Components of Compensation - Part II
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In the previous article (Part I) we looked at some of the components of compensation that are paid out to employees and the way in which these components are fixed by HR managers and companies. In this article (Part II), we shall look at some components of compensation like Basic and Variable Pay (including the sub-components of variable pay) and discuss how these are fixed by the firms when they sign off on the compensation packages to their employees.
To take the first component that is common to all packages at all levels (hence the term basic - however, it is not the same for all levels).
- Basic pay is the base on which the compensation package rests. This is the equivalent of the base of the pyramid and the other components are usually fixed as a percentage of the basic pay. It is common to find components like HRA (House Rental Allowance) and Additional Pay as a certain percentage (say 20% or 30%) of the Basic.
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The rationale for these components is that an employee would be better motivated to perform individually, contribute to the group to which he or she belongs and finally, perform well keeping in view the overall growth of the company. Hence, these sub components of compensation have been designed to spur the employee to excel not only in an individual capacity but as a team member and finally, a responsible employee of the company. The idea here is to discourage silo based performance and instead concentrate on all round performance.
In the articles to follow, we shall look at how employees can negotiate their compensation by following some tips that we shall provide.
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