COMPENSATION SYSTEM

COMPENSATION SYSTEM

The policies and procedures for managing all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

FACTORS INFLUENCING PAYORGANIZATIONAL PAYMARKEY FOCUSWORK VALUEINDIVIDUAL PERFORMANCE / MERIT

Remuneration & Rewards FinancialNon-FinancialDIRECT(cash)WagesSalariesCommissionsBonuses

INDIRECT(benefits)InsuranceHolidaysMedical and healthChild careEmployee assistanceFlexible work scheduleJOBInteresting workChallengeResponsibilityRecognitionAdvancement

ENVIRONMENTGood policies and practicesCompetent supervisionCongenial coworkers Safe and healthy work environmentFair treatmentComponents of Employee Remuneration

Types of Incentive PlansOrganisation-wide incentive plansprofit-sharingemployee share ownershipgain sharingat-risk pay plansEstablishing Pay RatesStep 1. Salary SurveysSalary surveys compare an organisations salaries to those offered in other organisations.Does the organisation want to compare itself with:Organisations in the same or related industries?Organisations in the same geographic area?Best practice companies?Domestic companies?Multinationals?Step 2Determine worth of each jobJob analysis: Accurately identifies job duties and the employee characteristics needed to perform the job.Job evaluation: Comparison of jobs by use of systematic procedures to determine relative worth.Creating internal equityJobs evaluated, grouped into classes, families or gradesWithin grades, jobs arranged in order of importance Step 3Group similar jobs into pay gradesjobs of equal difficulty

Step 4Price each pay grade - Wage curvesassign pay rates to each pay gradewage curve shows relationship between value of job and average wage paid for the jobCharacteristics of Changing Compensation SystemsTraditionalModernPay = 100% base salaryVariable component addedEntitlement-base increasesPerformance-driven gainsFew incentives/bonus plans, restricted to executives

Many kinds of plans, extended throughout the organization.