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Introduction to

Compensation
Semester III
Chapter 1
Concept of
compensation
 Compensation may be defined as
money received for the services
rendered.
 It includes
Direct Compensation
+
Indirect Compensation
 For employers it is a part of cost of
production.
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Components
Compensation

Wages & Salaries Incentives Fringe Benefits Perquisites

Indirect
Direct

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Meaning of
compensation
management
Decenzo Robbins “compensation
management aims at designing a
cost effective pay structure that
will attract, motivate and retain
competent employees”.

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 It includes such areas as:
 Job evaluation
 Surveys of wages & salaries
 Development and maintenance of
wages structure
 Establishment of rules for
administering wages
 Wage incentives and profit sharing
 Wage changes and adjustment
 Control of compensation costs
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Objectives
 To attract and retain the employee
 To motivate employee to meet desired
performance standards
 To achieve the internal & external
equity
 To control excessive labor cost
 To ensure compliance with legal
regulations
 To facilitates easy understanding and
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acceptability by all.
Dimensions of
compensation
 Salary
 Pay Dispersion: tournament &
equity fairness
 Incentives
 Perquisites

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Labour
 It refers to any manual or mental
work whether performed for
monetary consideration or not.

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Characteristics
 Active factor of production
 Labour is heterogeneous
 Labour is perishable
 Labour is a human factor
 Supply of labour is inelastic during the short
run.
 Productivity & efficiency of labour can be
improved.
 Efficiency and productivity of labour is highly
contingent on factors surrounding him.

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