Compensation and Reward Management
40
Transcript of Compensation and Reward Management
COMPENSATION AND REWARD MANAGEMENT
Remuneration & Rewards
Financial Non-Financial
DIRECT(cash)
• Salaries• Incentives• Bonuses
INDIRECT(benefits)• Insurance• Holidays• Medical and health• Child care• Employee assistance
JOB• Interesting work• Challenge• Responsibility• Recognition• Advancement
ENVIRONMENT• Good policies and practices• Competent supervision• Congenial co-workers • Safe and healthy work environment• Fair treatment
Components of Employee Remuneration
The Elements of Total Compensation
Total Compensation
PayIncentives
IndirectCompensation/
Benefits
BaseCompensation
Factors Influencing Pay
Market Forces
WorkValue
OrganisationPolicy
IndividualPerformance
Three Pay PoliciesThree Pay Policies
Pay Policy Attract Retain Motivate Control Costs
Lead + + ? ?
Match = = ? =
Lag - ? ? +
Govt. regulation of Compensation in India
• Minimum Wages Act, 1948• Payment of Wages Act, 1936• Adjudication of Wage Disputes• Wage boards• Pay Commissions• Payment of Bonus Act, 1965
The Compensation Structure
Job Evaluation
Rate Ranges
Pay Grades
Issues Involved in
Setting Compensation
Structures
Issues Involved in
Setting Compensation
Structures
Wage and Salary Surveys
Step 1 Job EvaluationThe systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
• Step 2. Salary Surveys– Salary surveys compare an organisation’s
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?
Establishing a Salary Structure
Step 3• Group jobs into Pay Grades or Job
Classes• Groups of jobs within a particular
class that are paid the same rate or rate range– jobs of equal difficulty
Establishing a Salary Structure
TECHNIQUES OF JOB EVALUATION
NON-QUANTITATIVE • Ranking • Job Classification Or Job Grading QUANTITATIVE • Point Rating Method• Factor Comparison • Decision Band
Hierarchy of Clerical Jobs, JE Points and Pay Grades for a Hypothetical Office
JOB Pt. Grd.
Customer Service Rep.Executive Secretary/Admin. Asst.Senior Secretary
300298290
5
SecretarySenior General ClerkCredit and Collection
230225220
4
Accounting ClerkGeneral ClerkLegal Secretary/AssistantSenior Word Processing Operator
175170165160
3
Establishing a Salary Structure
Step 4. Price Each Pay Grade— Wage Curve – Shows the pay rates currently paid for
jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.
PAY
JE Points
Wage CurveWage Curve
80 120
monthlysalary
(Rs.000)
8
7
6
5
4
3
2
1
40
Line of Best Fit :using Market-Survey data or current organization data
Jobs AB CDEF GHIJ KLM 0P QRS TUV
Grades 1 2 3 4 5 6 7
160 200 240 280 320
Establishing a Salary Structure: Step 5
• Formulate a Rate Structure Single Rate Structure vs Rate Range
GR JOBS SALARY (Rs.)I AB 5000
II CDEF 7000III GHIJ 9000
Single Rate Structure
GR JOBS SALARY (Rs.)
I AB 3000–250–4500–500-9000
II CDEF 6000–400–8400–750-14400
III GHIJ 10000–600–13600–900-20800
Overlapping Rate Range
Pay Structure39.50
37.00
34.50
32.00
29.50
27.00
24.50
22.00
22.00
19.50
17.00
14.50
12.00
9.50
Ra
tes
(Rs
. 00
0)
0 50 100 150 200 250 300
Maximum Rate
Wage Curve (or line)
Minimum Rate
I II III IV V VI
Red & Green Circle Jobs
0 50 100 150 200 250 300
39.50
37.00
34.50
32.00
29.50
27.00
24.50
22.00
22.00
19.50
17.00
14.50
12.00
9.50
Ra
tes
(Rs
. 00
0)
I II III IV V VI
What Is Competency-based Pay?
• Competency-based pay– Where the company pays for the
employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds.
• Competencies– Demonstrable characteristics of a
person, including knowledge, skills, and behaviors, that enable performance.
