INTRODUCTION

In this unit, we will get to know what the compensation management is and why it has got
immense importance in the era of globaliation! "ere, we will come to know about two types of
Compensation # Direct and Indirect Compensation!
$e will go through the contents of wage differential and e%ecuti&e remuneration and
compensation plan! It also re&eals the e%ecuti&e remuneration scenario in Indian Industries!
CONC'(T O) CO*('N+,TION *,N,-'*'NT
"uman resource is the most &ital resource of an organiation as it handles all the physical
resources therein and takes the responsibility of decision making, work done and achie&ement of
results etc! +o, to carry on these hea&y responsibilities, employees should be moti&ated by
pro&iding the best remuneration and compensation package as per the industry standards!
.ucrati&e compensation is a means of attracting and retaining the best talents in an organiation!
Compensation is an integral part of human resource management! It is the remuneration recei&ed
by an employee in return to his or her contribution for the organiation! , good compensation
system e&ol&es a balanced work#employee relationship by pro&iding monetary and non#
monetary benefits to the employees! In this way, it acts as a moti&ating factor to the employees
and increases the organiational effecti&eness!
Evolution of Compensation
Today/s compensation systems ha&e e&ol&ed o&er a long time! $orker/s needs and
compensation systems ha&e been changing along with the changes in organiational structures!
This results in a participati&e organiation from the bureaucratic one, where the employees ha&e
started asking for their rights and appropriate compensations! "igher education standards and
higher the skills re0uired for the 1obs, ha&e forced the organiations to pro&ide the competiti&e
compensations to their employees!
Compensation strategy is deri&ed from the business strategy and hence the human resource
strategies are aligned with the business goals and ob1ecti&es of an organiation! Then the
compensation committee or the concerned authority formulates the compensation strategy
considering both the internal and e%ternal factors as well as the life cycle of an organiation!
Evolution of Strategic Compensation
+trategic compensation determines and pro&ides the compensation packages to the employees by
aligning it with the business goals and ob1ecti&es! Today/s business scenario is &ery competiti&e!
+o, the proprietor needs to attract and retain the &aluable employees in its organiations! This
condition necessitates that special measures ha&e to be taken regarding the compensation system
of employees! Thus strategic compensation systems ha&e emerged from the traditional ones!
,! Traditional Compensation +ystems2 In the traditional organiational structures, employees
were &iewed as 3machine4 with no emotion and sentiment! They were e%pected to work hard and
obey the bosses5 orders to get the 1ob security, salary increments and promotions etc! Their
salaries were determined on the basis of 1ob work and the years of e%perience they had! No doubt
that some organiations pro&ided retirement benefits such as, pension plans etc to their
employees, but still the assumption was that humans work for money only! There was no space
for other psychological and social needs of workers!
6! Change in Compensation +ystems2 The concept of compensation system has been changed
with the changes in beha&ioral science theories and the e&olution of labour and trade unions!
These encourage the employees to &oice for their rights! +ubse0uently, the Need "ierarchy
theory of *aslow brought the rights of employees into notice by stating that employees work not
only for money but also to satisfy the other needs from their 1ob, i!e! social needs, psychological
needs, safety needs, self#actualiation, etc! This changes the management/s &iews about the
employees! Now onwards employees ha&e been treated as 3human resource4!
Organiations ha&e started 1udging an employee/s performance based on the organiational and
indi&idual performance! This results in a competiti&e en&ironment among the employees as they
ha&e to work hard to secure their 1obs! The compensation structure of an employee is designed
on the basis of his 1ob profile and the related proficiency he has! The compensation system does
not only pro&ide salary to the employees but also looks after the other psychological and self#
actualiation needs of employees! The compensation package should be designed as per industry
standards! +imultaneously it should be the most competiti&e and attracti&e one to retain the best
talents in an organiation!
