Establishing Strategic Pay Plans (2)
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Transcript of Establishing Strategic Pay Plans (2)
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Establishing strategic payplans
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Corporate policies andcompetitive strategy
Aligned reward strategy:
1.What are the orgs key comp. Success factors?
2.What are the behaviors or actions necessary to
successfully implement this competitivestrategy?
3.What compensation program should we use toreinforce these behaviors?
4.What requirements should each pay elementmeet to fulfill its purpose?
How well do the current reward programs matchthese requirements?
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Issues:
Will the firm be a leader or followerregarding pay.
To emphasise seniority or performance
Salary compression-raises based onlongevity(plus skills?)/aggressive merit
pay system/equity adjustments Geographical differences leading to cost
of living differentials
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Compensation Policiesshould address..
Ability to pay
Demand and supply
Bargaining power Cost of living
Comparative wages
Job requirement Govt policy
Goodwill of the company
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Establishing pay rates
Salary survey formal or informal
Job Evaluation
Group similar jobs into pay grades
Price each pay grade
Fine tune pay rates
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Job Evaluation Methods
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INTRODUCTION
Job evaluation is the process of analyzing andassessing the various jobs systematically toascertain their relative worth in anorganization. jobs are evaluated on the basisof their content and are placed in the order oftheir performance.
Job evaluation seeks to determine the relativeworth of each job so that salary differential canbe established.
Each job should be paid according to its realvalue.
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Objectives of Job Evaluation
Value of work. External and internal consistency. Fixation of wages.
Provides a basis for recruitment, Selection, Training,Promotion and Transfer of an employee. Helps in removing grievances arising out of wages. It
improves labour- management relationship. The technique of job evaluation can also be used to
determine not only what the job is worth, also the
value of each of the aspects such as the skill andresponsibility levels.
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Principles of Job Evaluation Rating of the job should be done rather
than the rating of man doing the job. The elements selected for rating
purposes should be easily explainable in
terms. Each factor should be definedand properly selected. The job evaluation plan must be
acceptable to employees.
The value or weight age given to thefactors should not be disclosed toforeman or supervisors while discussingwith them job evaluation.
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Principles of Job Evaluation
There should be limited number of occupationalwages i.e. there should be few categories of joband they should be arranged in terms of their
value to the firm. Any discussion of money value with the
employees should be avoided.
Maximum co-operation can be obtained from
employees when they themselves have anopportunity to discuss job rating
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Methods of Job Evaluation
Job Evaluation methods are of 2Categories Non Analytical Analytical
Non Analytical Methods include: Ranking Method Grading or Job Classification system
Analytical Methods include: Point System Factor Comparison method
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Ranking Method
This is the simplest method andinexpensive method of evaluation.
Under this system, all jobs arearranged/ranked in the order of theirimportance from simplest to hardest orin reverse order.
The job is not broken down into
elements or factors. Each job is compared with other and
its place is determined.
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Ranking Method
The evaluation method has 5 steps:i. Preparation of Job Description
ii. Selection of raters Job may be usually ranked by the department or
in clusters (factory workers, clerical workers etc.)
iii. Selection of rates and key jobs Usually a benchmark job are firstly rate then the
other jobs are roughly compared with these jobs
to establish a rough rating.
iv. Ranking of all jobs Each job is then compared in detail with other
similar job to establish its exact rank in the scale.
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Ranking Method
v. Preparation of Job Classificationfrom the rating:
The total ranking is divided in total no.of groups.
All the jobs with in a single groupreceive the same wage or range ofrates.
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Merits of Ranking Method
This system is easy to understand, easy toexplain to the employees.
The organization does not face any difficulty in
installing this method. This method does not involve any expenses. This method is suitable for those organizations
involving lesser no. of jobs to be evaluated. It requires less time and less work unless it is
carried to a detailed point used by company.
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Demerits of RankingMethod
There is no yardstick for measuring the value. It is least used method. It is not useful to large organizations.
Specific job requirements are not analyzedseparately.
A raters judgment is strongly influenced bywage rate.
It only gives us its rank tells us that it is higheror more difficult than another but it does notindicate how much higher or difficult.
