Compensation Management Asg Anurag

Q1 Explain the importance of compensation management and detail how organizations handle its complexities? Ans1 compensation refers to all forms of pay and rewards received by employees for the performance in their jobs including all forms of cash, benefits, services, and perks. It is important to recognize and communicate your "total" compensation as "all" the pay you are providing your employees. This should be done so that the value of what you are offering in compensation is clear and that it in turn attracts and retains the people you need. The compensation policy and the reward system of an organization are viewed by the employees as indicators of the management’s attitude and concern for them.traditionally,pay scales in companies reflected the importance of the work and the responsibility level .today, organization try more to assess the worth of an individual in terms of his performance and contribution to the organization. These caselets

discuss the importance of a compensation system that is competitive and attractive for the employees and at the same time, profitable for the organization. Compensation and reward system plays vital role in a business organization. Since, among four Ms, i.e. men, material, machine and money, men has been most important factor, it is impossible to imagine a business process without men. Every factor contributes to the process without men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labor expects wages from the process. Labor plays vital role in bringing about the process of production /business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Compensation is the cornerstone of an effective talent management strategy the ability to enable consistent, reliable and standardized compensation processes that are linked to key performance drivers of individual and organizational strategies

can affect many facets of the business. Some of these facets include: Improved employee morale and retention Increased employee engagement and productivity Strengthened governance and compliance with company and regulatory issues Integrating a talent management vision—maintaining visibility, control and alignment of performance and compensation tied to business outcomes—has become critical to the success or failure of today’s organizations. Additionally, recognition of how well a company performs, and how the workforce contributes to that performance, can translate into an employment brand that will attract the best talent and ensure the company’s reputation as a desirable employer for both active and passive candidates. However, achieving this brand is not easy. Compensation plans must be rational in design; robust in deployment, governance and management; and methodical in communication and rollout. Compensation must also seamlessly integrate all talent management components, especially performance management. The ability to leverage performance and compensation data in a single view can provide some compelling insight into what motivates a high-performance employee. Performance-driven compensation can shape the future of the workforce as well as the business.

1) The system should be simple and flexible so that every employee would be able to compute his own compensation receivable. 2) It should be easy to implement, should not result in exploitation of workers. 3) It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. 4) Such system would help management in complying with the various labor acts.

5) Such system should also solve disputes between the employee union and management. 6) The system should follow the management principle of equal pay. 7) It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel. 8) Sound Compensation/Reward System brings peace in the relationship of employer and employees.

Q2 Outline various approaches in setting fair compensation packages? Ans2 (1) Performance, Position and Person: This textbook model looks at compensation for a certain position and performance of the person appropriate to that role. An element of competitive positioning in the market place is implied in this model, as also paying differentially for the critical “Person”. Arguably a good model which has elements of fairness built-in. 2. Keeping up with the Joaneses model: This is a model which is market driven that looks at percentile positions of its people vice versa competitive. Simply put, my compensation plan is dependent on what my neighbor does! One of the models which has put enormous pressure on the business, as it calls for positioning statements, like as a company we would like to be positioned at the 75th percentile, which means that I would be one of the top paymasters. This model was suitable when the IT

dream-run was at its height. This model is often put to test in a downturn. 3. The value fit model : Looking at what is the right compensation to be paid to a person in a position commensurate with internal equities in the value fit model. This is largely internal focused and in my experience I have found this to be fairly consistent from within. Is fraught with pressure, of people leaving the organization for better compensation. Internal satisfaction of employees on compensation approach is high. 4. “Tune of the time” model : A flavor of the day is closer in description. On its own merit, it seems logical to pay more when you are doing well and to slash salary during bad times. Sometimes seen as whimsical and inconsistent, particularly in a downturn. It has its own relevance and strength when the company size is small/medium. 5. Capacity to pay model : Large manufacturing industries have traditionally looked at capacity to pay model as over riding in the approach to compensation. Metrics like employee cost as percentage of overall cost is sacrosanct. Many structures are inbuilt to prevent run-away compensation.