Compensation And Reward Management

COMPENSATION AND REWARD MANAGEMENT

Remuneration & Rewards Financial

DIRECT (cash) •Salaries •Incentives •Bonuses

•

INDIRECT (benefits) •Insurance •Holidays •Medical and health •Child care •Employee assistance

Non-Financial

JOB •Interesting work •Challenge •Responsibilit y •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 Base Compensation

Pay Incentives

Indirect Compensation/ Benefits

Factors Influencing Pay Market Forces

Organisation Policy

Work

Individual

Value

Performance

Three 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

Issues Issues Involved Involved in in Setting Setting Compensation Compensation Structures Structures

Wage and Salary Surveys Pay Grades

Rate Ranges

Step 1 Job Evaluation The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization. 

Establishing a Salary Structure • 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?

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 

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 Customer Service Rep. Executive Secretary/Admin. Asst. Senior Secretary Secretary Senior General Clerk Credit and Collection Accounting Clerk General Clerk Legal Secretary/Assistant Senior Word Processing Operator

Pt. 300 298 290 230 225 220 175 170 165 160

Grd. 5 4 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.

Wage Curve Curve Wage 8 7

monthly 6 salary 5 (Rs.000)

PAY

4

Line of Best Fit : using Market-Survey data or current organization data

3 2 1

JE Points Jobs

Grades

40

80 AB 1

160 200 240 280 320 120 CDEF GHIJ KLM 0P QRS TUV 2

3

4

5

6

7

Establishing a Salary Structure: Step 5 • Formulate a Rate Structure Single Rate Structure vs Rate Range GR JOBS SALARY (Rs.) Single Rate I AB 5000 Structure II CDEF 7000 III GHIJ 9000 

GR

JOBS

SALARY (Rs.)

Overlapping

I

AB

3000–250–4500–500-9000

Rate Range

II

CDEF

6000–400–8400–750-14400

III

GHIJ

10000–600–13600–900-20800

Rates (Rs. 000)

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

Pay Structure Wage Curve (or line) Maximum Rate

Minimum Rate

I

II 0

III

IV

V

50 100 150 200 250 300

VI

Rates (Rs. 000)

Red & Green Circle Jobs 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

I

II 0

III

IV

V

50 100 150 200 250 300

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

Broadbanding 39.50

Rates (Rs. 000)

37.00 34.50 32.00

Wage Curve (or line)

Maximum Rate Previous Maximum Rate

29.50 27.00 24.50

Minimum Rate

22.00 22.00

Previous Minimum Rate

19.50 17.00 14.50 12.00 0

I

II 50 100

III 150

IV 200

V 250

VI 300

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 IndividualBased 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 TeamBased 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 teambased 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

•