Concept of Compensation

The literal meaning of compensation is to counter-balance. In the case of human resource management, Compensation is referred to as money and other benefits received by an employee for providing services to his employer. Money and benefit received may be in different forms-base compensation in money form and various benefits, which may be associate with employee, service to the employer receive or benefits, he enjoy lieu of such payment. Cascio has defined compensation as follows: Compensation includes direct cash payment, indirect payment in the form of employee benefits and incentives to motivate employee to strive higher level of productivity. Based on above description of compensation, we may identify its various components as follows: 1. Wage and salary. 2. Incentives. 3. Fringe Benefits. 4. Perquisites. COMPENSATION MANAGEMENT: Compensation management, also known as wage and salary administration, remuneration management, or reward management, is concerned with designing and implementing total compensation package. The traditional concept of wage and salary administration emphasized on only determination of wage and salary administration structure in organizational settings. However, over the passage of time, many more forms of compensation, as discussed earlier, entered the business field which necessitate to take wage and salary administration in comprehensive way with suitable change in its nomenclature . Bench has defined wage and salary administration as follows: wage and salary administration refers to the establishment and implementation of sound policies and practices of employee compensation .It includes such areas as job evaluation problem , surveys of wage and salaries,

analysis of relevant organizational problems, development and maintenance of wage structure, establishing rules for administrating wages, wage payments, incentives, profit sharing, wage changes and adjustments, supplementary payments, control of compensation costs and related items. Objectives of Compensation management: The basic objective of compensation management can be briefly termed as meeting the needs of both employees and the orgnisation. Since both these needs emerge from different sources, often, there is a conflict between the two. This conflict can be understood by agency theory which explains relationship between employees and employers. The theory suggests that employers and employees are two main shareholders in a business unit, the former assuming the role of principals and the latter assuming the role of agents. The compensation paid to employees is agency consideration. Each party to agency tries to fix this consideration in its own favour. The employers want to pay as little as possible to keep their cost low. Employees want to get as high as possible. The compensation management tries to strike a balance between these two with following specific objectives: 1. 2. 3. 4. 5. Attracting and relating personnel. Motivating personnel. Optimising cost of compensation. Consistency in compensation. Compensation structure.

Concept of Job Related Compensation

The basic objective of job related compensation is to determine the relative contributions that the performance of different jobs makes towards the realization of organizational objectives. This basic objective of job related compensation serve a number of purposes which may grouped in to three categories: Wage and Salary Fixation: - the basic principle of wage and salary fixation is that it should be based on relative contribution of different jobs and not on

the basis of who the job holders are. If these principal is adopted the achievement of organizational effectiveness for equity point of view this method is more appropriate. The Restructuring Job Hierarchy: - Job related compensation helps in restructuring job hierarchy. Job hierarchy refers to arranging various types of job in the order of their importance either on ascending basis or descending basis. Overcoming Anamolies: - Job related compensation, if carried on periodically and objectively helps in overcoming various anamolies which may develop in an organisation over the period of time with regard to the compensation management. Evils which may develop an organisation may be overcome by job related compensation.

Related to the Job: Workers Compensation and Unemployment Compensation

Workers compensation is a state-mandated coverage that is exclusively related to the workplace. Unemployment compensation is also a mandated program required of employers. Both are considered social insurance programs, as is Social Security. Social Security is featured in as a foundation program for employee benefits (covered in through). Social insurance programs are required coverages as a matter of law. The programs are based only on the connection to the labor force, not on need. Both workers compensation and unemployment compensation are part of the risk management of businesses in the United States. The use of workers compensation as part of an integrated risk program is featured in Case 3 of. Workers compensation was one of the coverages that helped the fa milies who lost their breadwinners in the attacks of September 11, 2001. New York City and the state of New York suffered their largest-ever loss of human lives. Because most of the loss of life occurred while the employees were at work, those injured received medical care, rehabilitation, and disability income under the New York workers compensation system, and families of the deceased received survivors benefits. The huge payouts raised the question of what would happen to workers compensation rates. The National Council on Compensation Insurance (NCCI) predicted a grim outlook then, but by 2005, conditions improved as frequency of losses declined and the industrys reserves increased. The workers compensation line has maintained this strong reserve position and has been helped by a continual downward trend in loss frequency. Consequently, the industry reported a combined ratio of 93 percent in 2006 and projects a 99 percent combined ratio for 2007. This indicates positive underwriting results. However, medical claims severity (in contrast to frequency) has continued to grow, as shown in Workers compensation is considered a social insurance program. Another social insurance program is the unemployment compensation offered in all the states. This chapter includes a brief explanation of this program as well. To better understand how workers compensation and unemployment compensation work, this chapter includes the following: 1. 2. 3. 4. 5. Links Workers compensation laws and benefits How benefits are provided Workers compensation issues Unemployment compensation

