performance or results achieved.

The sub-elements of compensation include When considering how attractive your transit system is as an employer, examine your total compensation package, including (but not limited to) the following: 1. Wages/Salaries

Base wages for full-time or part-time employees Whether employees are paid for overtime or given compensatory time

2. Benets employee/employer contribution

Paid Leave Vacation Sick Personal days Medical/Life Insurances

Health insurance Dental insurance Disability insurance Life insurance

Other

Pension/401(k) Education/tuition reimbursement Wellness program

EFEECT OF COMPENSATION

The effects of monetary compensation on performance are often debated. One of the most popular theories on the subject is psychologist Frank Herzberg's Two-Factor Theory. Somewhat derived from Maslow's Hierarchy of Needs, Herzberg's theory indicates that while pay is a demotivating factor if not adequate for the work, it is also not a strong motivator. Pay Basics: Companies use a variety of pay structures in an effort to use pay as a motivator. Straight-salary pay seems to fall most obviously into Herzberg's hygiene or maintenance factors, meaning it is necessary, but not motivating. Other pay structures that include commissions, bonuses and other incentives may have more ability to motivate performance. Problems with Pay: Some psychologists and analysts indicate that pay may have varying levels of motivational influence on employees. The biggest problem with a straight-pay structure is that employees quickly become used to earning a certain level of income regardless of the results they produce. Dissatisfaction: Herzberg's theory indicates that while not motivating, hygiene factors can lead to dissatisfaction if expectations are not met. This suggests that adequate and fair pay for work is necessary to retain employees and to protect against strong feelings of dissatisfaction at work. If employees feel underpaid for their work, they may also feel like the company and their direct managers do not value their work or them as employees. This contributes to dissatisfaction, which can ultimately cause the employee to underperform. The Promotional Effects: As noted, Herzberg's theory suggests that opportunities for promotions and actual promotions are more likely to motivate higher performance than regular pay structures. This is supported by Maslow's earlier needs theory, which ranks self-esteem and self-actualization as higher-order needs compared with physiological needs, which would include pay, as lower-order needs. Promotions do usually increase pay, but the motivational influence stems from recognition, increased responsibility, more challenging work and a personal sense of accomplishment -- all of which are motivating factors, according to Herzberg. Herzberg even notes "opportunities for advancement" specifically as a motivator.

LEGAL COMPULSIONS
The Fair Labor Standards Act 1938 is a federal statute of the United States. The FLSA introduced a maximum 45-hour workweek, established a national minimum wage, guaranteed 'time-and-a-half' for overtime in certain jobs, and prohibited most employment of minors in "oppressive child labor," a term that is defined in the statute. It applies to employees engaged in interstate commerce or employed by an enterprise engaged in commerce or in the production of goods for commerce, unless the employer can claim an exemption from coverage. What could be considered a wage was specifically defined,

and entitlement to sue for back wages was granted. 1. The Contract Work Hours Standards Act, though not a direct amendment or modification to the FLSA, became law in 1962. It replaced the confusing and often ambiguous series of Eight Hour Laws (which date back to 1892) with a single, comprehensive law to govern hours of work for laborers. 2. The Equal Pay Act of 1963 was passed to amend the FLSA and make it illegal to pay workers lower wages strictly on the basis on their sex. It is often summed up with the phrase Equal pay for equal work. 3. The Age Discrimination in Employment Act (ADEA) of 1967 prohibited employment discrimination against persons 40 years of age or older. Some older workers were being denied health benefits based on their age and denied training opportunities prior to the passage of the ADEA. 4. The Migrant and Seasonal Agricultural Worker Protection Act (MSPA), passed in 1983, was designed to provide migrant and seasonal farm workers with protections concerning pay, working conditions, and work-related conditions. 5. The Patient Protection and Affordable Care Act (H.R.3590) amends Section 7 to add that employers shall provide break time for nursing mothers to express milk and that "a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public" should be available for employees to express milk. 6. The Fair Minimum Wage Act of 2007. This provision amended the FLSA to provide for the increase of the federal minimum wage by an incremental plan, culminating in a minimum wage of $7.25 per hour by July 24, 2009.

