Compensation is the process of providing adequate, equitable and fair remuneration to the employees. It includes job evaluation, wage and salary administration, incentives, bonus, fringe benefits, social security measures etc.

Job Evaluation: It is the process of determining relative worth of jobs:

1. Select suitable job evaluation techniques.
2. Classify jobs into various categories.
3. Determining relative value of jobs in various categories.

Wages and Salary Administration: This is the process of developing and operating a suitable wage and salary programs. It covers;

1. Conducting wage and salary survey.
2. Determining wage and salary rates based on various factors.
3. Administering wage and salary programs.
4. Evaluating its effectiveness.

Incentives: It is the process of formulating, administering and reviewing the schemes of financial incentives in addition to regular payment of wages and salary. It includes:

1. Formulating incentive payment schemes.
2. Helping functional managers on the operation.
3. Review them periodically to evaluate effectiveness.

Bonus: It includes payment of statutory bonus according to the Payment of Bonus Act, 1965, and its latest amendments.

In India the employees drawing above certain compensation are not covered under the Bonus act. However, the employer pays them suitable lump sum variable amount depending upon their level in the organization which is called ex-gratia. This is not compulsory on the part of the employer but acts as an incentive to the employee.

Fringe Benefits: These are the various benefits at the fringe of the wage. Management provides these benefits to motivate the employees and to meet their life’s contingencies. These benefits include:

1. Disablement benefit
2. Housing facilities
3. Educational facilities to employee and children.
4. Canteen facilities.
5. Recreational facilities.
6. Conveyance facilities.
7. Credit facilities.
8. Legal clinic.
9. Medical, maternity and welfare facilities.
10. Company stores.

Social Security Measures:

Management provides social security to their employees in addition to the fringe benefits. These measures include:

1. Workmen’s compensation to those workers (or their dependents) who involve in accidents.
2. Maternity benefits to women employees.
3. Sickness benefits and medical benefits.
4. Disablement benefits / allowance.
5. Dependent benefits.
6. Retirement benefits like provident fund, pension, gratuity etc.

Practicing various human resources policies and programs like employment, development and compensation and interaction among employees create a sense of relationship between the individual worker and management, among workers and trade unions and management.

It is the process of interaction among human beings. Human relations is an area of management in integrating people into work situation in a way that motivates them to work together productively, co-operatively and with economic, psychological and social satisfaction. It includes:

1. Understanding and applying the models of perception, personality, learning, intra and inter personal relations, intra and inter group relations.
2. Motivating the employees.
3. Boosting employee morale.
4. Developing the communication skills.
5. Developing the leadership skills.
6. Redressing employee grievances properly and in time by means of a well formulated grievance procedure.
7. Handling disciplinary cases by means of an established disciplinary procedure.
8. Counseling the employees in solving their personal, family and work problems and releasing their stress, strain and tensions.
9. Improving quality of work life of employees through participation and other means.

Lot of thinking and comparison with competitive organizations goes into fixing the compensation of employees particularly for middle management and above levels by the management. Some organization pays certain amount annually to key executives which are not a part of the regular pay and allowances. By doing this the incentive acts to deliver enhanced performance but also ensure the loyalty of the key executive to remain with the company.

  • anuradha

    hi, this one was really good

    i found this informative as i am preparing for my interview, regarding compensation and benefits, position. thanks again



  • This is very informative.

  • Sapan

    Hi, I am Sapan, The overview of information regarding compensation is good. Can I get more details regarding the calculation of the payroll(salary) for Indian companies and also companies acts those support the break up of the salary

  • Simha

    yes this is very good and informative.thanks for sharing infirmation with us

  • manoj

    hi, i m manoj. it is very importent for personnel and IR. can you tell me about compensation to permenent worker at the time of termination. we gives fifteen days service compensation to terminated employee on basic + DA or on gross salary. i m very confused on this matter.

    manoj kumar


  • Aroop

    I really found it very informative.May i know if the bonus/Exgratia is given to the managerial cadre people earning more than Rs.50000/- for the previous financial year whether the person who has left the services recently will be entitle to get the same?

  • Efua Asante


    This is very informative. Could you please explain why employers have developed more than a passing interest in compensation management?

  • rachana

    hiii..this is a good one..can u kindly provide me the information on HOW IT AND RETAIL SECTORS ATTRACTING YOUNG TALENT WITH ITS FINANCIAL BENIFITS ALONG WITH BASIC PAY

  • Sunita

    Dear All ,

    Would apprecite if anyone can send me the exel sheet which cover the working of employees .



  • harika

    Hai everybody, My name is G.Harika. As a Management Trainee I’m conducting survey on salary& Wages, I want the sample questioners and methodology. If any one has awareness about this topic kindly plz forward me the details.

  • Mrunal ingale

    It is really a good article.thanks.

  • Srinivas

    The article is very informative and gives a good theoritical knowledge of Comp and Ben.

    I have a query.. can i know how the companies really arrive at a particular figure reg Comp, how they do breakup and all..

  • poornavi


    its a good article!! can i get more details about the elements that come under compensation management as i am doin a reseach project on it!! please!

  • shailendra singh

    i am a student of hr i want the related questionnaire of recruitment& selection plse provide me for my project

  • m.sunitha

    hi, this is sunitha, iam doing present iam doing project work on effectiveness of compensation in present scenario…. in non monetary terms.could u please help me out in giving information about non monetary compensations…

  • this is very useful for my carrier and also guide for somebody

    thanking you


  • sasidhar

    vry informative article and plz give me some information on statutoty complainces

  • adrina

    This is very informative.not for the employer only but also the employee..TQ




    I have resigned my job after 17 years of service from a private Ltd. organisation.

    After advance notice period of 3 months before resigning and after 3 months after relieving I am yet to receive any amount from them like Gratuity, Provident fund, LTA , Medical allowance, Mobile allowance etc. still, inspite of my regular followups.

    Now I would like to take legal action against them including a huge amount as compensation for my mental agonies due to their non payment after relieving from job.

    This is to see that no second employee should face things like me after leaving organisa tion

    I wish to take your guidelines in this regard on how should I proceed



    Tel : 0241-2548372

    Mob : 9423206548

    Email :

  • Sanjay Roy

    What would be the breakup of 20,00,000 P.A salary for an IT Manager.

    In short, what would be the carry home…

    Thanks in anticipation for your reply…

  • Subhransu Mohanty


    Can you tell me the details about the Fully Disablement & Partial disablement ebnefits of ESI

  • SUNIL. A

    Hi all. I found this article to b vy good. can any one tell me what exactly statutory is?


    Hi This could be the best information for those who are fresher in this field.
    So Thanks for providing this information.

  • Bargir Karishma

    very helpful for upgrading the knowledge