At this point in our study, we look at the coverage employers provide for you and your family in case you are hurt on the job (workers compensation) or lose your job involuntarily (unemployment compensation). As noted above, these coverages are mandatory in most states. Workers compensation is not mandatory in New Jersey and Texas (although most employers in these states provide it anyway). In later chapters, you will see the employer-provided group life, health, disability, and pensions as part of noncash compensation programs. These coverages complete important parts of your holistic risk management. You know that, at least for workrelated injury, you have protection, and that if you are laid off, limited unemployment compensation is available to you for six months. These coverages are paid completely by the employer; the rates for workers co mpensation are based on your occupational classification. In some cases, the employer does not purchase workers compensation coverage from a private insurer but buys it from a states monopolistic fund or self -insures the coverage. For unemployment compensation, the coverage, in most cases, is provided by the states.Regardless of the method of obtaining the coverage, you are assured by statutes to receive the benefits. As with the coverages discussed in to, external market conditions are a very important indication of the cost of coverage to your employer. When rates increase dramatically, many employers will opt to self-insure and use a third-party administrator (TPA) to manage the claims. In workers compensation, loss control and safety engineering are important parts of the risk management process. One of the causes of loss is ergonomics, particularly as related to computers. See the box Should Ergonomic Standards Be Mandatory? for a discussion. You would like to minimize your injury at work, and your employer is obligated under federal and state laws to secure a safe workplace for you. Thus, in your pursuit of a holistic risk management program, workers compensation coverage is an important piece of the puzzle that completes your risk mitigation. The coverages you receive are only for work-related injuries. What happens if you are injured away from work? This will be discussed in later chapters. One trend is integrated benefits, in which the employer integrates the disability and medical coverages of workers compensation with voluntary health and disability insurance. Integrated benefits are part of the effort to provide twentyfour-hour coverage regardless of whether an injury occurred at work or away from

work. Currently, nonwork-related injuries are covered for medical procedures by the employer-provided health insurance and for loss of income by group disability insurance. Integrating the benefits is assumed to prevent double dipping (receiving benefits under workers compensation and also under health insurance or disability insurance) and to ensure security of coverage regardless of being at work or not. (See the box Integrated Benefits: The Twenty-Four-Hour Coverage Concept.) Health and disability coverages are provided voluntarily by your employer, and it is your responsibility to seek individual coverages when the pieces that are offered are insufficient to complete your holistic risk management. shows how your holistic risk pieces relate to the risk management parts available under workers compensation and unemployment compensation. Compensation Related Articles Workers Compensation Worker's compensation is a state-mandated insurance program that provides compensation to employees who suffer job-related injuries and illnesses. While the federal government administers a workers compensation program for federal and certain other types of employees. Every state has its own laws and programs for workers compensation. An employee with a work-related illness or injury can get workers compensation benefits regardless of who was at fault -- the employee, the employer, a coworker, a customer, or some other third party. In return for these guaranteed benefits, employees usually do not have the right to sue the employer in court for damages for those injuries. The compensation benefits are in the form of replacement income, medical expenses, and sometimes vocational rehabilitation benefits.If the person become temporarily unable to work, he/she 'll usually receive two-thirds of their average wage up to a fixed ceiling.You will be eligible for these wage-loss replacement benefits as soon as you've lost a few days of work because of an injury or illness that is covered by workers' compensation. If the person become permanently unable to do the work that he/ahe was doing prior to the injury, or unable to do any work at all, he/she may be eligible to receive long-term or lump-sum benefits. The amount of the payment will depend on the nature and extent of the injuries. Cases considered under Worker's Compensation Worker's compensation covers almost all on-the-job injuries. The workers' compensation system is designed to provide benefits to injured workers, even if an injury is caused by the employer's or employee's carelessness. Some of the cases

