Post on 07-Apr-2018
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Compensation ManagementCompensation Management
Dr.SangarshDr.Sangarsh
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Wages and SalariesWages and Salaries
Wages represent hourly rates of pay, and salary refersto the monthly rate of pay, irrespective of the number ofhours put in by an employee.
Wages and Salaries are subject to annual increments.
They differ from Employee to employee, and dependupon the nature of job, seniority, and merit.
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Fringe BenefitsFringe Benefits
These include such employee benefits
as provide fund, gratuity, medicalcare, hospitalization, accident relief,health and group insurance, canteen,uniform, recreation etc.
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PrePre--requisitesrequisites These are allowed to executives and include
company car, club membership, paid holidays,furnished house, stock option schemes. Pre-requisites are offered to retain competentexecutives
NonNon--Monetary BenefitsMonetary Benefits
These include challenging job responsibilities,
recognition of merit, growth prospects, competentsupervision, comfortable working conditions, jobsharing and flexi time.
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Theories of RemunerationTheories of Remuneration
Equity Theory:
Adams equity theory posits that an employee who perceives
inequity in his or her rewardsseeks to restore equity. Thetheory emphasis equity in pay structure of employeesremuneration.
Employees perceptions of how they are treated by theirfirm is of prime importance to them. When employees feel
inequity, it can result in lower productivity, higherabsenteeism or increase in turnover.
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The remuniartion system needs to meet threetypes of equity: Internal, external, and
Individual.
These perceptions of equity directly impact
motivation, commitment and performance on
the job.
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Internal Equity: Involves the perceived fairness of pay
differentials among different jobs, within an organization.Employees should feel that the pay differentials among jobs are
fair, given the corresponding differences in job responsibilities.
External Equity: Involves employees perception of the fairness
of their remuneration relative to those outside the organization.
What competitors pay to similar jobs will have its impact on
employee motivation, commitment and performance.
Individual Equity: Considers employee perception of paydifferentials among individuals who hold identical jobs in the
same organization. Seniority contributes to differences in
remuneration received by two individuals in the same level. Sr.
Professor and Junior Professor salary.
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Consequences of an IdealConsequences of an Ideal
Remuneration SystemRemuneration System
1. Attractive remuneration enables an organization to attract,retain and motivate competent people.
2. Fresh MBAs and brilliant engineers flock around WIPRO,HINDUSTAN UNILEVER, CITIBANK, MOTOROLA,RELIANCE because of their attractive remuneration packages.
3. Retaining competent individuals for long is more difficult than
attracting fresh ones.
4. An employees longevity of service in a particularorganization depends more on non-financial benefits, but therole of financial benefits cannot be ruled out, at the lowerlevels of Hierarchy.
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Consequences of Pay Dissatisfaction
DESIRE FOR
MORE PAY
performance
strikes
Grievance
Search for higher paying
jobs
Absenteeism
Pay Dissatisfaction Lower attractiveness of job
Turnover
Job Dissatisfaction
Absenteeism
PsychoWithdrawal
Visit to a
doc
Poor Mental
Health
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Motivation and Performance Model
Employees get motivated to perform better when their
past performance is rewarded adequately.
Employees set expectations about rewards and
compensation to be received, if certain level of
performance is achieved.
If employees see that hard work and superior
performance are recognized and rewarded by the
organization, they will expect such relationship to
continue in the future.
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Remuneration is the only HR Activity which has itsimpact on all other functions regarding personnel.
Take Job evaluation, for example. It is job evaluation
which establishes satisfactory wage and salary
differentials.
Competent people are attracted towards an
organization if its remuneration is attractive.
Recruitment and selection are dependent upon wages
and salaries offered to prospective employees.
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Motivation and Performance Model
Employee sets
expectations and
goals
Performance is
rewarded
Employee considers
equity of performance
rewards
Employees sets new goals
and expectations based on
prior experience.
Feedback to employees
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Factors Influencing Employee Remuneration
Business Strategy
RemunerationEmployee
Job Evaluation Performance Appraisal
Society
Economy
Labor
unions
INTERNAL
FACTORSExternal
Factors
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Labor Market: Demand and supply of laborinfluences wage and salary fixation. A low rate
may be fixed when the supply of labor exceeds
the demand for it. A higher rate will have to be
paid when the demand exceeds supply, as inthe case of skilled labor.
