Compensation and Reward Management

COMPENSATION AND REWARD MANAGEMENT

Remuneration & Rewards

Financial Non-Financial

DIRECT(cash)

• Salaries• Incentives• Bonuses

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

JOB• Interesting work• Challenge• Responsibility• 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

PayIncentives

IndirectCompensation/

Benefits

BaseCompensation

Factors Influencing Pay

Market Forces

WorkValue

OrganisationPolicy

IndividualPerformance

Three Pay PoliciesThree 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

Rate Ranges

Pay Grades

Issues Involved in

Setting Compensation

Structures

Issues Involved in

Setting Compensation

Structures

Wage and Salary Surveys

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

• 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?– Domestic companies?– Multinationals?

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

Establishing a Salary Structure

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 Pt. Grd.

Customer Service Rep.Executive Secretary/Admin. Asst.Senior Secretary

300298290

5

SecretarySenior General ClerkCredit and Collection

230225220

4

Accounting ClerkGeneral ClerkLegal Secretary/AssistantSenior Word Processing Operator

175170165160

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.

PAY

JE Points

Wage CurveWage Curve

80 120

monthlysalary

(Rs.000)

8

7

6

5

4

3

2

1

40

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

Jobs AB CDEF GHIJ KLM 0P QRS TUV

Grades 1 2 3 4 5 6 7

160 200 240 280 320

Establishing a Salary Structure: Step 5

• Formulate a Rate Structure Single Rate Structure vs Rate Range

GR JOBS SALARY (Rs.)I AB 5000

II CDEF 7000III GHIJ 9000

Single Rate Structure

GR JOBS SALARY (Rs.)

I AB 3000–250–4500–500-9000

II CDEF 6000–400–8400–750-14400

III GHIJ 10000–600–13600–900-20800

Overlapping Rate Range

Pay Structure39.50

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

Ra

tes

(Rs

. 00

0)

0 50 100 150 200 250 300

Maximum Rate

Wage Curve (or line)

Minimum Rate

I II III IV V VI

Red & Green Circle Jobs

0 50 100 150 200 250 300

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

Ra

tes

(Rs

. 00

0)

I II III IV V 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 new employees.

Broadbanding

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

Rate

s (

Rs.

000

)

0 50 100 150 200 250 300

Previous Maximum Rate

Wage Curve (or line)

Previous Minimum Rate

I II III IV V VI

Minimum Rate

Maximum Rate

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 Individual-Based 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 Team-Based 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 team-based 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