Transcript of Compensation final
- 1. WELCOME TO THEWELCOME TO THE SESSIONSESSION ONON
COMPENSATIONCOMPENSATION
- 2. COMPENSATIONCOMPENSATION Employee compensation refers to all
forms of pay orEmployee compensation refers to all forms of pay or
rewards going to employees and arising from theirrewards going to
employees and arising from their employment i.e. compensation is
what employeesemployment i.e. compensation is what employees
receive in exchange for their contribution to thereceive in
exchange for their contribution to the organization.organization.
Employees exchange their physical and mentalEmployees exchange
their physical and mental efforts for compensation, but
compensation meansefforts for compensation, but compensation means
more than wage and salaries. It may includemore than wage and
salaries. It may include incentives that motivate employees and
relate laborincentives that motivate employees and relate labor
costs to productivity.costs to productivity.
- 3. Compensation DimensionCompensation Dimension The total
compensation package may be described inThe total compensation
package may be described in many ways, but the classification
scheme is based onmany ways, but the classification scheme is based
on eight dimensions.eight dimensions. Pay for work and
performance.Pay for work and performance. Pay for time not
worked.Pay for time not worked. Loss-of job income
continuation.Loss-of job income continuation. Disability income
continuation.Disability income continuation. Deferred
income.Deferred income. Spouse (family) income continuation .Spouse
(family) income continuation . Health, accident, and liability
protection.Health, accident, and liability protection. Income
equivalent payments.Income equivalent payments.
- 4. Pay for work and performancePay for work and performance Pay
for work and performance includesPay for work and performance
includes money that is provided in the shortmoney that is provided
in the short term and that permits employees to payterm and that
permits employees to pay for contract for the payments providedfor
contract for the payments provided to employees normally depends
onto employees normally depends on specified job
requirements.specified job requirements.
- 5. Pay for time not workedPay for time not worked Over the
years, there has been decrease inOver the years, there has been
decrease in hours worked per weeks and number ofhours worked per
weeks and number of days worked per year.days worked per year.
During the past 40 years, workers haveDuring the past 40 years,
workers have enjoyed more days off with pay forenjoyed more days
off with pay for holidays, longer paid vacations, and paidholidays,
longer paid vacations, and paid time off for a wide variety of
personaltime off for a wide variety of personal
reasons.reasons.
- 6. Loss-of job income continuationLoss-of job income
continuation Job security is and always has been theJob security is
and always has been the primary consideration for most
workers.primary consideration for most workers. They want assurance
that their jobs andThey want assurance that their jobs and the
income derived from working willthe income derived from working
will continue until they are ready to retire.continue until they
are ready to retire. Workers also know that few jobs areWorkers
also know that few jobs are guaranteed to continue to
retirement.guaranteed to continue to retirement.
- 7. Disability income continuationDisability income continuation
The possibility always exists that a worker mayThe possibility
always exists that a worker may incur health or accident
disability.incur health or accident disability. Because of these
disabilities, employees areBecause of these disabilities, employees
are frequently unable to perform their normalfrequently unable to
perform their normal assignments.assignments. Social security,
workers, compensation, sickSocial security, workers, compensation,
sick leave, and short- and- long- term disability plansleave, and
short- and- long- term disability plans are examples of components
that provide fundsare examples of components that provide funds for
employees who are unable to work for health-for employees who are
unable to work for health- related reasons.related reasons.
- 8. Deferred ( Delayed) incomeDeferred ( Delayed) income First
of all most employees do not have sufficientFirst of all most
employees do not have sufficient savings at retirement for to
continue the lifestylessavings at retirement for to continue the
lifestyles they enjoyed while working.they enjoyed while working.
Various kinds of programs, such as employer-Various kinds of
programs, such as employer- provided pension plans, annuities,
andprovided pension plans, annuities, and supplemental income plans
provide income aftersupplemental income plans provide income after
retirement.retirement. These types of income help to lead their
life in aThese types of income help to lead their life in a
continuous way.continuous way.
- 9. Health, accident, and liabilityHealth, accident, and
liability protectionprotection When a health problem occurs,
employeesWhen a health problem occurs, employees must be concerned
not only with incomemust be concerned not only with income
continuation, but also with payments forcontinuation, but also with
payments for goods and services required ingoods and services
required in overcoming the illness or disability.overcoming the
illness or disability. Organizations provide a wide variety
ofOrganizations provide a wide variety of insurance plans to assist
in paying forinsurance plans to assist in paying for these goods
and services.these goods and services.
