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COMPENSATION MANAGEMENT The Reward System Compensation & Non-compensation Dimensions


LEARNING OBJECTIVES Opportunities available to employers to stimulate the productive efforts of each employee. The Dimensions of a compensation system. The Dimensions of a non-compensation system. The need to combine skillfully compensation & non-compensation dimensions into an effective reward system.


COMPENSATION STRATEGY People gain satisfaction from their work They wish to be suitably rewarded for the work they they do. Often, the kinds and strengths of satisfaction are difficult to identify, define and measure. People work in groups – formal and informal. The individual & group satisfaction level and criterion may differ.


REWARDS Employees receive rewards from their employers. Monetary rewards may be paid directly (base pay or cash incentives) or indirectly (certain benefits paid by employers). The rewards may be paid in the short term (say, within a year) or in the long term (beyond one year). Rewards are given to attract new and to retain the existing employees.


THE REWARD SYSTEM An organization aims to accomplish specific mission and achieve certain objectives. It must attract and hire people who have certain knowledge, skill, aptitudes and attitudes. A Reward System is designed to focus employees’ attention on specific desirable behaviours.

Behavioural Scientists & Motivational Theories : 

Behavioural Scientists & Motivational Theories Behavioural Scientists focus on how rewards affect motivation. Motivational theories have been most successful when designing models that explain behaviour in general. But, they have been far less successful in developing models that predict behaviour of a specific individual. Abraham Maslow, McGregor, Hertzburg.


COMPENSATION SYSTEM Compensation system results from the allocation, conversion and transfer of a portion of organizational income to its employees for: Monetary Non-monetary CLAIMS ON GOODS AND SERVICES.


COMPENSATION DIMENSIONS Pay for Work and Performance. Pay for Time Not Worked. Loss-of-job Income Continuation. Disability Income Continuation. Deferred Income. Spouce (Family) Income Continuation. Health, Accident and Liability Protection. Income Equivalent Payments

COMPONENTS: Pay for work and performance : 

COMPONENTS: Pay for work and performance Basic Pay Cost of living adjustments (DP, DA) Geographic differentials Clean-up and clothes Short-term performance awards Professional achievement pay Educational inventive pay Travel expenses (car, tolls, parking) Entertainment

Pay for time not-worked : 

Pay for time not-worked Holidays Vacations Witness in court of law Maternity leave Sick leave Blood donation Lunch & rest periods Earned/family leave Relocation expenses (shifting/cities)

Loss of Job Income Continuation : 

Loss of Job Income Continuation Unemployment insurance Supplemental unemployment benefit insurance Guaranteed annual income Under-employment benefits (lay-offs) Job contracts

Disability income continuation : 

Disability income continuation Short-term disability, sickness & accident Long-term disability Total Permanent Disability (TPD) Workers’ compensation Accidental deaths & family care Group-life insurance Social security

Deferred Income : 

Deferred Income Pension plans Long-term profit sharing Savings & thrift plans Individual retirement accounts Stock purchase plans (and grants) Long term performance awards Post-retirement consulting contracts Annuities (insurance based)

Spouce (family) income continuation : 

Spouce (family) income continuation Pension plans Social security – jobs for dependants Workers’ compensation Group life insurance (including TPD) Travel-accident insurance Post-retirement life insurance Features within various kinds of retirement plans

Health, accident, liability protection : 

Health, accident, liability protection Medical, hospital & surgical insurance Comprehensive health plans Workers’ compensation Dental/vision care Post-retirement medical plan Visiting nursing services Group legal protection (doctors) Travel insurance

Income equivalent payments : 

Income equivalent payments Popularly known as ‘Perquisites’ or ‘Perks’ Attract tax benefits Sometimes, employers pay taxes on the perks received by employees Most common perks include: Use of company car Use of company credit card for dining, etc. Subsidized food services Child care services (creche)


NON COMPENSATION SYSTEM Non compensation rewards are much more difficult to classify These are ‘all the situation related rewards’ not included in the compensation package These rewards have almost-infinite number of components that relate to the work-situation AND to physical and psychological well-being of each worker

Examples of noncompensation rewards : 

Examples of noncompensation rewards Enhance dignity and recognition for work performed Provide safe working environment Promote constructive social relationships with co-workers Design jobs that require adequate attention and efforts (boredom related to work) Offer supportive leadership & management


SUMMARY Albert Camus, a French philosopher, stated thus, ”Without work all life goes rotten. But, when work is soulless, life stifles and dies”. People work for rewards – monetary and nonmonetary Non-compensation rewards create an organizational climate that is motivating Through work, employees improve their lifestyles.

Thank you. : 

Thank you. Prof. Amar N. Gupta,LL.B., FCS Commerce Department University of Delhi, India

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