C! Today/s *odern Compensation +ystems2 The present compensation system is designed
aligning it to the business goals and strategies of an organiation! In the modern organiations,
authority is being delegated among the employees! .iberty is gi&en to the employees so that they
can take their own decisions as per need and work with more efficiency! Then the employees feel
secured and &alued in the organiation! Organiations are offering both monetary and non#
monetary benefits to attract and retain the best talents with them!
I*(ORT,NC' O) CO*('N+,TION
The Compensation system has a great significance in a business organiation! *en is the most
important factor among four */s, i!e! *en, *aterial, *achine and *oney! The responsibility of
managing the other three factors is handed o&er to *en! +o, nobody can imagine a business
process without *en!
.abourers bring motion to the process of production7business in an organiation! *oreo&er as a
human being, they also ha&e e%pectations, emotions, ambitions and egos for which they want to
ha&e a fair share in the production process! Therefore a fair compensation system is must for
e&ery business organiation which helps in the following way2
8! ,n ideal compensation system has a positi&e influence on the efficiency of employees and
encourages the employees to perform better and achie&e the preset standards!
9! It augments the 1ob e&aluation process which in turn helps in setting up the more realistic and
achie&able standards!
:! +uch a system is well defined and uniform to all the employees of an organiation as a general
system!
;! It is easy to implement and abide by the principle of e0ual pay!
<! The system is so simple and fle%ible that an employee can compute his compensation
recei&able by himself!
=! The compensation system tries to gi&e appropriate return to the workers for their contributions
to the organiation!
>! It arouses an en&ironment of morale, efficiency and cooperation among the workers and
pro&ides satisfaction to the workers!
?! The compensation system is designed complying with the &arious labour acts and therefore
does not result in disputes between the employee/s union and the management! This builds up a
peaceful relationship between the employer and the employees!
@! It stimulates the employees to perform better and show their e%cellence!
8A! It forces the employees to work hard and efficiently to sur&i&e in the competiti&e
en&ironment! The system also pro&ides the growth and ad&ancement opportunities to the
deser&ing employees!
88! The perfect compensation system is a source of happiness and satisfaction for the workforce
that minimies the labour turno&er and confers a stable organiation
89! The ade0uate compensation system helps in retaining the best talent in an organiation and
thereby stops the switching o&er of employees to another 1ob! This in turn facilitates the
e%pansion and growth of the business organiation owing to the support of skillful, talented and
happy workforce!
8:! , sound compensation system is treated as the hallmark for the success and prosperity of an
organiation as it can satisfy the employees with the ade0uate pay#packages!
8;! If compensation is not pro&ided, employees gets demoti&ated!
TB('+ O) CO*('N+,TION
, compensation package constitutes all the rewards and allowances pro&ided to the employees
including their salary Conly a part of the compensation systemD in return of their contribution to
the organiation! "owe&er, these benefits are pro&ided in the form of either monetary or non#
monetary &alue to the employees! Thus, it is seen that there are two types of compensation
pro&ided to the employees in the organiation and these are2#
EiF Direct compensation
EiiF Indirect compensation
Direct Compensation
Direct compensation means all the monetary benefits offered and pro&ided to employees at a
regular inter&al at a definite time! It is of following types2#
CaD 6asic +alary2 +alary is the monetary &alue recei&ed by an employee in lieu of the work done
by him for the organiation! It may be calculated on the basis of a day, a week or a month, etc!
CbD "ouse Rent ,llowance2 +ome organiations ha&e the pro&ision of 0uarters to accommodate
their employees, while the others offer housing rent allowances to them! This pro&ides social
security to the employees and builds up a sense of co#operation among them!
CcD Con&eyance2 +ome organiations usually manage the cab facilities to their employees while,
the few ones pro&ide &ehicles and petrol allowances to their employees!
CdD .ea&e Tra&el ,llowance2 This allowance is pro&ided to the employees when they wish to
&isit any place with their families! "owe&er this is scaled as per the position of employees in the
organiation!
