Chapter 11 Establishing Rewardsand Pay Plans

• Fundamentals of Human Resource Management Tenth Edition

David A. DeCenzoCoastal Carolina UniversityConway, SC

Stephen P. RobbinsSan Diego State UniversitySan Diego, CA

Tenth Edition ContributorSusan L. VerhulstDes Moines Area Community CollegeAnkeny, IA

Group Members

• Abdul Rauf Ali 047 1• Romman Azeem 034 2• Haris Mukhtar 048 3• Danial Amir 043 4• Asim Ali Tahir 017 5• Muhammad Hamza 049 6

Reg no’s Hierarchy

Special Cases of Compensation:

• Organizations cannot • increase wage rates each year.

• Moving to

–pay for performance.

Incentive Compensation Plans:

compensation system

Should be designed around performance.

• individual incentive plans:“Motivation systems based on individual work performance.”

• based on: • Time saved &• output generated( number of units produced in a specified time period)• Employees who produce an hour’s work in fifty minutes obtain a bonus

percentage (say, 50 percent) of the labor saved.

• work best where tasks are independent…

• – VE aspects of Individual incentives:

“individual incentives can create”

reduced interaction and communications between employees.

o dysfunctional competition

o Co-workers can become the enemy.

o Encourage workers to cut corners.

• Merit pay:“An increase in pay, usually determined annually.”

o government civil service reform (government jobs).

o It provides bonuses for workers who perform their jobs effectively.”

o have a sum of money added to their

base salary (cost-of-living raise).”

o popular & almost

universally used.

• – VE aspects of Merit pay:pay increases may become expected every year.

o what if the company has a bad year ?o workers still expect wage increases

o Theoretically, they

Should give some of

o their salary back!(Not Practical.)

• group incentive:

“Motivational plan provided to

a Group of employees based on their Collective work.”

• organization-wide incentive:

A motivation system that rewards allbased on how well the entire group performed.• Lincoln Electric

Advantages Disadvantages

Can be costly to install and administer.

De-emphasizes individual performance,

which can result in excessive peer pressure.(attitudes, values, or behaviors )

Requires open communication with employees on costs, profitability, etc.

Focuses the group on specific performance targets.

Since rewards are controllable by individuals, the programs can be very motivational.

The program can be integrated with other corporate initiatives and leads to improved communication and employee relations.

Group Incentives

• Scanlon Plan:

“Focus on cooperation between management and employees Through sharing problems, goals, and ideas.”

o An best-known organization-wide incentive program.

“has a committee composed of supervisorand employee representatives.”

o Suggestions for labor-saving Improvements are funneled.

o 80 percent prove practical & adopted.

o Gains are shared by all employs.

• IMPROSHARE (“Improved productivity through sharing”):

“A standard is developed that identifies the expected number of hours to produce something, & any savings between this standard and actual

production are shared between the company and the workers.”

Use a Mathematical formula

o Form of gain sharing

o focuses on sharing physical productivity & gains with employees!

• Romman Azeem 034

• pay-for-performance:

Programs Rewarding employees based on their job performance. pay-for-performance Programs Rewarding employees based on their job performance.

based on a performance measure.

instead of paying an employee for time on the job pay is adjusted to reflect performance measures.

most compatible with demonstrating to employees a strong relationship between their performance and the rewards

• gaining in popularity in organizations• Survey of 1,000 companies found that almost 80 percent were practicing some

form of pay for-performance.

• Skyline Construction in San Francisco

• offered employees the chance to take lower salaries in exchange for potentially higher bonuses based on performance.

• Company president, David Hayes, was astonished when 75 percent of the

employees requested the lowest salary • combination with the highest percentage bonus.

• After two years, their sales had nearly doubled from

$36 million to $71 million

• competency-based compensation:• (extension of the pay-for-performance)

“Organizational pay system that rewards skills, knowledge, and behaviors.”

used in: diverse as healthcare and energy production…

competencies may include: such as behaviors and skills as

leadership, problem solving, decision making, or strategic planning.

• Pay levels reflect the degree of competency.

• pay scheme based on employees' specific competencies…

• broad-banding:

“Paying employees at present levels based on their level of competency.”

more than ten bands and several salary ranges

• ten-band compensation program for state employees in South Carolina

• Broad-banding also can help develop wage structures on factors other than skills

Not only will HRM ensure that it has the right people at the right place, but it will have assembled a competent team of employees who add

significant value to the organization.

