Compensation, Wage, Salary Administration and Benefits
Objectives:
1. Familiarize the basic principle of Compensation
2. Design a pay structure that will ensure that the firm is competitive with other
similar firms
3. Implement and administer a compensation system according to the firm’s policies
and the legal requirements.
4. Identify the factors that illustrates the pay system
Introduction
Compensation administration


is a segment of management or human resource management
Focuses on planning, organizing, and controlling the direct and indirect payments employees
receive for the work they perform.
Direct
compensation
Indirect
compensation
Base salary
Vacation pay
Merit
deferred
payment
incentive pay
health
insurance
Ultimate objectives of compensation administration
 Efficient maintenance of a productive workforce, equitable pay, and compliance with
federal, state, and local regulations based on what companies can afford.
The basic concept of compensation administration
 Employees carry out responsibilities for employers, so Employers compensate workers with
salaries for the job they perform.
 Both parties receive something for giving something.
Photo from: https://learn.marsdd.com/article/employee-compensation-salary-wages-incentives-andcommissions/
Compensation package
 most significant decisions of the modern Human Resource Management
 Organization needs to pay attention on Wage and Salary Administration
Factors Influencing the Determination of Wage Rates
1.
2.
3.
4.
5.
6.
7.
8.
9.
Demand and Supply of skill
Organizational ability to pay
Prevailing market rate
Employee’s productivity
Cost of living
Trade union’s bargaining power
Job requirements management attitude
Productivity
Psychological and social factors and legislative considerations.
Employee’s Compensation –



is the major determinant of employee satisfaction in an organization
Compensation has always remained as a major yardstick for the success/failure/concern of the employees
of an organization.
Fairness as perceived by the employees determines the success of a wage and salary administration
system.
Purpose of wage and salary administration
 Establish fair and equitable compensation
 Attract competent and qualified personnel

To retain present employees


Motivate employees for good performance for further improvement in performance.
keep the organization competitive
Job evaluation

It helps to determine the relative worth of job in an organization in a systematic, consistent and accurate

manner.
Helps in estimating the basic pay for each job.
Principles of Wage and Salary Administration
1.
There should be a definite plan and system to maintain equity in the distribution of wages and salaries in
the organization.
2. Maintaining competitiveness in the wage market
3. Matching employees’ expectations
4. Reinforcing positive employee behavior and contribution to the organization.
5. Devising a system that is the most efficient for the organization.
6. The compensation system should formulate and define rules and regulations
7. The compensation package must ensure fairness.
8. Compensation system should be flexible
9. The wages and salaries administration must adhere to all laws and rules established by the legislature to
safeguard the interests of the employees.
10. Optimization of management and employee interests.