Human Resource Management Part 5: Compensation Structure and Incentives

Compensation: base pay logic, fringe elements and incentive design.

Structure logic

• Job evaluation: point method, ranking, classification, factor comparison — worth-based pay bands.
• Salary surveys and pay ranges: midpoint, range spread, compa-ratio arithmetic for managers.

Components

• Base pay plus Dearness Allowance; fringe: insurance, leave, retirement benefits statutory core.
• Incentives: individual piece-rate, commission; group gain-sharing; profit-sharing and ESOPs at organisation level.

Design principles

• Equity theory: input-output comparison drives perceived fairness; internal vs external equity.
• Variable pay linked to measurable outcomes; compression and inversion risks need range management.

Revise in 30 seconds

• Point method: most prevalent job evaluation.
• Compa-ratio: pay versus midpoint.
• Equity theory drives fairness reads.
• ESOPs bind retention.