- 10. Income equivalent paymentsIncome equivalent payments A
final set of compensation componentsA final set of compensation
components may be grouped under the title of incomemay be grouped
under the title of income equivalent payments.equivalent payments.
Many of these components are frequentlyMany of these components are
frequently called perquisites or perks andcalled perquisites or
perks and employees usually find them highlyemployees usually find
them highly desirable, and both employers anddesirable, and both
employers and employees find certain tax benefits in thememployees
find certain tax benefits in them
- 11. Spouse (family) incomeSpouse (family) income
continuationcontinuation Most employees with family obligationsMost
employees with family obligations are concerned with what may
happen ifare concerned with what may happen if they are no longer
able to provide money.they are no longer able to provide money.
Certain plans are designed to provideCertain plans are designed to
provide dependents with income when andependents with income when
an employees dies or is unable to workemployees dies or is unable
to work because of total and permanent disability.because of total
and permanent disability.
- 12. Objectives Of CompensationObjectives Of Compensation
ManagementManagement 1) Acquire qualified personnel:1) Acquire
qualified personnel: Compensation needs to be high enough
toCompensation needs to be high enough to attract applicants. Pay
levels must respondattract applicants. Pay levels must respond to
the supply and demand of workers in theto the supply and demand of
workers in the labor market since employers compete forlabor market
since employers compete for workers. Premium wages are
sometimesworkers. Premium wages are sometimes needed to attract
applicants already workingneeded to attract applicants already
working for others.for others.
- 13. Objectives Of CompensationObjectives Of Compensation
ManagementManagement 2) Retain current employees:2) Retain current
employees: Employees may quit when compensationEmployees may quit
when compensation levels are not competitive, resulting inlevels
are not competitive, resulting in higher turnoverhigher turnover 3)
Ensure equity:3) Ensure equity: Compensation management strives
forCompensation management strives for internal and external
equity. Internal equityinternal and external equity. Internal
equity requires that pay be related to the relativerequires that
pay be related to the relative worth of a job so that similar jobs
getworth of a job so that similar jobs get similar pay. External
equity means payingsimilar pay. External equity means paying
workers what comparable workers areworkers what comparable workers
are paid by other firms in the labor market.paid by other firms in
the labor market.
- 14. 4) Reward desired behavior:4) Reward desired behavior: Pay
should reinforce desired behaviors andPay should reinforce desired
behaviors and act as an incentive for those behaviors toact as an
incentive for those behaviors to occur in the future. Effective
compensationoccur in the future. Effective compensation plans
reward performance, loyalty,plans reward performance, loyalty,
experience, responsibility, and otherexperience, responsibility,
and other behaviors.behaviors. 5) Control costs:5) Control costs: A
rational compensation system helps theA rational compensation
system helps the organization obtain and retain workers at
aorganization obtain and retain workers at a reasonable cost.
Without effectivereasonable cost. Without effective compensation
management, workers couldcompensation management, workers could be
overpaid or underpaid.be overpaid or underpaid. Objectives Of
Compensation Management
- 15. 6) Comply with legal regulations:6) Comply with legal
regulations: A sound wage and salary system considers the legalA
sound wage and salary system considers the legal challenges imposed
by the government and ensureschallenges imposed by the government
and ensures the employer's compliance.the employer's compliance. 7)
Facilitate understanding:7) Facilitate understanding: The
compensation management system should beThe compensation management
system should be easily understood by human resource
specialists,easily understood by human resource specialists,
operating managers, and employeesoperating managers, and
employees.. 8) Further administrative efficiency:8) Further
administrative efficiency: Wage and salary programs should be
designed to beWage and salary programs should be designed to be
managed efficiently, making optimal use of the HRIS,managed
efficiently, making optimal use of the HRIS, although this
objective should be a secondaryalthough this objective should be a
secondary consideration compared with other
objectives.consideration compared with other objectives. Objectives
Of Compensation Management
- 16. Determination of Pay Structure and levelDetermination of
Pay Structure and level The process of establishing pay rates while
ensuringThe process of establishing pay rates while ensuring
external and internal equity takes five stages:external and
internal equity takes five stages: Stage1:Stage1: Conduct a salary
survey of what other employersConduct a salary survey of what other
employers are paying for comparable jobs.are paying for comparable
jobs. Stage 2:Stage 2: Determine the worth of each job through
jobDetermine the worth of each job through job
evaluation.evaluation. Stage 3:Stage 3: Group similar jobs into pay
grades.Group similar jobs into pay grades. Stage4:Stage4: Price
each pay grade by using wage curvesPrice each pay grade by using
wage curves.. Stage 5:Stage 5: Fine-tune pay rates.Fine-tune pay
rates.
