Compensation : Extrinsic and Intrinsic Rewards

Compensation is what employees receive in exchange for their contribution to the organisation .

Intrinsic Rewards : It includes all activities that have an impact on the intellectual , emotional , and physical well being of an employee and is not specifically covered by the extrinsic compensation system .

It is the least costly and one of the most powerful rewards of the organisation .
It can be done by simply putting a pat on the back of the employee thereby recognizing them as useful and valuable contributors .
This kind of recognition leads to employee feeling of self worth and pride in making contributions .
It can be done by providing a healthy and safe working environment to the employees.
More focus should be given on improving quality of work life of employee .
Employees feel free to choose the way of working , work from home facility comes under the type of reward .
Another kind of intrinsic rewards are career growth paths of employees and enhancing their employ-ability.

Extrinsic Rewards : They are tangible rewards given to the employees by the managers . it mainly consists of the following :

Basic pay wages and salary add-ons , Deferred payments ( pension plans , supplementary income plans etc ) , services and benefits ( accommodation , medical benefits group insurance , conveyance etc ) , pay for work not done ( gazetted holidays , leaves etc) .

Objectives that guide the design of compensation system :

Individual Equity
- To establish a fair and equitable remuneration offering a similar pay for similar work .
- To attract qualified and competent personnel .
External Equity
- To retain present employees by keeping wage level in tune with the competitors .
- To control labor cost and administrative cost in line with ability of the organisation to pay .
- To improve motivation and morale of employees and to improve union management t relations.
- To project a good image of the company and to comply with legal needs relating to wages and salaries .
- To comply with legal rules .compensation programmes must invariably satisfy governmental rules regarding minimum wages , bonus , allowance etc.
- Ease of operation . the compensation management system should be easy to understand and operate . then only it will promote understanding regarding pay relation matters between employees , unions and managers .
- Reward new and desired behavior . pay should reward loyalty , commitment , experience , risk taking initiative and other desired behaviors .
Internal Equity
- This ensures that more difficult jobs are more
- seniority of employee should take into considerations .