CeD *edical Reimbursement2 Organiations must look after the health of their employees! +o, the
organiations pro&ide facilities like medi#claims, reimbursements of the medical bills to the
employees and their family members!
CfD 6onus2 6onus is usually paid to the employees during festi&e seasons to confer them e%tra
incenti&es! The bonus is basically amount paid based on the monthly salary of the employee!
CgD +pecial ,llowance2 +pecial allowances such as o&ertime, mobile bill allowances, meals,
commissions, tra&el e%penses, reduced interest loansG insurance, club memberships, etc are
pro&ided to employees to moti&ate them to impro&e the organiational producti&ity!
Indirect Compensation
Indirect compensation in the form of non#monetary benefits is offered and pro&ided to the
employees for the ser&ices that they ha&e rendered to the organiation as shown below 2
CaD .ea&e (olicy2 It is the right of an employee to a&ail the ade0uate numbers of lea&e such as,
casual lea&e, medical lea&e Csick lea&eD, and maternity lea&e, statutory pay etc while working
with an organiation!
CbD O&ertime (olicy2 The organiation should ha&e the pro&ision of gi&ing some e%tra benefits
like transport facilities, o&ertime pay etc to the employees if they ha&e to do o&ertime duty!
CcD "ospitaliation2 The employers can arrange regular health check#up camps for the employees
and their dependents to arouse a sense of emotional and social security among them!
CdD Insurance2 Organiations should ha&e the pro&ision of accidental insurance and life insurance
for their employees which gi&es them the emotional security! *oreo&er, it also inspire them to
feel that they are much &alued for the organiation!
CeD Retirement 6enefits2 (ension plans and other benefits are pro&ided to the employees by the
organiations which they can a&ail after their retirement from the 1ob at the prescribed age!
CfD "oliday "omes2 +ome organiations ha&e the pro&ision of holiday home and guest house for
their employees at different locations specially in the hill station and other most wanted holiday
spots to make them feel safe and secure during their holiday stay!
CgD )le%ible Timings2 *anagement should consider the &alid reasons of an employee for being
absent in the normal shifts of his duty! +o, there should be a pro&ision of fle%ible timings for
such cases in the organiations!
C"'CH BOUR (RO-R'++
8! $hat do you mean by CompensationI
9! $hat are the different types of Direct CompensationI
$,-' D'T'RNI*,TION (ROC'++
It has already been said that the compensation systems are aligned with the strategic goals and
business ob1ecti&es of an organiations! "owe&er, to design a compensation system, we must
consider certain other factors besides the 1ob work and responsibilities!
$ages specify the remuneration paid to workers on daily basis in lieu of the work done by them
for the organiations! +o, being a part of the compensation system, the determination of wages is
based on the following components2#
CaD Job ,nalysis2 Job analysis is a systematic approach of defining the 1ob role, description,
re0uirements, responsibilities, e&aluation, etc which helps in finding out the re0uired le&el of
education, skills, knowledge, training, etc for a 1ob! It also depicts the 1ob worth as the
measurable effecti&eness and contribution of the 1ob to the organiation! Thus, a proper 1ob
analysis process is essential for setting up the e%act compensation package for a 1ob!
The importance of 1ob analysis is that it helps in analying the resources and establishing the
strategies to accomplish the business goals and strategic ob1ecti&es! Thus, it is a basis of taking
decision on demand#supply analysis, recruitments compensation management, training need
assessment and performance appraisal!
Job analysis can be further categoried into the following sub components!
CiD Job (osition2 Job position which is an important part of the compensation strategy refers to
the designation and position or the le&el of the employee doing a 1ob in the organiation! )or
e%ample, the management le&el employees recei&e greater pay scale than non#managerial
employees in the organiation! ,gain, the non#monetary benefits offered to these two different
le&els also differ in 0uantity and 0uality!