In our country unskilled labor in plenty, there is
shortage of Technicians, computer specialist
and Professional Managers.
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Going rate of Pay: Going rates are those thatare paid by different units of an industry in a
locality and by comparable units of the same
industry located elsewhere. This is the only way
of fixing a salary.
Productivity of labor: Productivity can arise due
to increase effort of the worker, or as a result of
the factors beyond the control of the worker
such as improved technology, sophisticated
machines and equipment, better management.
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Cost ofLiving: A rise in the cost of living is sought to
be compensated by payment of dearness allowance,
basic pay to remain undisturbed.
Labor Unions: Employers in non-unionised factories
enjoy the freedom to fix wages and salaries as they
please. Because of large scale unemployment, these
employers hire workers at little or even less that legal
minimum wages. The employees of strongly unionized
companies too, have no freedom in wage and salaryfixation. They are forced to yield to the pressure of
labor representatives in determining and revising pay
scales.
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Labor Laws: Some of the central laws which have a bearing on
employee remuneration are the payment of Wages act, 1936;the Minimum Wages Act 1948; The Payment of Bonus Act,
1965; Equal Remuneration Act, 1976; and the payment of
Gratuity Act, 1972.. In order to safeguard the Employee-
Employers interest These acts stipulated stringent punishments
for contravention of its provisions.
Society: Remuneration paid to employees is reflected in the
prices fixed by an organization for its goods and services.
Remuneration paid to employees has social implications too.
The Supreme court has been keeping social and ethicalconsiderations in adjudicating wage and salary disputes.
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The Economy: A depressed economy will
probably increase the labour supply this in turn
should serve to lower the going wage rate
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Internal Factors
Business Strategy: If the strategy of the company is to achieve rapid
growth, the remuneration should be higher than what competitors
pay. .. And if the Strategy is to maintain and protect current
earnings, because of declining fortunes of the company,
remuneration level needs to be average or even below average .
Job evaluation and Performance Appraisal: Job Evaluation helps
establish satisfactorily wage differentials among jobs. Performance
appraisal helps award pay increases to employees who show
improved performance.
The Employee: Several employee related factors interact to
determine his or her remuneration. These include performance,
seniority, experience, potential, and even sheer luck.
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REMUNERATION MODEL
JD
JE
PRICING JOBS
JOB HIERARCHY
PAY SURVEY
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Challenges of Remuneration1. Skilled based Pay: an Employee is paid on the basis of number
of jobs he or she is capable of doing or on the depth of his or
her knowledge. In the traditional system, an employee is paid
on the basis of job held.
2. Pay reviews: Pay once determined should not remain
constant. It must be reviewed and changed often. But how
often becomes a relevant question. In the fixed date review,
wages and salaries of all employees are reviewed and raised
on a specific date each year. In the anniversary date review,salaries may be reviewed at twelve - month intervals from
the date employees anniversary date of hire. High performing
Employees, who are low on their salary ranges, can be
rewarded more frequently.
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Eliticism versus Egalitarianism: Firms become Egalitarian when they place of
their employees under the same remuneration plan. The plan becomeselitist when the organizations establish different remuneration schemes
Egalitarianism gives organizations more flexibility to deploy employees in
different areas without having to change their pay levels. It can also reduce
barriers between people who need to work together. This systems are
found mainly in highly competitive environments where companiesfrequently take business risks and try to expand their market share by
continually investing in new technologies, ventures and products.
Elitist remuneration systems are prevalent among older, well established
firms with mature products, a relatively stable market share and limited
competition. Also employees make more money only by moving up through
the company.
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Concepts of Wages
Minimum Wage: providing for sustenance of life plus for
preservation of the efficiently of worker.
Fair wage: Equal to the rate prevailing in the same trade and in
the neighborhood, or equal to the predominant rate for similar
work throughout the country.
Living Wage: Higher than fair wage provides for bare essentials
plus frugal comforts.
Special Groups like Team based Pay , contract employees.