What does the phrase “management compensation” mean in this paragraph?

Due to the limitations imposed on qualified plans and changes in management compensation, companies now rely more on these plans to create attractive executive compensation packages.

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The increasing competitiveness of the labour market and turnover of employees had resulted in nightmare in compensation planning. Apart from this, the growing demands of the employees and competitive salaries offered by multinational companies had nearly resulted in a compensation war in certain industries.

Therefore, the human resources managers and tax experts have to evolve proper compensation planning for High end and qualified employees. The components of compensation have to be devised in such a way that, it focuses on the growing demands of employees while retaining the competitiveness and profitability of the company.

Industry driven factors:-

There are also certain driven factors that are influencing the compensation planning. The compensation Packages of knowledge workers are different from that of manufacturing sector. The employees working in call centers are compensated differently (vs) employees of technology driven companies.

Some notable examples are.,

a) Compensation paid in IT/ITES,
b) Investment banking/Equity research,
c) Software companies,
d) High-end industries having high technology content like Bio/Nano technology.
e) Private research and related fields.

Compensation Oval:

Components of compensation:-

Basic wages/Salaries:-

These refers to the cash component of the wage structure based on which other elements of compensation may be structured. It is normally a fixed amount which is subject to changes based on annual increments or subject to periodical pay hikes. It is structured based on the position of an individual in the organization and differs from grades to grades.

Dearness allowance:-

The payment of dearness allowance facilitates employees and workers to face the price increase or inflation of prices of goods and services consumed by him. The onslaught of price increase has a major bearing on the living conditions of the labour. The increasing prices reduce the compensation to nothing and the money's worth is coming down based on the level of inflation.

The payment of dearness allowance, which may be a fixed percentage on the basic wage, enables the employees to face the increasing prices.

Bonus:-

The bonus can be paid in different ways. It can be fixed percentage on the basic wage paid annually or in proportion to the profitability. The Government also prescribes a minimum statutory bonus for all employees and workers.

There’s also a bonus plan which compensates the Managers and employees based on the sales revenue or Profit margin achieved. Bonus plans can also be based on piece wages but depends upon the productivity of labour.

Commissions:-

Commission to Managers and employees might be based on the sales revenue or profits of the company. It is always a fixed percentage on the target reached. For taxation purposes, commission is again a taxable component of compensation.

The payment of commission as a component of commission is practised heavily on target based sales. Depending upon the targets reached, companies might pay a commission on a monthly or periodical basis.

Blended plans:-

Companies might also pay employees and others a combination of pay as well as commissions. This plan is called combination or mixed plan. Apart from the salaries paid, the employees may be eligible for a fixed percentage of commission upon achievement of fixed target of sales or profits or Performance objectives.

Nowadays, most of the corporate sector is following this practice. This is also termed as variable component of compensation.

Piece rate wages:-

Piece rate wages are prevalent in the manufacturing wages. The laborers are paid wages for each of the Quantity produced by them. The gross earnings of the labour would be equivalent to number of goods produced by them.

Piece rate wages improves productivity and is an absolute measurement of productivity to wage structure. The fairness of compensation is completely based on the productivity and not by other qualitative factors.

The GANTT productivity planning and Taylor's plan of wages are examples of piece rate wages and the related consequences.

Sign on Bonuses:-

The latest trend in the compensation planning is the lump sum bonus for the incoming employee. A person who accepts the offer, is paid a lump sum as a bonus.

Although this practice isn’t prevelant in most of the industries, Equity research and investment banking companies are paying this to attract the scarce talent.

Profit sharing payments:-

Profit sharing is again a novel concept nowadays. This can be paid through payment of cash or through ESOPS. The structuring of wages might be done in such a way that, it attracts competitiveness and improved productivity.

Profit sharing can also be in the form of deferred compensation at the time of retirement. At the time of retirement the employees