UNIT- 4
HUMAN RESOURCE MANAGEMENT
CONTENT
1. Compensation Management and Employee Relations
2. Introduction to compensation management,
3. Components and structure of Employee compensation.
4. Factors affecting employee compensation,
5. Employee incentive schemes and recent trends in compensation management.
6. Meaning of Employee Relation and Industrial Relations
Introduction to Compensation Management
Building a team of motivated, engaged, and high-performing professionals starts with more
than just offering a pay check—it requires a thoughtful compensation management strategy
that goes beyond the basics.
When compensation is aligned with your company’s goals and people’s needs, it can become a
powerful tool for fostering growth, innovation, and a thriving workplace culture. HR leaders can
leverage industry data, determine compensation management objectives, and gather internal
feedback to drive business success and support their people’s needs.
This article will review different types of compensation, the benefits of aligning compensation
with performance, and best practices for effective compensation management.
Compensation refers to the financial and non-financial rewards a company offers to team
members in exchange for their work. It includes base pay, bonuses, incentives, equity, benefits,
and other forms of payment that recognize work contributions.
Definition of Compensation
According to Dale Yoder- “Compensation is paying people for work.”
According to Keith Devis- “Compensation is what employees receive in exchange for their
contribution to the organization.”
According to Edwin B. Flippo “The function compensation is defining as adequate and
equitable remuneration of personnel for their contributions to the organizational objectives.”
Components of Compensation
1. Basic salary: The basic pay is the basic salary withdrawn by an employee in an
organization. It depends on the company’s policies and the laws of the company. It is
that part of the salary that is taxed.
2. House rent allowance (HRA): Few companies provide their employees with
accommodation or home rent allowances. This is in addition to the paid salary. It is
generally calculated based on the basic salary obtained by an employee.
3. Dearness allowance (DA): In some places where there is an inflation in the price of
goods and services, dearness allowance helps curb the impact of the price difference.
This component of employee compensation helps the employees adapt to the changes
in standard of living.
4. Travelling allowance: Specific organizations provide travel allowances when an
employee needs to travel. It may or may not be included in the basic salary. Its
calculation differs from company to company and requires proof of travel. Often
employees use their funds to travel, which is later reimbursed by the company.
5. Health Insurance: Health insurance is fairly standard with medium to large-size
companies and some small businesses. Health insurance offers great value to the
employees and saves them money since it is employer-sponsored. This offers employees
with peace of mind since they know they have coverage; even with existing health
issues.
6. Children Allowance (CEA): Financial benefit provided to employees, particularly those in
the government sector, to help cover the educational expenses of their children.
Types of Compensations
Direct Compensation Indirect Compensation
Salaries and Wages Benefits
Commissions Performance Mgt.
Overtime Pay Workers' Compensation
Bonuses & Incentives Incentive Plans
Direct Compensation
• Salaries and Wages: A fixed, regular payment for work performed, either hourly or
yearly.
• Commissions: Payments based on a percentage of sales or revenue generated.
• Overtime Pay: Payment for working beyond the standard work hours.
• Bonuses and Incentives: Additional payments for achieving specific goals or recognizing
outstanding performance.
Indirect Compensation
• Benefits: Non-wage compensation provided to employees, including health insurance,
dental insurance, life insurance, paid time off, retirement plans, and tuition
reimbursement.
• Performance Management: The process of evaluating employee performance and
providing feedback, which can also influence compensation decisions.
• Workers' Compensation: Coverage for employees who are injured or become ill on the
job.
• Incentive Plans: Specific programs designed to motivate employees and improve their
performance.
Structure of Compensation of Employee
Factors Affecting Employee Compensation
1. Productivity of workers: Productivity-based compensation helps derive the best results.
The higher the productivity of employees, the more should be the compensation.
2. Ability to pay: If your company has high profitability, you can pay better compensation
and retain your employees and vice versa.
3. Government Policies: Government also has certain policies to protect employee
interests. The employer has to pay the employees as per governmental regulations and
provide benefits such as PF, medical insurance, gratuity, and pension.
4. Labour Unions: They also play an essential role in ensuring employees get a fair wage.
They fight with the employers for the employee’s rights and wage revision.
5. Cost of Living: Cost of living also influences compensation to a large extent. An
employee based in a city with a high cost of living needs a higher salary and vice versa.
6. Demand and Supply of Labour: It is one of the most important factors that affect the
compensation of employees. If the demand is more than the supply, the compensation
will be higher.
7. Industry Standards: No employee would like to join a company whose compensation is
below the industry standards. Therefore you need to analyses the standard market rates
of different roles and pay your employees accordingly.
Employee Incentive Schemes
Monetary or Financial Incentives Non-Monetary/Non-Financial Incentives
Bonuses Flexible work arrangements
Profit-sharing Wellness programs
Stock options Professional development opportunities
Referral bonuses Employee recognition programs
Tuition reimbursement Team outings
Monetary Incentives
• Bonuses: One-time payments or recurring bonuses based on performance, sales targets,
or company profitability.
• Profit-sharing: Employees receive a portion of the company's profits.
• Stock options: Employees can purchase company stock at a discounted price.
• Referral bonuses: Rewarding employees for successfully referring new hires.
• Tuition reimbursement: Covering the cost of educational programs or courses.