CiiD Job Description2 Job description refers to the key skill, the le&el of e%perience and education
etc that an organiation looks for a particular 1ob position! It also describes the roles and
responsibilities attached with the 1ob position which are considered as key determinant factors in
estimating the abo&e mentioned criteria for the 1ob! Thus, it helps in benchmarking the standards
for a particular performance!
CiiiD Job worth2 Job worth which is also known as 1ob e&aluation indicates the contribution of a
1ob to the organiation! Job worthiness can be analyed from the 1ob description! It is also
possible to determine the outcome of a 1ob profile from its roles and responsibilities! Once the
worthiness of a 1ob is determined, it helps in defining the compensation strategy for the position!
It is seen from the abo&e e%planations of the sub#components that 1ob analysis is an integral part
of formulating compensation strategy in the organiation! Therefore organiations should
conduct the 1ob analysis in a systematic way at regular inter&als so that it can be used for setting
up the compensation packages, re&iewing employee/s performance with the preset standard,
determining the training needs of the employees for de&eloping their knowledge on certain skills!
bD (ay#+tructures 2 Once the 1ob analysis is o&er, ne%t the organiations need to decide upon the
pay structures which refer to the process of setting up the pay for a 1ob in an organiation! 6oth
internal and e%ternal analyses are done to estimate the compensation package for a 1ob profile!
*oreo&er, you ha&e to ac0uire the indepth knowledge about the 1ob profile and its worthiness
from 1ob description to determine the pay#structure! Internal e0uity, e%ternal e0uity and
Indi&idual e0uity are the most popular methods of determining the pay structures!
(ay structures are the strong determinant to re&eal the employees &alue and their role and status
in the organiation! It aims to pro&ide a fair compensation package to all the employees! It also
estimates the le&els of incenti&e to the employees which are calculated on the basis of 1ob
positions of them in the organiational hierarchy!
CiD Internal '0uity2 Internal e0uity method aims at e&ol&ing the balanced compensation system
for an employee by comparing his her compensation with that of the senior and 1unior le&el in
the organiational hierarchy! Job ranking, 1ob classification, le&el of management, le&el of status
etc are the factors of consideration for designing the compensation system under this method!
CiiD '%ternal '0uity2 Organiations formulate their compensation strategies by assessing the
competitor/s or industry standards which is known as market pricing analysis! To entail a fair
treatment to the employees, organiations set the compensation packages for their employees
aligning it with the pre&ailing structure in the market! "owe&er, sometimes the organiations
may need to offer higher compensation packages to attract and retain the best talent in their
organiations!
CcD +alary#+ur&eys2 It is not possible for organiations to pro&ide compensation packages that are
either less than the industry standards or are much higher than the market rates! +o, they try to
bridge the gap between the industry standards and their salary packages by undertaking a salary
sur&ey! +alary sur&ey means a research process through which the analysis is done to set up the
compensation strategy of an organiation by matching it with the industry standards! The
organiations can conduct the sur&ey by themsel&es or they can purchase the sur&ey reports from
a reputed research organiation that has the data on compensation system for the &arious
positions in the organiations of the last 9#< years or more! The factors based on which the
analysis is done are defined in the research ob1ecti&es!
Ob1ecti&es of +alary +ur&ey K
L To gather information regarding the industry standards
L To know more about the market rate i!e! compensation offered by the competitors
L To design a fair compensation system
L To design and implement the most competiti&e reward strategies
L To benchmark the compensation strategies
Types of Compensation +ur&eys2 There are two types of compensation sur&eys undertaken by
the organiations!
a! +tandard +ur&ey2 +tandard sur&eys are conducted by organiations at a regular inter&al based
on their ob1ecti&es! *oreo&er the same companies and the same type of analysis are co&ered
e&ery year in this sur&ey! ,fter ac0uiring the re0uired data, these are published as the sur&ey
reports from which information can be collected, to formulate the compensation strategies of the
organiations!
b! Custom +ur&ey2 The sur&ey that is undertaken to gather some specific information is known as
custom sur&ey! There is no fi% time to conduct this sur&ey because it has to be undertaken when
the need arises! It specially focuses on the important issues of an organiation!
c! +ur&ey Reports2 The sur&ey reports include the data, facts and figures in the support of the
analysis and conclusion drawn from the e&aluati&e data based on the ob1ecti&es of the study
conducted! The un#biased conclusion and &alidation of the analysis can be pro&ed through the
supporti&e data and anne%ure pro&ided in the report!
