ENLIST THE ELEMENTS FOR COMPENSATION AND INCENTIVES?
Meaning: - compensation refers to the money and other
benefits given to an employee for his services to the organization.
Definition: -“Compensation includes direct cash payment,
indirect payments in the form of employee benefits and incentives to motivate
employees to strive for higher levels of productivity.” ………Defined by………….. (Wayne Cascio)
Elements:-
1. Salaries
and Wages: -Wage or salary is an important element in the compensation plan.
Wage is the remuneration paid to blue-collar or factory workers and salary is
the remuneration paid to white-collar or office employees including management
employees. Wages and salaries are normally paid at fixed intervals of time,
preferably monthly. The wages and salaries depend on several factors such as:
1. Value of the employee to the organization. 2. Ability to pay by the
employer. 3. Skills of the employee. 4. Cost of living. Market rates. 5.
Minimum wages fixed by Govt. and so on.
2. Bonus: -
it refers to extra payment over and above salary given to an employee as an
incentive. The employees must be given adequate rate of bonus. Normally bonus
is paid once in a year. Bonus does motivate the employees to a certain extent
to perform better.
3. Incentives:
- The organization may provide additional payment to the employees apart from
wages and bonus. The incentives are normally linked to increase in
productivity. The incentives may be given on individual basis especially at
management level and on group basis.
4. Special
Incentives: - The Company may provide special individual incentives. Such
incentives are to be given to deserving employees for giving valuable
suggestions, or for special efforts on the part of the employees.
5. Fringe
Benefits: -Permanent or long term employees get extra incentives in the form of
fringe benefits. The fringe benefits normally include vacation pay, insurance,
pension, provident fund and gratuity. Fringe benefits may also include canteen
facilities, transport facilities, recreation, etc.
6. Perquisites:
- Perquisites are the incentives, which are normally paid to management
employees. The purpose of perquisites is to perk up the performance of the
managers. These include club membership, company car, paid holiday and so on.
7. Gain
Sharing: - A gain sharing plan establishes a historical base period of
organizational performance, measures improvements and shares the gains with
employees on the basis of some formula. The company focuses on areas like
inventory levels, labour hours per unit of product, usage of materials and
supplies and quality of finished goods.
8. Retention
Bonus: - Management may resort to retention bonus to retain competent
employees. Nowadays, retention bonus is used at all levels in the organization.
The need for retention bonus arises when employees think of quitting the job
due to organizational changes on account of merger, acquisition and such other
corporate changes.
9. Employee
Stock Option Scheme Plan: -Under this scheme company offers certain shares from
the new issue to the whole time directors, officers or employees of the
company. The company offers the shares at a pre-determined price which is
usually less than the price offered to general public. The ESOS must be
approved by passing a special resolution in the general meeting. This scheme is
open to all permanent employees. However, the option granted to employee is
non-transferable
10. Profit
Sharing: - Profit sharing is a system that distributes to employees some
portion of the profits of business either immediately or deferred until later
profit sharing is based on the mutual interest of both employee and employer.
Here the employee becomes interested in the economic success of the company
because he stands to gain from it. This fosters team-work.