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Job Classification Method
Under this system, classification is firstestablished by a committee.
After classification various jobs are
assigned within each grade or class As in the ranking method, the job rating
method does not involve detailed analysis.
It is based on job as a whole.
The difference between the two is that ayardstick exists in the job rating method inform of grades.
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Job Classification Method
Job grades are arranged in the order of theirimportance.
The lowest job may cover jobs requiring greaterphysical work under close supervision but carrying
little responsibility. Common task, responsibility, knowledge, experience
can be identified by the process of job analysis.i. Preparation of job descriptionii. Preparation of grade description
iii. Selection of gradesiv. Grading the key jobsv. Classification of all jobs
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Merits of Job ClassificationMethod
Simplicity and inexpensive
Simple to operate and understand
It requires less time
In organizations, where no. of jobsis small, this method yield
satisfactory results.
The evaluation is more accurate.
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Demerits of Job ClassificationMethod
This system is rather rigid andunsuitable for large organization.
This system requires differentsystem for multiple type of job.
No detailed analysis of a job is done.
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Point Method
Jobs are divided into a number offactors which in turn are further subdivided into grades or degrees.
Each degree is awarded certain pointsand when such points for all thedegree are totaled they indicate theimportance of the job in the
organization A Suitable wage rate proportional to
the total points is determined.
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Point Method
Four major factors common to all point method ofrating: Skill: Education and Training
Experience
Judgment and Initiative Efforts: Physical and Mental Working conditions: High temperature, dust, smoke,
fumes and noise Responsibility: Towards material, equipment,
machinery and tools
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Merits of Point Method
Suitable for large enterprises
More effective
No bias
No resistance
Easily evaluated in terms of moneyas money values are assigned tototal points.
Objective method
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Demerits of Point Method
Expensive
Difficult to develop point for sub-
factors. Clerical work and time consuming
Jobs may be over and under valued.
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Factor Comparison Method
It is a combination of ranking and pointsystem
All jobs are compared to each other to
determine their relative importance byselection of 5 major factors:(a) mental requirement (b) Physical requirement
(c) skill (d) responsibilities (e) working
conditions Some key jobs are selected as standardjobs to compare the other jobs.
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Steps in Evaluating the Job
Various factors are selected anddefined clearly.
Select a few key jobs in the
organization and record their wages. Wages are fixed for different factors of
each key job. A comparison scale is developed Jobs are evaluated factor by factor Finally a wage structure is designed
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Merits of FCM
Flexible Once the scale are developed , they can be
used for a long time .
More accurate The workers acceptance of the system is
favorable because it is more systematicand objective than other job evaluationmethods.
It has the ability of handling a largenumber of jobs and enjoys stability as longas the factors remain relevant.
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Demerits of FCM
Costly to install
Time consuming
Build errors in the plan
It is difficult to fully comprehend themeaning of concepts and terms such
as factors, degrees, and points. Clerical work is more
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Pricing managerial andprofessional jobs
To attract and retain goodemployees
Importance of job evaluation here
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Compensating Managers
Consists of 4 main elements:
Base pay
Short term incentives
Long term incentives
Executive benefits and perks
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Compensating Professionalemployees
Use of job evaluation.
Compensable factors-problem
solving,creativity,job scope andtechnical knowledge
Market pricing approach
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Compensation trends
Skill based pay
Differences between SBP and JBP:
-Competence testing
-Effect of job change
-Seniority
-Advancement opportunities
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The compensation comprises of 5Elements:
Salary Commission
Bonus
Long term incentives Perquisites
Components of Remuneration
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Salary: Salary is the first component of Executive
Compensation Salary is supposed to be determined through Job
Evaluation but Job Evaluation may be a partial solutionbecause Executives must be paid for their Capabilities-For what they can do rather than for Job Demands
Bonus: This type of incentive is generally is based on
performance. Executives deserve bonus because they have much
more opportunity to influence organizational success.
Components of Remuneration
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Commission: Commission is paid to Executives as a percentage on
Profit. Commission is common in private sector
Long Term Incentive: Stock options are long term benefits offered to
Executives. Companies Allow Executives to purchase their share at
fixed price. Executives must use their own resources to exercise
their right to purchase the stock. Same risk as all other shareholders.