C"'CH BOUR (RO-R'++
M8! )ill in the blanks with appropriate words2
CiD The two types of compensation are ############ and #################compensation!
CiiD #####################,################ etc are some type of special allowance!
CiiiD ############## is the monetary &alue recei&ed by an employee!
Ci&D Job worth is also known as ##############################
M9! $hat are the three types of compensation sur&eys
$,-' DI))R'NTI,.
In this era of modern industrial organiations, wage differentials that show the differences in the
rate of wages among workers working in the same unit, different units, different occupations,
different regions and the like ha&e emerged as a common feature of labour markets in &arious
countries! $age differential can also be defined as a wage scale which reflects the a&erage
schedule of worker/s pay in an area by taking into account the performance of related tasks or
ser&ices! It has a direct relationship with the economic resources of a country, including
manpower, growth of national income and the pace of economic de&elopment etc! *oreo&er, it
has been obser&ed that the economic and social welfare acti&ities to some e%tent depend on wage
differentials!
The differences in physical and mental abilities of the workers, in producti&ity and efficiency of
the management and in consumer preferences are reflected &ia wage differentials!
$e will get different terms as occupational wage differentials, inter#industry, inter#firm, inter#
area or geographical differentials and personal differentials because wages differ in different
employments or occupations, different industries and localities, and e&en between the persons in
the same employment or grade etc!
$age differential has been classified into three categories2
8! )irst, we will get a differential in the wages of employees due to the imperfections in the
employment markets, like inter#industry, inter#firm, and geographical or inter#area wage
differentials! These differentials are found because of the unawareness of workers in regard to
alternati&e 1ob opportunities a&ailable elsewhereG inability of the workers to go for geographical,
occupational or inter#firm changesG time lags in the ad1ustment of resource distribution and
changes in the scope and structure of economic acti&ities!
9! +econd, the wage differentials may originate due to &ariation in the social &alues and
pre1udices like se%, age, status or ethnic origin etc which are deeper and more persistent than the
economic factors!
:! Third, occupational wage differentials would e%ist e&en if employment markets were perfect
and social pre1udices were absent!
In other words, wage differentials may be2
CiD Occupational differentials or differentials based on skillG
CiiD Inter#firm differentialsG
CiiiD Inter#area or regional differentialsG
Ci&D Inter#industry differentialsG and
C&D Differentials based on se%!
Importance of Wage Differential
+ocial welfare acti&ities which result, in a large measure, out of such wage differentials are as
follows2
CaD ,llocation of labour in different occupations, industries and geographical areas of the
economy in such a manner that it ma%imies the national productG
CbD )ull employment of the resources of the economy can be attainedG and
CcD $age differential facilitates the most desirable rate of economic progress!
.abour mobility which is the main outcome of wage differentials brings a re#allocation of labour
forces under changing circumstances by pro&iding an influencing incenti&e for it! 6oth the
conditions of demand Cwhich reflect the producti&ity of workersD and supply Cwhich reflect the
attracti&eness of 1obsD are taken into consideration for determining the wages under competiti&e
en&ironments! The le&el of wages is calculated depending upon the relati&e scarcity of supply in
relation to demand! $age differentials are the result of scarcity differentials that are attributed to
specific skills and mental abilities of employees! +o, any ine&itable changes in the former one
pursue the same in the latter one! In other words, wage differentials reflect that the different
categories cannot be reduced to the same degree of scarcity in the market! Therefore wage
differentials are ine&itable!