- 17. Establishing Pay RatesEstablishing Pay Rates Stage 1:
Conduct the Salary SurveyStage 1: Conduct the Salary Survey::
Salary survey means a survey aimed atSalary survey means a survey
aimed at determining prevailing wage rates. A gooddetermining
prevailing wage rates. A good salary survey provides specific wage
rates forsalary survey provides specific wage rates for specific
jobs. Formal written questionnairespecific jobs. Formal written
questionnaire surveys are the most comprehensive, butsurveys are
the most comprehensive, but telephone surveys and newspaper ads are
alsotelephone surveys and newspaper ads are also source of
information.source of information.
- 18. Stage 2: Determine the worth of each job:Stage 2: Determine
the worth of each job: job evaluationjob evaluation Job evaluation
is aimed at determining a jobs relativeJob evaluation is aimed at
determining a jobs relative worth.worth. It is a formal and
systematic comparison of jobs toIt is a formal and systematic
comparison of jobs to determine the worth of one job relative to
anotherdetermine the worth of one job relative to another
eventually results in a wage or salary hierarchy.eventually results
in a wage or salary hierarchy. The basic procedure is to compare
the content of jobsThe basic procedure is to compare the content of
jobs in relation to one another in terms of their effort,in
relation to one another in terms of their effort, responsibility,
and skills.responsibility, and skills.
- 19. StageStage 3: Group similar jobs into pay3: Group similar
jobs into pay grades:grades: Once a job evaluation method has been
used toOnce a job evaluation method has been used to determine the
relative worth of each job, thedetermine the relative worth of each
job, the committee can turn to the task of assigning paycommittee
can turn to the task of assigning pay rates to each job, but it
will usually want to firstrates to each job, but it will usually
want to first group jobs into pay grades.group jobs into pay
grades.
- 20. If the committee used the ranking, point, or factorIf the
committee used the ranking, point, or factor comparison method, -
it could assign pay ratescomparison method, - it could assign pay
rates to each individual job.to each individual job. But for a
larger employer such a pay plan wouldBut for a larger employer such
a pay plan would be difficult to administer, since there might bebe
difficult to administer, since there might be different pay rates
for hundreds or evendifferent pay rates for hundreds or even
thousands of jobs.thousands of jobs.
- 21. StageStage 4: Price Each Pay Grade Wage Curve4: Price Each
Pay Grade Wage Curve Assigning pay rates to each pay grade (or to
each job) is usuallyAssigning pay rates to each pay grade (or to
each job) is usually accomplished with a wage curve.accomplished
with a wage curve. The wage curve depicts graphically the pay rates
currentlyThe wage curve depicts graphically the pay rates currently
being paid for jobs in each pay grade, relative to the points
orbeing paid for jobs in each pay grade, relative to the points or
rankings assigned to each job or grade by the job
evaluation.rankings assigned to each job or grade by the job
evaluation. Note that pay rates are shown on the vertical axis, and
the payNote that pay rates are shown on the vertical axis, and the
pay grades (in terms of points) are shown along the horizontal
axis.grades (in terms of points) are shown along the horizontal
axis. The purpose of the wage curve is to show the relationshipThe
purpose of the wage curve is to show the relationship between ( I )
the value of the job as determined by one of the jobbetween ( I )
the value of the job as determined by one of the job evaluation
methods and (2) the current average pay rates forevaluation methods
and (2) the current average pay rates for individual
grades.individual grades.
- 22. Stage 5: Fine- Tune Pay Rates:Stage 5: Fine- Tune Pay
Rates: Fine-tuning involves correcting out-of-line rates and
(usually)Fine-tuning involves correcting out-of-line rates and
(usually) developing rate ranges. Here rate ranges is a series of
levelsdeveloping rate ranges. Here rate ranges is a series of
levels within a pay grade, usually based upon years of
service.within a pay grade, usually based upon years of service.
There are several benefits to using rate ranges for each payThere
are several benefits to using rate ranges for each pay grade.grade.