Components of Remuneration
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Perquisites: Perks are a major source of income for executives. These take care of all possible needs Executives are rarely required to spend money
from their pocket. Ex. A manager in Kolkata, tried to reimburse
himself for his fathers funeral expenses. A company provided car, holidays, servants,
telephone bills, home entertainment allowance,
Special Dining Privileges, Use of Company CreditCard, No and Low Interest Loan, Reimbursementfor Childrencollege expenses.
Components of Remuneration
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There are 2 more components ofExecutive Compensation:
Pension Retirement & Termination Benefits
Components of Remuneration
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Norms of Wage & Salary Fixation such as Job evaluationand Job description are ignored. What an executivereceives depends on employers ability and executives
bargaining strength. Perks of executive are subject to annual review and hikes;
unlike the remuneration of employees which is reviewedonce in 3 years.
There is a tendency to link salaries to performance. Titan
and many others are reported to link salaries toperformance.
Important consideration in developinga Executive Compensation
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Holidaying abroad is gaining increasingacceptance. In a year a typicalexecutive works 10 months on his her
job. Holiday 1 month abroad with hisfamily and attend training classes inthe remaining one month.
For executive posted abroad, highersalaries are paid during their foreignassignment.
Important consideration in developinga Executive Compensation
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Competition among companies to attractcompetent personnel results into virtualhijacking of managerial personnel.
Secrecy is maintained in respect ofexecutive compensation. What A receives
is not made known to B and what B getsC can not know.
Important consideration in developinga Executive Compensation
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Why they are paid hefty remuneration????
what and how much are the executive paid?????
A Bangalore based software company was the first tointroduce ESOPs in India. Can you find the name ofcompany????can u also ascertain the number ofcompanies in India offering ESOPS???? Try
Check your memory
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There are several reasons whyexecutives are paid more.
They are worth of rupees in terms oftalent and brain power.
They matter much in org.
They are in short supply
Retaining them is difficult
If executives elsewhere are paid more, whynot Indian executives.
So their greed must be satisfied so that they
can adopt honest business practices.
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Rewarding Sales & CustomerService staff
Sales or customer service staff in retailestablishment are often paid spot ratewith a commission on sales.
The approaches to rewarding sales staff
Salary only
Basic salary + Commission
Basic Salary + Bonus Commission only
Sales incentives
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Methods of rewarding salesstaff
Salary only
Basic salary may only be paid to sales staff who work inhighly seasonal industries where sales fluctuate and inbusiness where regular order for food and otherconsumer goods that give little opportunity for creativeselling
If no commission or bonus is offered, it is necessary forcompanies to ensure that the salaries paid to their salesstaff are competitive.
They can include opportunity for promotion, learningnew skills, more stable pay and greater security.
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Methods of rewarding salesstaff
Basic salary + Commission
Salary plus commission plans provide for a proportionof total earning to be paid in commission; the restbeing paid in the form of a fixed salary
The commission is calculated as percentage of thevalue of sales.
the commission rate can increase at higher level ofsales on a rising scale to encourage sales
representative to make even greater efforts
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Methods of rewarding salesstaff
Basic Salary + Bonus Cash Bonus may be paid on top of basic salary. Bonus depends on achievement of target or sales
volume, profit or sales contribution. These may include the sales of high margin or
more profitable product or services in order toencourage staff to concentrate on them ratherthan simply earning to achieve sales with lowmargin product that are easier to sell.
The size of bonus available depends on differentlevel of performance. The Bonus Criteria: Sales revenue is often used
but some companies often use profit.
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Methods of rewarding salesstaff
Commission only
Sales staff who are at the hard end of selling mayreceive only a straight commission based on apercentage of the value of their sale.
No basic salary is paid
Additional Non-Cash Rewards:
Incentives
Competition
Cars as perks
Non-financial motivator
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Methods of rewarding salesstaff
Non-Financial Motivators:
Sales people typically have high level of
achievement, motivation but they stilllike to be recognized and given theopportunity to make even better use oftheir talent in the work. E.g. Sales
representative of the month.
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