Compensation

Compensation is the remuneration received by an employee in return for his contribution to the organization. It is one part of a company’s employee retention strategy. Managing compensation plans is an integral part of human resource management that helps to motivate the employees to improve their work performance.

Compensation is determined firstly by the laws made by the federal government that are made to treat all the employees equally. Compensation also depends on the policies of the enterprise. Human resource department manager determine the compensation to be paid to an employee.

Compensation can be in the monetary form or non- monetary form. Employees are attracted to work more and more, if they are given proper amount of compensation.

In India, pay structure to be given to an employee includes basic wage or salary, dearness allowances, bonus and other incentives and fringe benefits which can be briefly discussed as below:

1. Basic wage

Wage is a price for which the services are rendered. A fair wage is something more than the minimum wages. Wages should be such that the earner can afford adequate shelter, food and other necessities of life. It should give employees a satisfactory level of living.

2. Dearness allowances and other allowances

Dearness allowances are given to the employees to protect the real wages of workers during the time of inflation. The guidelines that govern the amount of DA vary according to the employee living area that is whether he lives in rural area or an urban area or rural area. It is calculated as a percentage of basic salary. Dearness allowances are taxable.

3. Bonus

Bonus is the share of the workers in the prosperity of the enterprise. Bonus is an extra pay to the employees due to their good performance. It can also be regarded as an incentive in case of higher productivity. Bonus helps to bridge the gap between the actual wages and the need based wages. Offering regular bonuses prevent people from looking job elsewhere.

4. Fringe benefits

Fringe benefits refer to various extra benefits provided to the employees, in addition to the compensation paid. For example, a company car, private health care, education reimbursement. These are not directly connected with employees extra efforts, performance or services. Some fringe benefits are regarded as a part of taxable income.

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