that are not considered under worker compensation system are injuries that caused because an employee is intoxicated or using illegal drugs. Coverage may also be denied in these situations self-inflicted injuries, injuries suffered while a worker was committing a serious crime, injuries suffered while an employee was not on the job, and injuries suffered when an employee's conduct violated company policy. The injury need not be caused by an accident. Many workers receive compensation for injuries that are caused by overuse or misuse over a long period of time -- for example, repetitive stress injuries such as carpal tunnel syndrome or back problems. One may also be compensated for some illnesses and diseases that are the gradual result of work conditions for example, heart conditions, lung disease, and stress-related digestive problems. Benefits received under Compensation The Benefits covered under compensation system provides replacement income, medical expenses, and sometimes vocational rehabilitation benefits -- that is, onthe-job training, schooling, or job placement assistance. The benefits paid through workers' compensation, however, are almost always relatively modest. If the person is temporarily unable to do work, he/she'll usually receive two-thirds of your average wage up to a fixed ceiling. But because these payments are tax-free, if you received decent wages prior to your injury, you'll fare reasonably well in most states. You will be eligible for these wage-loss replacement benefits as soon as you've lost a few days of work because of an injury or illness that is covered by workers' compensation. If you become permanently unable to do the work you were doing prior to the injury, or unable to do any work at all, you may be eligible to receive long-term or lump-sum benefits. The amount of the payment will depend on the nature and extent of your injuries. If you anticipate a permanent work disability, contact your local workers' compensation office as soon as possible; these benefits are rather complex and may take a while to process.
Managing Workers' Compensation Claims

To effectively control workers' compensation costs is to maximize safety in the workplace. This must be a priority of top management, and the concept of safety must be passed down from the top through the entire organisation. A safety program should be implemented which includes a strategy outlining safety expectations and the evaluation of the entire business operations, from hiring to training. With the larger invovment of top management, the success of the safety program will be greatly enhanced. Job-related injuries, however, are still going to occur, and when they do, an operational plan must be in place in order to respond

to the needs of the injured employee. Communication is a key to the effectiveness of any safety program and employees should be aware of the goals of the program. To be successful, the components of the plan must be clearly communicated and defined to management and employees alike, and should become a part of your management process. Employees must be aware that they should report any injury as soon as it occurs and to cooperate fully with the plan. Instant reporting of the injury will not only enable management to take the required steps to respond to the injured employee but will also allow timely notification to your insurance carrier, which can be a significant factor in controlling the cost of the claim.
Control Workers Compensation Costs

The best way to control the cost of workers' compensation insurance premiums is to avoid injury claims. Providing a safe environment, effective safety training and ongoing programs to promote safe work habits are keys to preventing employee injury. Once new employees are properly trained to perform their jobs safely, it's important to maintain safety awareness. In addition to posting safety reminders in common areas, consider holding workshops or hosting safety seminars to talk in depth about the specific issues affecting workers. In most of the states, workers' compensation follows "no fault." policy that means on-the-job injuries are covered by workers' compensation insurance regardless of the cause of the accident. In other words, if employees are injured on the job due to their foolish or careless behavior, those accidents are covered by your workers' compensation insurance. It makes it more important to continually promote safety awareness and safe work habits. Use proper industry classification code to control worker compensation rates for employees More than 600 different codes are available that identify professions with the greatest risk of on-the-job injury. A common mistake employers make is to classify their entire staff under a single code. Ergonomics The Ergonomics means the laws of work.Ergonomics deals with the design of a workplace, equipment, machine, tool, product, environment, or system, taking into consideration the human's physical, physiological, biomechanical, and psychological capabilities. The goal of ergonomics is to fit the task to the individual, rather than the individual to the task. The application of ergonomics principles have been documented to result in the following: to increase productivity ,to improve health and safety condition,to increase job satisfaction,to improve work quality, to reduce wasrage of time at work , to reduce, worker's compensation claims The first step in a proactive ergonomics program is to

evaluate the workplace. To determine if equipment, tools or devices are ergonomically designed, it should first be determined who they were designed for, which task they were designed for, and what environment they were designed to function within. Once the answers to these preliminary questions have been determined, it becomes much more apparent whether a redesign is necessary. Note that the redesign need not be expensive and could be implemented with a very "low-technology" approach.

Accident Compensation
All accident claim service provider policies are not same. Some companies do not request or receive payment for any enquiry you make. Nor do they request a percentage of your accident compensation or success commission. Others on the other hand, may request up to 40% of your legal entitlements. The majority of accident compensation claims assessors are NOT legally qualified and you may be un-intentionally mislead into believing that they are solicitors. Television advertising and other media exposure may lead you to believe that you are instructing a legally qualified solicitor. Initially you may be seen by an agent acting for the claims company and asked to part with money funded by a bank in the form of a loan. You may be told that this money will be recovered from your damages. If you win your case that is. It is sometimes thought that solicitors have an image of expensive hourly charges. This is simply not true. For instance, as of April 2000 the UK law changed and all personal injury solicitors have to act for you on a "no win no fee" basis and in fact can often offer you an identical insurance policy for less than half the cost of claims handlers. Make sure you check out the law in your own country.