“A return in exchange between an employer and employees, as an entitlement for being an employee of the company or as a reward for a job well done”

A Compensation Program must be tailor made to meet the needs of the organization and its employees.

Globalisation Employees are being exposed to the latest

trends in global practices in compensation Compensation structures are becoming

flatter and simple With global downturn there has been a

pressure on increasing productivity. In India there is a move towards total

rewards structure Stock options – The sheen and the tarnish

Attract capable employees Reward employees for past

performance Retain present employees and

reduce unnecessary turnover

Maintain equity - both internal and external

Maintain budgets Comply with legal regulations Maintain competitiveness in the

labour markets

Motivate employees' future performance 

Market

Forces

Work

Value

Organisation

Policy

Individual

Performance

• Labour supply & demand

• Different industries

Market Forces

• What do we want to pay

• What can we afford to pay

• Ratio of labour costs to total costs

• Do we provide remuneration by way of benefits

• Will we have an incentive/bonus scheme

• Collective bargaining agreement

Organisation Policy

• Knowledge and experience

• Task complexity

• Responsibility

• Interpersonal skills

• Other ability and skill levels

Work Value

• Bargaining power

• Actual achievements of the individual

Individual Performance/Merit

Labour Market

Cost of living

Labour Unions

Government legislation

Society

Economy

Business Strategy

Job Evaluation

Performance Appraisal

Employee

FACTORS INFLUENCING EMPLOYEE REMUNERATION

Minimum Wages Act, 1948 Payment of Wages Act, 1936 Adjudication of Wage Disputes Wage boards Pay Commissions Payment of Bonus Act, 1965

WAGE is the remuneration paid for the service of labour in production, periodically to an employee or worker. Wages normally refer to hourly rate paid to such groups as productivity and maintenance employees

SALARY usually refers to the weekly or monthly rates paid to clerical, administrative employees

TOTAL COMPENSATION --- Is the package of quantifiable rewards an employee receives for his / her labour or contribution BASE PAY The fixed pay the employee receives on a regular basis

PAY INCENTIVES Rewards the employee receives for good performance

BENEFITS / INDIRECT COMPENSATION Perquisites

Total Compensation

IncentivesIndirectCompensation/Benefits

BaseCompensation

© 2007 Thomson/South-Western. All rights reserved.9–15

TOTAL COMPENSATIONTOTAL COMPENSATIONTOTAL COMPENSATIONTOTAL COMPENSATION

DirectDirectDirectDirect IndirectIndirectIndirectIndirect

BonusesBonusesBonusesBonuses

GainsharingGainsharingGainsharingGainsharingSecurity Plans• Pensions

Security Plans• Pensions

Employee Services• Educational assistance• Recreational programs

Employee Services• Educational assistance• Recreational programs

CommissionsCommissionsCommissionsCommissions

Wages / SalariesWages / SalariesWages / SalariesWages / Salaries

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

© 2007 Thomson/South-Western. All rights reserved.9–16

NON FINANCIAL BENEFITSNON FINANCIAL BENEFITSNON FINANCIAL BENEFITSNON FINANCIAL BENEFITS

JOBJOBJOBJOB ENVIRONMENTENVIRONMENTENVIRONMENTENVIRONMENT

ResponsibilityResponsibilityResponsibilityResponsibility

RecognitionRecognitionRecognitionRecognition Congenial work Environment & Fair Treatment

Congenial work Environment & Fair Treatment

Safety and HealthSafety and Health

Challenging workChallenging workChallenging workChallenging work

Interesting workInteresting workInteresting workInteresting work

Competent SupervisionCompetent SupervisionCompetent SupervisionCompetent Supervision

Good Policies and Good Policies and PracticesPractices•

Good Policies and Good Policies and PracticesPractices•

Career ProspectsCareer ProspectsCareer ProspectsCareer Prospects

Job Analysis

Write job descriptions

Determine job specification

Rate worth of all jobs. Done by either :

Non Quantative methods - Ranking

- Classification Quantitative methods - Factor comparison

- Point rating

Check for both external as well as internal equity through market surveys

Establish final pay policy and rules of administration

Determine wage / salary structure

Fix individual pay levels

Comparison of jobs by use of systematic procedures to determine relative worth.

Creating internal equity

Jobs evaluated grouped into classes, familiar or grades

Within grades,jobs arranged in order of importance.

…Salary surveys organisation’s salaries to those offered in other organisations compare an.

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?

Group similar jobs into Pay Grades or Job ClassesJobs of equal difficulty.

Establish the Wage CurveWage Curve shows relationship between value of job and average wage paid for the job.