Haris Mukhtar 48

Team-Based CompensationETHICAL ISSUES IN HRM(U.S Executives

Overpaid)

Team based pay is a type of performance based pay used in some organizations.Team-based compensation Pay based on how well the team performedBonus is tied to the success of team goalsAll team members typically receiving the same or similar incentive payRewards are equally divided

Team-based compensation

Advantages and Disadvantages

• In team compensation, employees may perform better in hopes of not letting down

• Team-based incentive pay encourages employees to work together to achieve a common goals

• Some members who may put more effort and time into a project

ETHICAL ISSUES IN HRM

Executives OverpaidA Wage Imbalance Between the CEO and

Workers Sends a Bad Message

U.S. Executives Overpaid

• American company executives are some of the highest-paid in the world.

• U.S. CEOs make more than 500 times as much as the average employee.

• average salary in excess of $120 million• What’s your opinion?

• Q) Justifiable? • If jobs are evaluated on the basis of skills,

knowledge, abilities, and responsibilities, executives should be highly paid.

Danial Amir 43

Supplemental Non-Financial Compensation

Contents Of Discussion:

• Non-Financial compensations• Examples• Benefits of Non-Financial

Compensations

What is non-financial Compensation

These are the compensations which involves rewards other than pay and salary.

May include non-financial reward i.e.: Med. Insurance, motivation etc.

Furthermore non-financial rewardsMay be Non-financial rewards can be very cost-effective for companies.

EXAMPLESOf

Non-FinancialCompensations

• Medical and Health InsuranceHealth care facilities can be given to employee so that they become loyal and perform well

• Praise for good workTo encourage employee for work well done

• Skill Development & AutonomyTo provide promotional development opportunities and trainings to improve performance.

• Recognition and MotivationNon-financial rewards may take the form of recognition i.e. appreciations, souvenirs and motivations like “employee of the month” etc.

Benefits of Non-Financial Compesations

1. Cost Effectiveness2. Vital Role in employee’s morale

building3. Better employee engagement…

Asim Ali Tahir 17

Team-Based Compensation

AdvantagesDisadvantages

Executive Compensation Programs

• high salaries and bonuses.

• AIG• Freddie and Fannie Mac• Merrill Lynch• Citigroup

Start 1965 End 1965 1995 2005 End 20050

1000

2000

3000

4000

5000

6000

7000

8000

9000

Avg. Worker PayExective Pay

Salaries of Top Managers

• Private sector Vs public sector.• Mid-level executives regularly earn base

salaries of $150,000 to $225,000• the CEO of US corporation compensation is $3

million and total compensation of corporation is $13 million

Are U.S. Executives Overpaid?

• If yes, then Why?• Are the companies wasting money, or the

owner(board of directors) are mad?

Supplemental Financial Compensation

• Instalments

Supplemental Nonfinancial Compensation: Perquisites

• Popular perks include the• payment of life insurance premiums• club memberships• company automobiles• supplemental disability insurance• supplemental retirement accounts

• Presented By:• Muhammad

Hamza • Fa13-BSSE-049

INTERNATIONAL COMPENSATION

Overview:• Introduction to international compensation • Meaning and Definition of international

compensation• Forms of international compensation• Compensation in Global environment• Balance sheet

Approach

Meaning and Definition of International Compensation

• According to R. Wayne Mondy “ compensation Is the total of all rewards provided to employees in return to their services. The overall purposes of providing compensation are to attract, retain, and motivate employees”.

Direct compensation:

Direct

Bonus

Allowances

Incentives

Basic Salary Indirect

Hospitalisation

Insurance

Leave Travel

RetirementBenefits

Holiday Homes

Leave Policy

In Direct compensation:

Compensation in a Global Environment

• Although similarities do exist, there are major differences between compensation practices in developed countries. Below is a comparison of minimum wage rates for the United States and several other countries.

• Minimum Wage Rate as Country Annual Salary• Germany : No minimum wage• Sweden : No minimum wage• Singapore : No minimum wage • Vietnam : $1,255• Russia : $1,747• El Salvador : $1,752 but varies by industry• Japan $10,692 but varies by state

Balance sheet Approach

• Base PayA base pay is an employee's initial rate of compensation, excluding extra lump sum compensation or increases in the rate of pay. An employee's base pay can be expressed as a base hourly rate of pay or

as an annual salary.• DifferentialsThe cost of living fluctuates around the world, Differentials offset the higher costs of overseas goods, services, and housing.

• IncentivesA monetary gift provided to an employee based on performance, which is thought of as one way to entice the employee to continue delivering positive results. Incentive pay may come in the form of a bonus, profit-sharing, or commission.

• Assistant ProgramsSome assistance programs commonly offered by multinational corporations include household goods shipping and storage; major appliances; legal clearance for pets and their shipment; home sale/rental protection; automobile protection; temporary living expenses; travel

Any Question?