Non-Monetary Incentives
• Flexible work arrangements: Offering flexible work hours or remote work options.
• Professional development opportunities: Providing training, workshops, or mentorship
programs.
• Wellness programs: Offering health and wellness resources, such as gym memberships
or health insurance reimbursements.
• Employee recognition programs: Publicly acknowledging and rewarding employee
achievements.
• Team outings: Organizing team-building activities and events.
Recent Trends in Compensations Management
1. Pay Transparency and Equity: Companies are increasingly making salary information
more accessible to employees to foster trust and address potential pay disparities.
2. Total Rewards: Compensation is no longer solely about base salary but also
encompasses benefits, perks, and non-financial rewards like flexible work arrangements
and career development opportunities.
3. Remote Work Adjustments: As remote work becomes more prevalent, companies are
adjusting compensation based on location and offering remote work stipends and
allowances.
4. Financial Wellness: Providing employees with financial literacy resources and support is
increasingly seen as a valuable benefit, addressing the financial stress many employees
experience.
5. Mental Health Support: Recognizing the importance of employee well-being, companies
are offering mental health resources and support programs as part of their
compensation packages.
6. Employee Experience: Companies are focusing on enhancing the overall employee
experience through compensation and benefits that align with their values and goals.
7. Technology and Automation: Using technology and automation to streamline
compensation processes and improve efficiency is becoming more common.
Meaning of Employee Relation
'Employee relations' describes the relationship between employers and employees - both
concerning the relationship between employers and individual employees, and concerning
collective relationships. Individual voice channels are very important.
Definition
According to Armstrong- Human resource management that deal with employees directly and
through collective agreements where trade unions are recognized.
According to Megan McNamara- Organization's efforts to sustain positive, constructive
relationships with its employees.
Employee Retention Strategies
1. Focus on Relationships: Employee relations is about nurturing and managing the
interactions between employees and the employer.
2. Creating a Positive Workplace: It involves fostering a positive, respectful, and fair work
environment where employees feel valued and engaged.
3. Conflict Resolution: A key aspect is addressing and resolving conflicts and grievances
that may arise between employees and management.
4. Employee Voice: It often includes mechanisms for employees to voice their concerns
and contribute to decision-making.
5. Compliance with Laws: Employee relations also involve ensuring compliance with
employment laws and regulations.
Benefits of Good Employee Relations
1. Increased Productivity and Job Satisfaction: A positive work environment can lead to
higher productivity and job satisfaction.
2. Reduced Turnover and Absenteeism: Employees who feel valued and respected are
more likely to stay with the company.
3. Improved Morale and Engagement: Positive relationships can boost overall morale and
engagement.
4. Stronger Company Culture: Employee relations play a crucial role in shaping a positive
and healthy company culture.
Industrial Relation
Meaning: Industrial Relation is one of the important problems for the success of a firm. The
term industrial relations refer to the whole field of relationship that exists because of necessary
collaboration of men and women in the employment process of modern industry.
In Human Resource Management (HRM), industrial relations refer to the management of
relationships between the organization’s administration and its workforce regarding terms of
employment negotiations, workplace grievance handling, and compliance with labor laws or
regulations. Consequently, industrial relations in HRM emphasize fair treatment of workers, a
free flow of information, and respect among team members. Mediation during conflicts
requires human resources managers to have negotiation skills to bring together contradicting
parties and implement policies that align organizational objectives with employee welfare.
Definition
According to Dale Yoder” Industrial Relation is a relationship between management and
employees or among employees and their organization that characterizes and grows out of
employment”.
According to Armstrong” IR is concerned with the systems and procedures used by unions and
employers to determine the reward for effort and other conditions of employment, to protect
the interests of the employed and their employers and to regulate the ways in which employers
treat their employees”
According to C. Von Otter “The Study of labor management relations (LMR) refers to the rules
& policies which govern & organize employment, how these are established & implemented &
how they affect the needs & interest of employees & employers.”
Objective of Industrial Relation
1. Building Mutual Understanding: Industrial relations strive to foster a sense of mutual
respect and understanding between management and employees.
2. Promoting Collaboration: It aims to create a collaborative environment where both
parties can work together effectively to achieve organizational goals.
3. Addressing Grievances: Providing a platform for employees to voice their concerns and
have them addressed fairly.
4. Boosting Productivity: By creating a positive and supportive work environment,
industrial relations can contribute to increased employee productivity and
organizational performance.
5. Promoting Fair Wages and Working Conditions: Working to improve wages, benefits,
and working conditions for employees.
Factors Affecting Industrial Relations
1. Economic Conditions: Economic stability or instability can influence wage negotiations,
job security, and employment conditions.
2. Government Policies: Laws and regulations, including labour laws, social security, and
minimum wage policies, shape industrial relations.
3. Technology and Automation: The introduction of new technologies can lead to job
displacement or changes in work roles, affecting employee satisfaction and relations.
4. Union Strength and Influence: The presence and power of labour unions impact
negotiations and conflict resolution between workers and employers.
5. Management Style: A company’s approach to management, whether authoritarian or
participative, influences employee morale and industrial relations.
6. Social and Cultural Factors: Societal values, traditions, and cultural attitudes towards
labour can influence industrial relations in different regions.