…is valuable in providing information that makes comparison of jobs possible. It is a process of analyzing and assessing the various jobs systematically to ascertain their relative worth in an organization.

Objectives of Job Evaluation

Job Analysis

Employee Classification

Wage Survey

Job-evaluation Programme

Job SpecificationJob Description

Job – Evaluation Process

QUANTITATIVE NON- QUANTITATIVE

Point Ranking Method

Factor ComparisonMethod

Ranking Method

Job Grading Method

METHODS OF JOB EVALUATION

Obtain job information Select raters and jobs Rank jobs Combine ratings

Try not to rely on guesstimates

Best for small organizations

The evaluators rank the jobs from

‘most valuable’ to ‘least valuable’

Rank Job1 General manager2 Marketing manager3 Production manager4 Accounting manager5 Plant engineer6 Accountant7 Sales representative8 Plant supervisor9 Receptionist

Based on a job as a whole

Job classes or grades are pre established and jobs fitted in based on their relative worth

Decide how many classes the job structure should be broken into

Write definitions of each class

Compare jobs with definitions and place into the appropriate class

CL. DESCRIPTION

I Simple work, no supervisory responsibility, no public contact

II Simple work, no supervisory responsibility, public contact

III Work of medium complexity, no supervisory responsibility, public contact

IV Work of medium complexity, supervisory responsibility, public contact

V Complex work, supervisory responsibility, public contact

System starts with the selection of job factors, construction of degrees for each factor and assignment of points to each degree

Different factors are selected for different jobs with accompanying differences in degrees and points.

The job is placed in a particular grade, depending on the number of points it scores

A number of factors common to all jobs are selected

Relative weights are assigned to each factor

Each factor is broken down into degrees, defined and a point value assigned to each

Point scores for jobs can then be calculated

FACTOR Education

Experience

Job complexity

Relation with others

Working Condition

WEIGHT 50% 25% 12% 8% 5%

1st 50 25 12 8 5

2nd 100 50 24 16 10

3rd 150 75 36 24 15

4th 200 100 48 32 20

5th 250 125 60 40 25

Experience:

 

 

 4th 1 yr. - 3 yrs. 100

 

1st upto 3 mths. 25

2nd 3 mths - 6 mths 50

3rd 6 mths - 1 yr. 75

5th 3 yrs & more 125

o Factors for comparison are first selected (usually 5 : mental requirement,physical exertion, skill requirement, responsibility and job conditions)

o Each factor is ranked individually with other jobs

o Total points are then assigned to each factor

o The relative worth of a job is then obtained by adding together all the point values

…are the monetary benefits paid to employees in recognition of their outstanding performance. They are defined as “variable rewards granted according to variations in the achievements of specific results”.

 

INDIVIDUAL GROUP ENTERPRISE Piecework

Standard Hour Plan

Bonuses

Lump sum merit pay

Sales incentives

Team compensation

Gainsharing

Scanlon Plan

Improshare

Profit Sharing

Employee stock ownership Plans (ESOP)

Piece Rate - Straight Piecerate – Employee receives a

certain rate for each unit produced

Differential Piecerate- Employee whose production exceeds the standard amount of output receives a higher rate for all of their work than the rate paid to those who do not exceed the standard amount

Standard Hour Plan - Sets rates based on the completing of a

job in a predetermined standard time. Bonus – Payment that is supplemented to

the base wage Lump Sum Merit Pay –Employee receives a year end merit

payment which is not added to the base pay

Sales Incentive Plan –Can be straight commission or combined

salary and commission

Scanlon Plan – Bonus incentive plan using employee and management committees to gain cost reduction improvements. Financial incentives are provided based on an established formula.

Improshare – Gainsharing program where bonuses are based on the overall productivity of the work team

EMPLOYEE BENEFITS

Employee benefits and services include any benefits that the employee receives in addition to direct remuneration

It is the benefits and services that employees received as a part of their total compensation package, pay or direct compensation, is based on critical job factors and performance. Benefits and services, however, are indirect compensation because they are usually extended as a condition of employment and are not directly related to performance.

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.

EMPLOYEE WELFARE……is the services, facilities and amenities a may be established in or in the vicinity of an undertaking to enable the persons employed in them to perform their work in a healthy , congenial surroundings and to provide them with amenities conducive to good health and high morale.

Inside the work place Outside the work place

Conditions of the work environment Conveniences Worker’s health services Women and Child welfare Workers reunion Employment follow up Economic service Labour management participation

Housing Water, sanitation, waste disposal Roads, lighting, parks, recreation, parks, etc Schools Markets, co-operative Bank Transport Communications Health and Medical services Indoor Recreation Security Community leadership development

Loans

Education of Children

Fair price shops

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