$age differential arises because of the following factors2
CaD .abourers show differences in their efficiency because of inborn 0uality, education, and
conditions under which they work!
CbD '%istence of non#competing groups to minimie the difficulties that arise in the way of labour
mobility from low paid to high paid employment!
CcD (resence of different &iews in the agreeableness or social esteem of employment!
CdD '%istence of different employment and occupations!
)actors determining the nature and e%tent of N$age differential/! The following factors usually
determine the nature and e%tent of the wage differential!
O The pre&ailing conditions in the market,
O the e%tent of unioniation,
O the relati&e bargaining power of the employers and workers,
O the rate of growth in producti&ity,
O the e%tent of authoritarian regulations and the centraliation of decision#making,
O customs and traditions,
O the general economic condition,
O industrial and social conditions in a country, and
O a host of other sub1ecti&e and ob1ecti&e factors operating at &arious le&els
The wage differential is also affected directly or indirectly by the#
O pre&ailing rates of wages,
O the capacity of an Industry to pay,
O the needs of an industry in a de&eloping economy and
O the re0uirements of social 1ustice etc!
$,-' DI))R'NTI,.
'%ecuti&e remuneration is gaining immense importance in recent years because organiations
ha&e started offering skyrocketing compensation packages to the e%ecuti&es in this competiti&e
en&ironment to retain the best talent with them! This spurt in the salary structure is a result of
liberaliation and globaliation of the economy! 6ut go&ernment regulated industries Cbanks,
insurance, railways etc!D ha&e to pay relati&ely less than those that are more free to carry on their
business i!e! pri&ate firms, *NCs etc!
In spite of the abo&e fact, the salary package of higher management is basically determined by
considering the sie of a company, performance of the company, the specific industry and the
contribution of the e%ecuti&e in the process of decision making!
Special Features of Executive Remuneration
8! '%ecuti&e remuneration is not same as the wage and salary! Numerous factors and &ariables
are associated with the e%ecuti&e remuneration! +o, simple comparisons and ratings are not
possible to be applied for it!
9! '%ecuti&es usually do not like to form unions! 6ut they too benefit if the workers who resort to
strikes, slogan, shouting etc succeed in their efforts!
:! No e%ecuti&es in the pri&ate sector, in the same grade, recei&e the same pay! +o, the
organiations feel it necessary to maintain secrecy in respect of e%ecuti&e remuneration!
"owe&er e%ecuti&e/s remuneration are based on such factors as competence, length of ser&ice
and loyalty to the founders!
;! It is a fact that an e%ecuti&e/s own performance is directly reflected &ia the measures of unit or
corporate performance! Thereby, e%ecuti&es are paid the remuneration on the basis of unit or
organiational performance rather than their own performance measures!
<! '%ecuti&e remuneration is sub1ect to statutory ceilings! These ceilings howe&er, do not apply
to pri&ate limited companies!
Components of Executive Remuneration
'%ecuti&e remuneration generally comprises four elements2
CiD +alary and allowance
CiiD 6onus
CiiiD Incenti&es
Ci&D (er0uisites
CiD +alary and allowance2 +alary is the first component of '%ecuti&e remuneration! +alary is
supposed to be determined through 1ob e&aluation and ser&es as the basis for other types of
benefits! The amount of salary generally depends on the &alue of the person/s work to the
organiation and how well the person is discharging his responsibilities! +alary as a component
of total remuneration is not significant as it is sub1ect to deduction at source and is also capped
by go&ernment regulations! The basic trend today is to reduce the relati&e importance of base
salary and to boost the importance of incenti&es! The main issue here is identifying the
appropriate performance standards for each type of incenti&e and then determining how to link
these to pay!
