COMPENSATION SYSTEM IN

INDIA

Reteish Saini
Sakshi Thakur
Sayyed Aman

COMPENSATION
Compensation is a systematic approach to providing
monetary & non monetary value to employees in
exchange for work performed.
Compensation may be defined as money received in
performance of work and many kinds of benefits that
an organization provides to their employees.

OBJECTIVES

To recruit & retain qualified employees.

To increase or maintain morale.
To determine basic wage & salary.
To reward for job Performance.
The compensation should be paid to each employee on the basis of their
abilities and training.
Compensation should be in the form of package.
It should motivate the employees towards increasing productivity.
It should be capable of taking care of employees for safety and security
needs also.
It should be flexible and clear.
It should not be excessive.

COMPENSATION COMPONENT

COMPENSATION COMPONENT
MONETARY
Direct compensation in the form of wages or salary
Base pay (hourly, weekly, and monthly)
Incentives (sales bonuses and or commissions)

Indirect compensation in the form of benefits

Legally required benefits (e.g., Social Security)
Optional (e.g., group health benefits)

COMPENSATION COMPONENT
NON MONETARY
Enhance dignity & satisfaction from work performed.
Promote social relationship with co-workers.
Allocate sufficient resources to perform work
assignments.
Offer supportive leadership & management.
Enhance physiological health, intellectual growth.

Theory Behind Compensation

Equity Theory
Comparing inputs and outputs of a similar co-worker
Perceived inequity affects employee effort
Fairness of pay differentials between different jobs in the
organization can be established by job ranking, job classification,
point systems and factor comparisons

Expectancy Theory
People are motivated by intrinsic and extrinsic outcomes they
desire.
People will only be motivated if outcome is possible.
People will only be motivated if outcome is contingent.

Monkeys Demand Equal Pay

A recent study shows brown capuchin monkeys refused to play
along when they saw another monkey get a better payoff for
performing the same work.
The monkeys were trained to trade a granite token for a piece of
cucumber. When the reward was the same for both monkeys,
they took the cucumber 95 percent of the time.
But it was a different story when one monkey was given something
better -- namely, a grape. Then, the other monkey often pitched
a fit -- either throwing the token, refusing to eat the cucumber or
giving it to the other monkey.
(Associated Press 2003)

Types of Base Pay Systems

Job-based
Pay the job (not the person)
Market-based (external equity focus)
Point factor-based (internal equity focus)

Skills / knowledge-based
Pay the person (not the job)
62% of F1000 firms used some type of skill based
pay in 1999

Job Based Pay

Attraction

Depends on market pricing

Motivation

No performance impact

Skill Development

Learn job-related and upward mobility

skills

Culture

Bureaucratic, hierarchical

Structure

Hierarchical, individual jobs and

differentiation

Cost

Good control of individual pay

Individual Skill/Knowledge Based Pay

Attraction

Attracts learning-oriented individuals,

high skills individuals

Motivation

Little performance impact

Skill Development

Motivates needed skill development

Culture

Learning, self-managing

Structure

Flat or team-based

Cost

Higher individual pay

When to Use a Job-based Pay Policy

A job-based pay work best in situations where:

Job duties are stable.

Skills are generic.
Employees move up through the ranks over time.
Jobs are fairly standardized within the industry.

Drawbacks of a job-based pay system

Discounts individual ability.

Discourages lateral movement.
Tends to be bureaucratic, mechanistic, and inflexible.
Employees perceptions of equity are more important than market
or point data.

Pricing Jobs
First conduct job analysis
Qualifications
KSAs

Non-quantitative methods
Job Ranking (create hierarchy of jobs)
Job Classification (create groups of similar jobs)

Quantitative Methods
Point factor systems
Compare compensable factors

Market pricing

Variable Pay Incentives

Linking performance to pay

Individual Bonuses, piece-rates, stock options

Team Bonuses and awards
Plant / Unit / Business Gainsharing, profit sharing
Corporation ESOPs

Line of sight is the perceived link between individual

behavior and the reward.

Pay for Performance Requires

1. Definition of performance
How are we going to measure and compare people?
2. Distribution of performance
Can we distinguish high and low performers?
3. Decide the increase for each level of performance.
How large a difference between high and low
performers?

Key Strategic Issues in Compensation

Determining compensation relative to the market.
Striking a balance between fixed and variable
compensation.
Deciding whether or not to utilize team-based versus
individual pay.
Creating the appropriate mix of financial and nonfinancial compensation.
Developing a cost-effective compensation program
that results in high performance.

New Thinking for the New Millennium

Strategic approaches to make compensation (pay)
systems more responsive:
Pay the person for individual worth (knowledge, skills and
competencies) rather than for the value of a job they
perform.
Reward excellence through a pay for performance
compensation that establishes a clear relationship between
a significant amount of pay and attainment of organizational
objectives.
Individualize the pay system to give employees choices in
how they are rewarded and what reward they receive.

FACTOR AFFECTING
EXTERNAL

INTERNAL

Cost of living
Compensation
policy
Society
The org. ability to
Labor unions
Government regulations pay

Job analysis &

evaluation report
Employee

CONCLUSION
We can say that good compensation
can increase the productivity of an
organization because its provides
various rewards, bonus, schemes etc.
and its compulsory for every
organization.