Types of Compensation & Compensation Principles

There are basically two types of compensation namely direct compensation and the indirect compensation. Direct compensation includes basic salary, house rent allowance, conveyance leave travel allowance, medical allowance, bonus and special allowance. And the indirect compensation includes leave policy, overtime policy, hospitalization, insurance, leave travel, retirement benefits holiday homes, and the flexible timings. The basic wage structure in India consists of basic pay dearness allowance fringe benefits, overtime payments annual bonus and incentives. Various compensation principles includes that the plan and the policy should be flexible and should be changing with respect to the local and national needs. There should be constant job evaluation in an organization. The firm should always try and ensure that there is equal pay for equal work. There should also be provisions for handling work grievances. Adequate information regarding the different procedures of the organization should be intimated to the employees as well as the union workers. There are different methods of payment of compensation which are based on the time rate system, payment by result system, skill based system, job based system and competency based pay.