COMPENSATION PLAN IN NTPC

Rewards and benefits at NTPC Whether youre joining NTPC as a fresh graduate or seasoned professional, they believe that everyone who works here should feel valued and appreciated. Thats why they offer a total compensation package that includes both cash compensation and benefits. Cash Compensation They want to ensure that NTPC continues to attract, retain and motivate high performing people. As such they offer a cash compensation structure that will recognize our specific skills and business expertise. After all they allow us to deliver best-of-class solutions for our clients. Our compensation structure takes different forms to reflect individual performance levels. It includes base pay, fixed bonuses, allowances and other payment relevant to local market. Performance bonus and Sales incentives may also include in total compensation. Performance bonus Another principle they follow to attract, retain and motivate the most talented employee is to offer a performance bonus. If you are a regular employee, you will have some portion of NTPC annual compensation tied directly to business result. This is to ensure you will receive the appropriate recognition and rewards. Global Recognition program This is the pinnacle of sales excellence within NTPC. They want you to know that they value our contributions and appreciate our leadership. GRP is designed to bring out the best and encourage inspiring and motivating others. Healthcare, wellbeing and personal benefits They offer a range of personal benefits such as medical schemes, dental schemes, health screening, wellness programmes, retirements, and insurance programmes. You may even be able to include our spouse, dependents under our coverage for greater peace of mind. Then try to be as flexible as possible, so you choose what is appropriate for our personal needs.

Flexibility and work life balance Quite simply, youre NTPC key to business success. They are committed to creating a workplace culture and environment in which you can balance your career with your personal priorities. They offer a number of programmes ranging from staggered work hours to work from home to part time regular work, which give you a opportunity to achieve a better work life balance. Additional programmes NTPC offers employees various discounts for goods and services- NTPC Personal computer purchase, housing assistance purchase plan, car purchase plan, childcare services and mobile phone plans, fitness centers and educational courses.

COMPENSATION & BENEFIT PRACTICES, POLICIES, PROGRAMS AND POLICIES EMPLOYEE BENEFITS Health care (PPO, POS, HMO, HAS) Dental care plans Retirement plans Flexible benefit plans Disability benefit plans Group life & AD insurance plans Benefits for part-time employees Domestic partner benefits EMPLOYEE POLICY & PROGRAMS Paid time off (PTO) Alternative work schedule Recruitment and hiring Hiring bonuses Referral bonuses Retention bonuses Severance practices Workplace environment

Benefit plan costs

Benefit costs as percent of payroll o Medical, dental, vision, disability, life, AD&D plans o Retirement plans

Benefit costs as monthly amount per employee o Medical, dental, vision, disability, life, AD&D plans o Retirement plans
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Health care (PPO, POS, HMO, HAS) Monthly Premium o Premium costs o Percent of premium paid by company Deductibles o Percent of plans with deductibles o Annual deductibles amount Coinsurance o Percent of expense covered by plan

Key Compensation Components Compensation has become a far more complicated issue than just deciding how much to pay your employees. In addition to salary, employers must consider many other components: 401(k) plans, stock options, bonuses, and vacation, these too have become part of current compensation packages. Employees also have greater expectations of what should be included in their compensation packages, and they may demand specific benefits that can be costly for small businesses. Costly or not, building a fair and attractive compensation package is critical for attracting and retaining employees. When setting up your compensation package, consider the following components: Salary and wages: This is usually the single largest component of a compensation package, and not surprisingly, the most common point of comparison used by employees and potential employees. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value, and contribution to an organization. For salespeople, it might be important to find a balance between salary and commission. Check salary surveys and want ads, and scout out competitors to see if they are underpaying or overpaying their staff. Paying too much is an unnecessary drain on your resources, but paying too little will make it difficult to find and keep the best people. Bonuses: Employee bonuses, which are usually paid in a single lump at the end of the year, are one way of providing performance incentives. Profit-sharing plans are a more formal way of
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doing this, but they're not as effective for rewarding individual performance and compensating employees for meeting their goals. Long-term incentives: Stock options or stock grants not only provide long-term incentives to employees, but they can also help retain valuable team members through your organization's crucial startup phase. Health insurance: Employer-sponsored health insurance is fairly standard among medium-size companies. Plus, it's a benefit that has great value to employees. An employer-sponsored plan saves employees money, and gives them peace of mind in knowing that they won't be denied coverage, even if they have existing health problems. Life and/or disability insurance: This is also a benefit that usually costs less when it's purchased by an employer rather than by an individual. Retirement plans: 401(k) plans have become popular because they're relatively easy to administer and are less expensive than traditional pension plans. Many employees like these plans because they maintain some control over the amount of their contribution and how the money is invested. Most small companies try to put some kind of savings or 401(k) plan in place, even if they don't contribute money to them. Time off and flexible schedules: This includes holidays, vacations, sick days, and personal days. An employer unable to offer competitive salaries may close part of the gap by offering more time off or flexible work hours. Some employers make no distinction between sick, vacation, or personal days, allowing employees a set number of days off each year to be used at their discretion. This prevents employees from abusing sick days, and keeps them from feeling that they need to lie when a child is ill or a personal emergency arises. Miscellaneous compensation: Other forms of compensation to consider include employee assistance programs, which can provide everything from psychological counseling to legal assistance; discounts on company products; the use of company cars; and any other incentives that motivate employees and give your company a competitive advantage.