CiiD 6onus2 6onus is an e%tra amount of money paid to workers annually besides their salary with
an aim of increasing their short term performances! These short term bonuses usually result a
plus or minus ad1ustment in the total pay as opposed to salaries which rarely decline with
reduced performance! There are three basic issues to be considered while awarding bonus2
CaD 'ligibility2 Usually the firms plan the bonus scheme for both the top and lower le&el
e%ecuti&es by one of two ways! In one method, companies decide the eligible employees to be
benefited with short term bonus on the basis of 1ob le&el or 1ob title! $hile in the other method,
the combined factors like 1ob le&el7 title, base salary le&el and discretionary considerations
decide the eligibility criteria to a&ail the bonus benefits! 6ut it is seen that, generally, the top
le&el e%ecuti&es get greater amount of bonus in either case!
CbD )und sie2 Though there is no hard and fast rule for calculating the bonus sie, yet it depends
upon the fund sie a&ailable in the account of the organiation to pay the bonuses to its
employees!
CcD Deciding Indi&idual ,wards2 "ere, the preliminary bonus is computed first by setting a target
bonus for each eligible position and then comparing it with the actual performance ratings of
each manager for necessary ad1ustments! ,fter that, the total amount of money needed to be
spent on the short term incenti&es is compared with the fund a&ailable to pay the bonuses so that
ad1ustments can be made in the indi&idual/s estimates, if found necessary!
CiiiD .ong term Incenti&es2 .ong term Incenti&es are paid with an aim to moti&ate and reward
managers for achie&ing the firm/s long term growth and prosperity! These long term incenti&es
can also be used as a tool to lengthen the staying of e%ecuti&es in the same company by offering
them the opportunity to accumulate capital Ce!g company stockD that can be cashed in after a
number of years! Usually, the general or functional area/s e%ecuti&es are tried to be moti&ated
with such long term incenti&es or capital accumulation programs! Though these types of plan are
gaining popularity yet they are ob&iously affected by changes in the Income Ta% .aw, in the
accounting treatment, the state of the stock market and &arious other factors! +uch plans are as
follows2#
L +tock Options2 It is considered a ma1or moti&ational benefit offered to the e%ecuti&es that
directs the manager/s energies toward the long term as well as the short term performance of the
company!
L (hantom +hares2 , phantom stock plan awards the managers a number of shares for the
purpose of book keeping only which at the end of a specified period, entitles the e%ecuti&e to
recei&e an award e0ual to the appreciation in the market &alue of the share since the date of the
award! This award may be in cash or shares or stock or in both!
L +tock ,ppreciation Rights2 The plan awards a right to the e%ecuti&es to recei&e the cash
payments on the basis of increased stock/s &alue from the time of the award until a specified
future date!
L (erformance +hares2 Under this plan, a specified number of shares or stock is awarded to a
manager when he is able to achie&e the long term goals!
L (erformance Unit2 "ere, the e%ecuti&es are offered cash benefit when long term targets are
attained!
The main motto of this long term plan is to maintain a better balanced relationship between the
personal moti&es and financial incenti&es of e%ecuti&es and their fiduciary responsibility to
shareholders!
Ci&D (er0uisites2 (er0uisites constitute a ma1or source of income for the e%ecuti&es besides the
normally allowed perks like pro&ident fund, gratuity and the same to them! The per0uisite
benefits include the followings2
8! *edical care
9! .egal, ta% and financial counseling
:! )acilities for entertaining customers and for dining out!
;! Company recreational area!
<!The cost of the education and training of e%ecuti&es, scholarships for their children and
allowances for business magaines and books!
=! )ree well furnished accommodation, con&eyance and ser&ants
>! Pacation tra&els
?! *embership in clubs etc!
These kinds of perks take care of all the possible needs of e%ecuti&es by rarely gi&ing them a
chance to spend money from their pockets!
