A compensation policy is
a combination of the philosophy and practices a company adopts
when determining employees' pay, rewards, and benefits. Every company will have its own
compensation policy, though you may find that certain industries have similar or comparable
approaches to pay and benefits.
Types of Compensations
We have learnt about what compensation and its importance is. However, when it comes to an
organization, be it private or public, compensations are further divided into the following −
Direct Compensation
It is naturally made up of salary payments and health benefits. The creation of salary ranges
and pay scales for different positions within an organization are the central responsibility of
compensation management staff.
Direct compensation that is in line with the industry standards facilitates employees with the
assurance that they are getting paid fairly. This helps the employer not to worry about the costly
loss of trained staff to a competitor.
Indirect Compensation
It focuses on the personal encouragements of each individual to work. Although salary is
essential, people are most productive in jobs where they share the company's values and
priorities.
These benefits can include things like free staff development courses, subsidized day care, the
chances for promotion or transfer within the company, public recognition, the ability to effect
change or bring some changes in the workplace, and service to others.
These are the two types of compensation that need to be managed and have its own
contribution in the development of the organization. Moving forward, we will see the different
components of compensation.
Components of Compensation
Compensation as a whole is made up of different components that work as an aid for an
employee after retirement or in case of some accident or injury. Now we shall see the key
elements or components that make compensation.
Wages and Salary
Wages mark hourly rates of pay, and salary marks the monthly rate of pay of an employee. It is
irrelevant of the number of hours put in by an employee working in the firm. These are subject to
annual increase.
Allowances
Allowances can be defined as the amount of something that is allowed, especially within a set of
rules and regulations or for a specified purpose. Various allowances are paid in addition to basic
pay.
Some of these allowances are as follows −
Dearness Allowance − This allowance is given to protect real income of an employee
against price rise. Dearness allowance (DA) is paid as a percentage of basic pay.
House Rent Allowance − Companies who do not provide living accommodation to their
employees pay house rent allowance (HRA) to employees. This allowance is calculated
as a percentage of salary.
City Compensatory Allowance − This allowance is paid basically to employees in
metros and other big cities where cost of living is comparatively more. City compensatory
allowance (CCA) is normally a fixed amount per month, like 30 per cent of basic pay in
case of government employees.
Transport Allowance/Conveyance Allowance – Some companies pay transport
allowance (TA) that accommodates travel from the employee’s house to the office. A
fixed amount is paid every month to cover a part of traveling expenses.
Incentives and Performance Based Pay
Incentive compensation is performance-related remuneration paid with a view to encourage
employees to work hard and do better.
Both individual incentives and group incentives are applicable in most cases. Bonus, gain-
sharing, commissions on sales are some examples of incentive compensation.
Fringe Benefits/Perquisites
Fringe benefits include employee benefits like medical care, hospitalization, accident relief,
health and group insurance, canteen, uniform, recreation and the likes.
In recent years, a great deal of attention has been directed to the development of compensation
systems that go beyond just money. We can say that all the components of compensation
management play a very important role in the life of an employee.
In particular, there has been a marked increase in the use of pay-for-performance (PrP) for
management and professional employees, especially for executive management and senior
managers. Compensation is a primary motivation for most employees. Now we are going to see
the importance of compensation.
Boost Employee Loyalty
When employees are being paid well and are happy, they're likely to stay with the company.
Proper compensation is one factor why employees remain with employers. Loyalty means that
business owners don't need to continue to spend time, money and energy on recruiting new
candidates. Employee retention and low-turnover rates are great for employers who cultivate
a team that knows what to do. That team is also motivated to be part of the team, and they get
the job done well.
Increased Employee Motivation
Properly compensating employees shows you value them as workers and as human beings.
When people feel valued, they feel better about coming in to work. Overall company morale
increases and people are motivated to come to work and do a good job. Additionally, when
employees know there are bonuses or commissions, they are increasingly motivated to deliver
grander results. Bonus and commission compensation plans become a focal point for
success.
Warfare is anything that is assoiviated with the standard living of people at the standard level
which is desursble.it involving the soroundings,comfort based on well-being.
Welfare
the state of doing well especially in respect to good fortune, happiness, well-being, or
prosperity. must look out for your own welfare. : aid in the form of money or necessities for
those in need. : an agency or program through which such aid is distributed.
Welfare programme
The definition of employees' welfare program e is efforts that are made to make life worth living
for employees. It's a term that includes the benefits, services and facilities that are offered by
employers to their employees for the purpose of providing comfort an improving their lives.
Welfare programmed, provide assistance to individuals and families through programs such as
health care, food stamps, unemployment compensation, housing assistance, and child care
assistance. And the last the following are indicators of good compensation policy:
Indicators of good compensation policy
It should be consistence with the type of living it should have schemes so that workers who
excel in their performance.
It should be motivate worker to contribute their best to organization goal by linking wages output
It should be satisfy lower and higher –order needs of the employee.
It should maintain balance and harmony amongst manager and worker.
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