Concept of Different Wages
• MINIMUM WAGE• FAIR WAGE• LIVING WAGE (HIGHEST IN VALUE)
BASIC WAGE PLANS
• TIME WAGE PLAN • PIECE WAGE PLAN • SKILL BASED PAY• COMPETENCY BASED PAY• BROADBANDING
Other Compensation Trends• Broadbanding
– Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels.• Wide bands provide for more flexibility in
assigning workers to different job grades.
• Lack of permanence in job responsibilities can be unsettling to new employees.
Broadbanding
39.50
37.00
34.50
32.00
29.50
27.00
24.50
22.00
22.00
19.50
17.00
14.50
12.00
9.50
Rate
s (
Rs.
000
)
0 50 100 150 200 250 300
Previous Maximum Rate
Wage Curve (or line)
Previous Minimum Rate
I II III IV V VI
Minimum Rate
Maximum Rate
VARIABLE PAY
Tying pay to some measure of individual, group, or organizational performance.
Types of Incentive Plans
INDIVIDUAL GROUP ENTERPRISE
Piecework Team Plan Profit sharing
Standard hour Gainsharing Stock options
Bonuses
Merit pay
Sales incentives
FEW SHORT TERM PLANS
• HALSEY PLAN Plan % * Time Saved * Hourly Rate • ROWAN PLAN • (Time Saved * Time Taken * Hourly
Rate)/ Standard time • BARTH SYSTEM OF WAGES SQ ROOT( Std time* time
taken*hourly rate)
Conditions Under Which Individual-Based Plans Are Most Likely to
Succeed• When the contributions of
individual employees can be accurately isolated.
• When the job demands autonomy.• When cooperation is less critical to
successful performance or when competition is to be encouraged.
Conditions Under Which Team-Based Plans Are Most Likely to
Succeed• When work tasks are so intertwined that
it is difficult to single out who did what.• When the firm’s structure and systems
facilitate the implementation of team-based incentives.
• When the objective is to foster entrepreneurship in self-managed work groups.
Conditions Favoring Gainsharing Plans
• Gainsharing is most appropriate in situations where the demand for the firm’s product or service is relatively stable.
• If a firm has multiple plants with varying levels of efficiency, the plan must take this variance into account so that efficient plants are not penalized and inefficient plants rewarded.
• Less likely to work well when technology limits improvements in efficiency.
Conditions Favoring Profit sharing Plans
• Most attractive to firms facing highly cyclical ups and downs in the demand for their product.
• When used in conjunction with other incentives, corporatewide programs can promote greater commitment to the organization by creating common goals and a sense of partnership among managers and workers.
Pay for Performance: The Challenges
• The “Do Only What You Get Paid For” Syndrome
• Negative Effects on the Spirit of Cooperation
• Difficulties in Measuring Performance
• The Credibility Gap• Job Dissatisfaction and Stress• Potential Reduction of Intrinsic
Drives
Meeting the Challenges of Pay for Performance Systems
• Link Pay and Performance Appropriately
• Use Pay for Performance as Part of a Broader HRM System
• Build Employee Trust• Use Multiple Layers of Rewards• Increase Employee Involvement• Use Motivation and Nonfinancial
Incentives
FRINGE BENEFITS
FEATURES OF FRINGE BENEFITS
• An employee enjoys them in addition to the salary he/she receives.
• They are not given for specific jobs performed but to make jobs more attractive.
• They are not linked to productivity so do not reward performance in any way, criteria used is other than performance.
• They have an indirect impact on workers’ efficiency. If impact is direct, it is not a fringe benefit.
Types of Fringe Benefits• Pay for time not worked• Employee security• Safety and health• Welfare and recreation• Old age and retirement
Flexible Benefits Plans (Cafeteria Plans) & Golden
Parachute Benefit plans that enable individual
employees to choose the benefits that are best suited to their
particular needs
Flexible Benefit (Cafeteria) Plans
• Advantages–more appreciation of benefits
offered–better match between benefits
and employee preference• Disadvantages
– increased design and administrative costs
