Compensation and Benefits Meaning of Compensation Compensation means

Compensation and Benefits

Meaning of Compensation • Compensation means what the employees receive in exchange for their work. It is the monetary plus nonmonetary return paid to employees for the work done by them. • According to Dale Yoder, “ Compensation is paying people for work. ” • According to Edwin B. Flippo, “The function of compensation is defined as adequate and equitable remuneration of personnel for their contributions to the organizational objectives. ”

Compensation • The objective of compensation system is to create a system of rewards, which is equitable to the employer and employee alike, so that the employee is attracted to work and is motivated to do a good job for the employer.

Objectives of Compensation To acquire qualified personnel To retain current key employees To ensure equity To reward desired behavior To control cost To further administrative efficiency To generate motivation among employees and to reduce turnover. • To ensure continuity of sound working spirit. • •

Structure of Rewards provided by Bangladeshi companies • Intrinsic Rewards: These are the personal satisfactions one derives from doing the job. These are self initiated rewards. – Participate in decision making – Greater job freedom – More responsibility – More interesting work – Opportunity for personal growth

Structure of Rewards provided by Bangladeshi companies • Extrinsic Rewards: These are the benefits provided by the employer, usually money, promotions or benefits. They are external to the job and comes from management. – There are two types of Extrinsic reward. • Financial Rewards • Nonfinancial rewards

Structure of Rewards provided by Bangladeshi companies • Financial Rewards: These are the rewards that enhance the employees financial well being. – – – Wages Bonuses Profit Sharing Paid leaves Pension etc. • Nonfinancial Rewards: These are not directly increase the employee’s financial position, rather add attraction to life on the job.

Components of remuneration • Wages and Salaries: Hourly, daily, weekly, monthly wages/salaries. • Incentives: Payments by results, depend on productivity, sale, profits. • Fringe Benefits: Provident fund, gratuity, medical care, recreation, canteen, insurance coverage. • Perquisites: Allowed to executives- company vehicles, club membership, paid holidays, furnished house, stock option plan. • Other non-monetary benefits: Challenging and attractive job responsibility, recognition of merit, growth opportunities, comfortable working conditions, flexible time etc.

Factors that influence compensation • Difference in enterprise – Objectivesand benefit package – Policies and strategies – Technologies – Size, ability to pay • Difference in employee characteristics – Education – Skills – Experience – Seniority – Training, age etc.

• Difference in work behavior – Performance – Absenteeism – Turnover Factors – Discipline that influence • Difference in the nature of work compensation and benefit package – Responsibility – Working conditions – Mental alertness requirements

Factors that influence compensation and benefit package • Difference in labour market conditions – Demand for labour – Supply of labour – Skills and capabilities of labour available • Discrimination – Gender – Race – Religion – Region

Prerequisites for effective compensation system • • Adequate Equitable Balanced Secure Cost Effective Incentive providing Acceptable to all employees.

Major phases of compensation management applied by Bangladesh • Phase-1: Identify and study jobs: At first, we need to identify the duties and skills of each job in an organization. On this phase, information is collected about jobs through surveys, observation, and discussion among employees and supervisors. The job analysis phase identifies the duties, responsibilities and working conditions of each jobs. This phase provides guidelines for describing jobs and positions. This information also can provide the basis formulation of job standards needed for performance appraisals and compensation decisions.

Major phases of compensation management applied by Bangladesh Phase-2: Ensure internal Equity: At this phase, jobs are evaluated and ranked. Job evaluations are systematic procedures to determine the relative worth of each job in an organization. In this process, jobs are compared in order to determine each job’s appropriate worth within the organization. Phase-3: Ensure External Equity: All job evaluation techniques result in the ranking of jobs based upon their relative worth. This ensures internal equity. That means jobs which worth more should be paid more.

Major phases of compensation management applied of Bangladesh The question of external equity comes from the point that employees should be paid fairly, not only in terms of within but also in terms of outside. • Phsase-4: Matching internal and external worth: This phase is called pricing of jobs phase. In pricing of jobs, the job evaluation worth is matched with the labour market worth. In this phase pay levels are determined, compensation structures are framed by identifying job classes and rate ranges.