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TREATMENT AND IMPACT OF COMPENSATION PRACTICES IN NTPC Treatment: 1. Determine pay position in market. The pay position in your market should be communicated in the compensation strategy or philosophy in your organizations handbook. As a best practice, all employees should be paid at or above market levels. On average, employers pay 2/3 of their positions at market and 1/3 of their positions above market. 2. Conduct a market review. Compensation structures should be reviewed every 12 years. The reason for this is that pay practices are constantly changing, especially for some jobs. Recently, technical professions have seen the largest changes in pay. In order to track these changes, your organization must review the competitive pay rates for these positions using market-based data. 3. Provide increases. Compensation increases and/or adjustments are provided, according to the market and differentiated based on performance. Common increases provided by employers include adjustments due to a change in market, increases to recognize exceptional performance, and cost-of-living adjustments. 4. Make sure managers communicate pay effectively. Pay practices need to be communicated by managers effectively. New research suggests that compensation program effectiveness stems largely from the communication of pay practices by managers- not just HR. Training by your organizations compensation professionals may be necessary in order to make sure your managers are aware of the information used to make pay decisions. 5. Pay for performance. The organization should provide at least one opportunity for employees to earn more pay based on their performance, possibly in the form of bonuses, profit sharing, or gain-sharing (tend to be the most common forms of incentive pay).

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Impact: 1. Competes for exceptional talent. The compensation offered to prospective employees should recognize their skills, experience, and expertise and be commensurate with what other organizations are offering. If your organization doesnt know what other employers within your market are paying employees in similar jobs with similar levels of experience, its likely that your pay practices arent in line with the market. Remember that your organization is only as good as the talent it has to sustain its success, so keep this in mind as you are striving to attract the best. 2. Emphasizes individual, team, and/or organizational performance. The types of pay for performance you offer to employees emphasize the degree to which your organization values individual, team, and/or organizational performance. In a study conducted by Kuhn (2009), communicating that the organization provides bonuses based on individual performance caused an organization to be perceived as likely to have a more individualist culture, whereas communicating that the organization provides bonuses based on team or organizational performance led to perceptions of a more collectivist culture. In other words, employees with individualistic values were more likely to be attracted to organizations providing bonuses based on individual performance. 3. Fairly compensates for, recognizes, and rewards contributions. Similarly, how fairly your organizations procedures for compensating, recognizing, and rewarding contributions are perceived can be implied by its compensation practices. The methods in which pay raises, and other forms of compensation are distributed, influence employee perceptions of fairness, equity, and distributive justice in organizations (Cho & Kessler, 2008). Where effectively communicated distributive rules regarding pay exist that are bought into by employees, employee perceptions of fairness, equity, and distributive justice tend to be higher. This suggests that developing and consistently employing compensation policies can impact perceptions of fairness and equity.