1)The employer can take a more flexible position with respect1)The
employer can take a more flexible position with respect to the
labor market.to the labor market. 2)Rate ranges allow individuals
to provide for performance2)Rate ranges allow individuals to
provide for performance differences between employees within the
same grade ordifferences between employees within the same grade or
between those with different seniorities.between those with
different seniorities.
- 23. Theories of WagesTheories of Wages A sound wage policy
addresses itself to questionsA sound wage policy addresses itself
to questions such as adequacy of wages, fairness andsuch as
adequacy of wages, fairness and equity, hard working conditions and
efforts,equity, hard working conditions and efforts, compensation
against inflation, and additionalcompensation against inflation,
and additional commitment of employeescommitment of employees
- 24. The main theories of wages are:The main theories of wages
are: Subsistence (Survival) theory.Subsistence (Survival) theory.
Wage fund theory.Wage fund theory. Surplus ( value theory.Surplus (
value theory. Residual ( Outstanding) claimant ( applicant)Residual
( Outstanding) claimant ( applicant) theory.theory. Marginal
productivity theory.Marginal productivity theory. Bargaining
theory.Bargaining theory. Behavioral theory.Behavioral theory.
- 25. 1. Subsistence theory1. Subsistence theory David Ricardo
develops it.David Ricardo develops it. It says that workers are
paid to enable then to subsistIt says that workers are paid to
enable then to subsist (exist) and perpetuate ( achieve) the race
without(exist) and perpetuate ( achieve) the race without increase
or diminution ( decrease).increase or diminution ( decrease). Low
wage lead to decrease of labor due to death andLow wage lead to
decrease of labor due to death and malnutrition, while higher wages
increase their numbermalnutrition, while higher wages increase
their number due to better health, long life and more marriage.due
to better health, long life and more marriage.
- 26. 2. Wage fund theory2. Wage fund theory Adam smith developed
it.Adam smith developed it. Wage level is a function of surplus
fund available withWage level is a function of surplus fund
available with the employer.the employer. Higher the fund, higher
the wage. Focus is on employerHigher the fund, higher the wage.
Focus is on employer and his capacity to pay.and his capacity to
pay. 3. Surplus value theory3. Surplus value theory Karl Marx
developedKarl Marx developed itit Here labor is viewed as a
commodity for trade. LaborHere labor is viewed as a commodity for
trade. Labor adds value to the product. The employer did not
payadds value to the product. The employer did not pay the full
amount so collected from the customer andthe full amount so
collected from the customer and instead only a part is paid to them
as wage, retaininginstead only a part is paid to them as wage,
retaining the remaining by the employer.the remaining by the
employer.
- 27. 44. Residual claimant theory. Residual claimant theory
According to this theory four factors add value to theAccording to
this theory four factors add value to the product, which is
manufactured. These are land, labor,product, which is manufactured.
These are land, labor, capital and entrepreneurship.capital and
entrepreneurship. The revenue earned by selling product was
firstThe revenue earned by selling product was first distributed
among the three factors as compensationdistributed among the three
factors as compensation against their contribution. Whatever
remained was paidagainst their contribution. Whatever remained was
paid to labor as wage against their value addition. Thusto labor as
wage against their value addition. Thus labour is considered as a
residual claimant.labour is considered as a residual claimant.
- 28. 5.Marginal productivity theory5.Marginal productivity
theory Here demand and supply of labor in the laborHere demand and
supply of labor in the labor market determine wages. Accordingly
workersmarket determine wages. Accordingly workers are paid what
they are economically worth asare paid what they are economically
worth as assessed by the employer.assessed by the employer.
Marginal concept says that employer continuesMarginal concept says
that employer continues to employ labor as long as value addition
by theto employ labor as long as value addition by the marginal
worker is more than his cost.marginal worker is more than his
cost.
- 29. 6. Bargaining theory6. Bargaining theory Here wages level
is determined by bargaining power ofHere wages level is determined
by bargaining power of employers and their association Vs employees
andemployers and their association Vs employees and their trade
unions.their trade unions. 7. Behavioral theory7. Behavioral theory
Norms, traditions, customs, good will and socialNorms, traditions,
customs, good will and social pressure influence wage
structure.pressure influence wage structure. Wages are best
motivators of workers. Wage mustWages are best motivators of
workers. Wage must satisfy a number of needs as identified by
Maslow andsatisfy a number of needs as identified by Maslow and
others like physiological, security, food and shelter, etcothers
like physiological, security, food and shelter, etc