COMPENSATION STRUCTURE
PREPARED BY ARYA C R
HRM TUTOR EDWIN ACADEMY
▪ Compensation is the remuneration given to the employees for
their work or contribution made to the business. The
contribution can be as time, knowledge or commitment to the
projects they are handling. Compensation comprises regular
salary and other non-monetary benefits that an employee gets
for their services in the [Link] is a part of
MEANING human resource management, which helps to keep the
employees encouraged and improves an organisation's
effectiveness. A company's compensation plans also reflect its
values and culture. It shows how thoughtful the organisation is
towards its employees. Compensation would be fair if it covers
basic living expenses, keeps up with inflation and gives some
room for savings
▪ Compensation structures are the pay-based frameworks
companies use to establish fair and equitable pay for all
employees in an organisation. A compensation structure gives
a business clear guidelines for assigning basic pay rates,
STRUCTURE managing raises and distributing bonuses. An effective
compensation structure seeks to dismantle pay practices based
on inequitable factors, like past salary history, ineffective
negotiation and inherent bias
▪ TRADITIONAL
▪ BROADBAND
TYPES
▪ MARKET BASED
▪ Traditional salary structures are divided into numerous
pay grades. Salary increases are relatively small jumps
between pay grades. Employers can use traditional
structures to prevent employees from capping out at
the maximum salary too quickly.
▪ Decide what an employee needs to do to move onto
the next pay grade. You may use a variety of metrics to
TRADITIONAL determine a pay raise, such as performance and length
of employment.
▪ Set the minimum and maximum salary range for each
employee or employee group. Then, determine the
number of pay grades within the structure.
▪ 1. Broadband structure
▪ A broadband structure is an older compensation style that
some companies still use. In a broadband structure, the
company sets pay bands, which can differ dramatically from
entry-level pay to top-level pay. The primary purpose of the
BROADBAND broadband structure is to reduce the salary range within a
particular level but increase the pay range within a job level.
Many companies use the broadband structure to support
employees who might stay with the company for their entire
career, often in the same position.
▪ Market-based structures are based on what other
employers pay employees. Under a market-based
MARKET BASE salary structure, conduct an external pay audit to
determine your salary ranges for each position
▪ 1. Market factors
▪ Organisations research what other businesses in the same area
or technology are paying their employees. They also check the
similarity of the business and the pay employees with the
same designation or similar work get. They can conduct
surveys to know this information or check different websites
where employees self-report their salaries.
FACTORS ▪ 2. Employee perception
INFLUENCE ▪ Employee perception can influence the overall compensation
structure a company chooses for its employees. Most
employees want to work for an organisation that is transparent
about how its employees are compensated and how those
wages are determined. Creating a compensation system that
employees feel is straightforward and fair is often in the
company's best interest.
▪ 3. Cost of living
▪ Cost of living is another important factor in determining the
compensation of the employee. If the company's office is in a
metro city, then the cost of living an employee would incur
might be higher than if they would be allocated to non-metro
city. The non-cash benefits like travel expenses, house rent
allowance varies according to the area where you are living.
▪ 4. Government legislation
▪ Depending on where you live, your state might have specific
wage and salary regulations that can affect how your company
structures its organisational compensation. Some states
regularly increase the minimum wage, which can shift every
pay band, step or grade in your company's structure upward.
▪ 5. Job competition
▪ The demand for a particular skill in the market also determines
the compensation a company would align for a job role. For
example, if you have expertise in a skill that is in high demand
in the market, you would have the choice to take a job at
different companies. In such a scenario, companies offer the
best compensation to lure you to accept the job offer
▪ 6. Industry
▪ There are some industries that give the same compensation to
their employees. This is particularly in the public sector, where
the compensation is defined based on the grade rather than
the work you are entitled to do. For example, in government
banks, the compensation given to the employees depends on
the grade at which they were hired. Whereas, in the private
sector, compensation is dependent on various factors like job
competition, previous salary package, skills, certifications and
years of experience.
• Base pay (hourly or salary wages): it is the minimum amount
an employee would receive with no deductions or additional
benefits. It can be expressed as an hourly rate, monthly rate or
annual rate.
• Overtime allowance: it is the amount an organisation pays if
TYPES OF its employee works outside standard business hours.
• Bonus pay: it is the annual pay an employee gets above their
COMPENSATION regular earnings. It is basically a reward that an employee gets
for their work and goal accomplishments. Bonus pay is
basically offered to boost the productivity and morale of the
employee.
• Merit pay: merit pay is performance-based pay. An employee
gets merit pay depending on their yearly performance and
achievement of the goals set. The criteria for merit pay vary
from company to company. In most companies, merit pay
depends upon both the employee's and the organisation's
performance.
• Benefits like paid leaves, leave travel allowance (LTA), medical
insurance: these are the additional benefits that an employee
gets as a part of their compensation. Such benefits are non-
monetary benefits. Organisation gives the defined number of
earned leaves, sick leaves or vacation leaves. Companies also
provide health and medical insurances cover to their
employees
• Travel allowance: some companies offer a daily travel
allowance to their employees like reimburse petrol charges,
another mode of travel or provide pick and drop service from
their homes. The travel allowances also depend upon the job
role you hold in a company.
` • Free meals: many organisations offer free or subsidised
breakfast or lunch to their employees. This may not be in all
organisations and depends on the company's policies