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4. Is transparent. At some level, the organization needs to share information about their compensation practices and how they are determined especially at the managerial level which has been found to be more effective than at the HR or broader organizational level. In addition, according to a recent survey conducted by ERC, managers are most commonly charged with the responsibility of carrying out salary decisions. This transparency surrounding compensation is essential because many employees develop their own perceptions of how pay is determined. 5. Misconceptions of pay differentials. Employees will likely question why they are paid a certain pay rate in comparison to their peers in the organization. If you use pay ranges and place employees within the range based on a certain criterion, such as experience or educational level, tell the employees what that criterion is. 6. Combining compensation increases. Typically employers give three types of increases to their employees adjustment due to a change in market, increase to recognize exceptional performance, and cost-of-living adjustment. Its common, however, for employers to make these entire one in the same and for a merit increase (performance recognition) to be misinterpreted as a cost of living increase, for example. Therefore, its important for managers to accurately disclose the type of increase being provided to employees so that it is not misinterpreted. 7. Eliminating compensation increases. This is unfortunately a common practice, especially if an employee has just been promoted or received a large raise. Organizations may reduce or eliminate other increases such as cost of living increases. Doing so commonly results in employees feeling shortchanged.

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ADVANTAGES OF COMPENSATION 1. Job satisfaction: Your employees would be happy with their jobs and would love to work for you if they get fair rewards in exchange of their services. 2. Motivation: We all have different kinds of needs. Some of us want money so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. 3. Low Absenteeism: Why would anyone want to skip the day and watch not-sofavorite TV program at home, if they enjoy the office environment and are happy with their salaries and get what they need and want? 4. Low Turnover: Would your employees want to work for any other boutique if you offer them fair rewards. Rewards which they thought they deserved? 5. Peace of Mind: your offering of several types of insurances to your workers relieves them from certain fears. Your workers as a result now work with relaxed mind. 6. Increases self-confidence: Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in them and in their abilities if they receive just rewards. As a result, their performance level shoots up.

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DISADVANTAGES OF COMPENSATION 1. Disputes: It is not uncommon for an employer to dispute the claim of a worker seeking workers' compensation. The cost of an employer's compensation insurance will increase if it has too many workers making claims on it. 2. Fraud: As large of a problem as resolving disputed claims to workers' compensation can be, the problem of fraud also looms large as a disadvantage in the system. It is possible to either fabricate or exaggerate an injury to receive workers' compensation. 3. Enforcement: Every employer is required under federal and state law to pay workers' compensation insurance for all of its employees. Unfortunately, many employers skirt this law and illegally hire workers they keep off their books. When these workers get injured, as they often do, they are then left without needed assistance. 4. Employment: A serious disadvantage for the recipients of workers' compensation is that it may discourage them from pursuing further employment. Many may feel that to continue to receive workers' compensation payments they have to refrain from working certain jobs, to prove the severity of their injuries. They also may have less incentive to work after receiving compensation money.

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CONCLUSIONS Base cash compensation for most employees is still administered under fairly traditional perhaps time tested, methodologies and processes such as point factor, or whole job comparison, job evaluation, traditional salary range structures, traditional performance assessment processes. Compensation professionals believe that these processes are generally effective and are evident by their widespread use. The effectiveness of compensation programs is ultimately based on how those programs contribute to the effectiveness of the organization. Implementation therefore seems to be where organization reports the need to be focus in order to improve overall compensation program effectiveness.

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QUESTIONS

Q1. The benefits are an important part of total pay package. Discuss. Q2. Discuss the concept of just meaningful pay increase Q3. The problem I have with explaining the merit increase matrix (where performance rating is compared to position in the pay range) is with those employees whose pay rate falls is in the fourth quartile (at 76th percentile or above), they exceed their performance goals and yet may receive a lesser increase than those at the lower end of the range. How do you approach this to avoid negative feelings and manage expectations? Q4. Will compensation enhance employees performance? How can you ensure this happens?

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REFRENCES
1. http://www.hr-guide.com/data/G400.htm 2. http://www.compensationresources.com/documents/CompensationResourcesMarketingBr ochure.pdf 3. http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_127.pdf

4. http://smallbusiness.chron.com/effects-monetary-compensation-promotionsmotivation-14394.html 5. http://en.wikipedia.org/wiki/Fair_Labor_Standards_Act 6. http://www.simplehrguide.com/compensation-policy.html 7. http://www.allbusiness.com/human-resources/compensation/7941.html#axzz23zme3gFY 8. http://greatworkplace.wordpress.com/2010/03/02/compensation-practices-signals-ofyour-organization%E2%80%99s-climate-culture/ 9. http://www.ehow.com/info_8006194_disadvantages-workers-compensation.html 10. http://nnazir.hubpages.com/hub/Compensation-and-Benefits-Definition-andimportance

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