Human Resource Human Resource ManagementManagement

Lecture-28

Job PricingJob Pricing

Developing a Base Pay System

Job AnalysisJob Analysis

Job EvaluationJob Evaluation Pay SurveysPay Surveys

Pay StructurePay StructurePay Pay

PoliciePoliciess

Individual PayIndividual Pay

Implementation, Communication, Monitoring

Performance Appraisal

Compensation system

Pay is a statement of an employee’s worth by an employer.

Pay is a perception of worth by an employee.

HR Management Strategy Model

Attract

Retain Engage

Select

Develop

RewardsHR

StrategyDesired Results

Employee Compensation

Employee compensation refers to all forms of pay or rewards going to employees and arising from their employment.

It consists of 2 partsDirect financial payments Indirect financial payments

Direct or Indirect compensation is given based on

Increments of timeHourlySalaried

PerformancePieceworkCommission

Piecework - Pay is tied directly to what the worker produces

Wages versus Salaries

Wages– generally refer to hourly

compensation paid to operating employees; the basis for wages is time.

Salary– is income that is paid an

individual not on the basis of time, but on the basis of performance.

Total Compensation

Compensationof

Employees

ExtrinsicRewards

Hourly WagesSalary

Monetary BonusesRewards Commissions

Pay Incentives

InsuranceRetirementPaid Vacations

Benefits Food ServicesCredit UnionRecreation

RecognitionIntrinsic Promotion OpportunitiesRewards Working Conditions

Interesting Work

Consequences of Pay Dissatisfaction

Desire formore Pay

Pay Dissatisfaction

Performance

Strikes

Grievances

Search for job

LowerAttractiveness

of job

Absenteeism

Turnover

Job Dissatisfaction

Absenteeism

PsychologicalWithdrawal

DispensaryVisits

Poor MentalHealth

Compensation System

A total reward system includes both monetary and nonmonetary compensation.

Phases of Compensation Management

Phase:-1. Evaluate every job to ensure internal equity based on each job’s relative worth.

Phase:-2. Conduct wage and salary surveys to find the rates paid in the labour market.

Phase:-3. Price each job to determine the rate of pay based.

Objectives of Effective Compensation Management

The “Big Three”Attract qualified employment

applicantsRetain qualified employees,

while discouraging retention of low performing

Motivate employee behavior toward organization objectives

Ensure Equity Reward Desired Behavior Control Costs Comply With Legal Regulations Facilitate Understanding

Achieve external competitivenessSupport organization priorities

Strategy and goalsCulture and values

Easy to administer

Steps for Establishing Pay Rates

Conduct a salary survey of what other employers are paying for comparable jobs

Employee committee determines the worth of each job in your organization through job evaluation

Group similar jobs into pay grades

Price each pay grade by using wage curves

Fine-tune pay rates

Pay Grade Structure for Job-Based System

Rs 10,000

Rs 30,000

Rs 50,000

Corporate Policy LineCorporate Policy Line

MidpointMidpoint

250 350 450 550 650 Job Evaluation Points

MaximumsMaximums

Pay Grade WidthPay Grade Width

Mo

nth

ly P

ay

What Determines How Much You Pay?

Prevailing WagesAbility to PayCost of LivingProductivityBargaining PowerJob RequirementsGovernment Laws

Equity factors

Equity Perceptions

Inputs

Outcomes

Inputs

Outcomes

Equity Theory Description

–Pay should be based upon contributions made by the Employees. Higher effort should be rewarded with higher pay.

Application to Compensation

–Pay should be tied to the performance level of individual Employee

Equity Theory Predictions

OutputsInputs < Outputs

Inputs

OutputsInputs =Outputs

Inputs

OutputsInputs > Outputs

Inputs

Under-reward

Equity

Over-reward

Person BPerson A

Balancing Internal and External Equity

Internal External

Pay EquityPay Equity

PayDifferentials

•Market

PayCompression

Pay above Market Rate

AdvantagesAdvantagesAttracts better employeesAttracts better employeesMinimizes voluntary turnoverMinimizes voluntary turnoverFosters strong culture and competitive Fosters strong culture and competitive superiority superiority

DisadvantagesDisadvantagesAdditional compensation costsAdditional compensation costsSense of entitlementSense of entitlement

Pay at MarketRate

AdvantagesAdvantages Higher quality of human resources at Higher quality of human resources at

midrange of market-driven compensation midrange of market-driven compensation costscosts

DisadvantagesDisadvantages Does not attract higher performersDoes not attract higher performers Turnover will vary with labor demands of Turnover will vary with labor demands of

competing firmscompeting firms

Pay below Market Rate

AdvantagesAdvantages Lower compensation costsLower compensation costs Useful in labor markets where Useful in labor markets where

unemployment is highunemployment is high

DisadvantagesDisadvantages Lower-quality employeesLower-quality employees Low morale/job satisfactionLow morale/job satisfaction Higher turnover; especially Higher turnover; especially

among high performersamong high performers

Conditions Necessary for Perceptions of Pay Fairness

Internal consistencyExternal competitivenessEmployee contributions

Line Managers and Compensation

Evaluate the worth of jobs.Negotiate starting salaries.Recommend pay raises and

promotions.Notify HRM department of job

changes.

The HRM Department and Compensation

Establish rates of pay.Oversee job evaluation

process.Conduct salary surveys.

Establish procedures for administering pay plans.

Ensure compliance with antidiscrimination laws.

Communicate benefits information .