Executive Remuneration in Indian Industries
Theoretically, 1ob descriptions, 1ob e&aluations, salary grades with ranges of pay in such grade
and salary sur&eys are the basis to fi% the e%ecuti&e/s remuneration! 6ut in practice, these norms
are found to be thrown to the winds and the e%ecuti&es are getting e%orbitant remuneration for
their 1ob! In India, e%ecuti&e remuneration can be fi%ed through certain broad generaliations2
8! Usually an e%ecuti&e is paid on the basis of the employer/s ability to pay and the employee/s
bargaining strength to deser&e their rights rather than the standard norms of wage and salary
fi%ation!
9! '%ecuti&e remuneration must be re&iewed atleast once a year unlike worker/s compensation
which is re&iewed once in three years! This is because to upgrade the e%ecuti&e/s remuneration
in comparison to that of other firms in the industry!
:! '%ecuti&es are usually, offered a bundle of facilities which is known as 3composite4 salary
instead of traditional 3menu4 salary i!e! package of items from which the e%ecuti&e is asked to
choose!
;! +alaries are paid considering the performance of the e%ecuti&es!
<! -oing abroad for holiday is gaining immense popularity in India! +o, the companies are trying
to moti&ate their e%ecuti&es by offering them this special facility!
=! '%ecuti&es are paid relati&ely higher salaries when they are posted abroad to work in the
foreign assignments of the company!
>! (ri&ate companies are competing among themsel&es in respect of salary packages offered to
the e%ecuti&es so that they can attract the competent personnel towards their organiation
resulting &irtual hi1acking of them! Thus, the e%ecuti&es of public sector are placed nowhere in
respect of salaries and perks that their counterparts are a&ailing in the pri&ate sector! Therefore,
the shifting of e%ecuti&es from go&ernment owned organiation to pri&ate sector enterprises has
increased tremendously in recent years!
C"'CH BOUR (RO-R'++
8! $hat do you mean by wage differentialsI
9! $hat are the four components of e%ecuti&e remunerationI
.'T U+ +U* U(
In this unit, we ha&e learnt about the e&olution of +trategic Compensation from the traditional to
the *odern Compensation +ystem! The types of Compensation are 2
CaD Direct Compensation
CbD Indirect Compensation
The unit has discussed the $age Determination (rocess along with the $age Differential and its
importance, besides the e%ecuti&e remuneration and compensation plan! The '%ecuti&e
Remuneration in Indian industries has also been highlighted along with the reason for the
increasing preference on the part of public sector e%ecuti&e for the public sector organisation!
,N+$'R+ TO C"'CH BOUR (RO-R'++
CHECK YOR !RO"RESS# $
M8! , good compensation system e&ol&es a balanced work#employee relationship by pro&iding
monetary and non#monetary benefits to the employees!
M9! 6asic +alary, "ouse Rent ,llowance, Con&eyance, .ea&e Tra&el ,llowance, *edical
Reimbursement, 6onus, +pecial ,llowance
CHECK YOR !RO"RESS# %
M8! CiD Direct compensation, indirect Compensation,
CiiD O&ertime, commission,
CiiiD +alary,
Ci&D Job e&aluation
M9! CaD +tandard +ur&ey
CbD Custom +ur&ey
CcD +ur&ey report
CHECK YOR !RO"RESS# &
M8! $age differential can also be defined as a wage scale which reflects the a&erage schedule of
worker/s pay in an area by taking into account the performance of related tasks or ser&ices!
M9! Components of e%ecuti&e remuneration are
CiD +alary and allowance
CiiD 6onus
CiiiD Incenti&es
Ci&D (er0uisites
)URT"'R R',DIN-+
8! (ersonnel *anagement by C!6! *amoria G+!P! -ankar (ublished by "imalaya (ublishing
"ouse
9! "uman Resource *anagement by (!-! ,0uinas
:! "uman Resource De&elopment Q *anagement by 6! -hose
(O++I6.' MU'+TION+
8! Describe the components of '%ecuti&e Remuneration!
9! 6ring out the differences between e%ecuti&e remuneration and wages of workers!
:! $rite short notes on any three of the following2
CaD Compensation sur&ey
CbD *anagerial compensation
'O!
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