Compensation Management fundamentals

8/12/2019 Compensation Management fundamentals

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Compensation Management


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Compensation

It refers to a wide range of financial and non

financial rewards to the employees for the

services rendered to the organisation .

a) Transactional rewards

b) Relational rewards

All forms of financial returns and tangible

services & benefits employees receive as part

of an employment relationship


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Objectives of Wage &Salary

Administration

To attract competent personnel

To retain the present employees

To improve productivity

To improve efficiency

To control Costs


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To ensure fairness

To improve union-management relations

To improve the public image of thecompany

Comply with legal regulations

Objectives of Wage &Salary

Administration


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Essentials of sound wage

and Salary structure

Internal Equity

External Competitiveness

Built in incentive

Link with productivity

Individual worth

Increments


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Wage & Salary Administration

It presents the analytical framework for reward systems the

It presents the analytical framework for reward systems the

company level which includes financial & non

company level which includes financial & non-

-financial

financial rewards , employee benefits, incentives & their link with

rewards , employee benefits, incentives & their link with

productivity. It summarizes the key issues in the wage system

productivity. It summarizes the key issues in the wage system

from the point of view of the key actors in the industrial

from the point of view of the key actors in the industrial

relations system

relations system workers, unions, managements & the

workers, unions, managements & the

government.

government


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Theory of Equalizing Differences

This theory states that wage differentials occur

as the result of intrinsic properties of specific

occupations that require wage compensation

for negative job traits or are compensated for

with non-pecuniary positive traits.


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Human Capital Theory

It seeks to explain wage differentials as a

consequence of differing human capital stocks

that determine an individuals marginal

productivity.

Human Capital Theory explains wage

differentials as a byproduct of productivity

differentials


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Human capital

Human Capital is the stock of knowledge,

skills, aptitudes, education, and training that an

individual or a group of individuals possess

It is all those skills that are acquired through

education, but also talents, I.Q. ,practical

experience, etc.


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Types of Human Capital

1. General human capital

transferable to every other job and thus

improves overall productivity and thus wage

2. firm-specific human capital

not transferable to any other firm and therefore

does not improve productivity and thus wagesanywhere else


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Human Capital Theory

Individuals who invest money and time gain

skills that improves their human capital andultimately their productivity.


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Internal Labor Markets

ILM focuses on the long-term relationships ofemployers and employees and the gains to be made

by both parties by continuing to operate with oneanother

ILM theory argues that firms benefit frommaintaining good relationships with their employeesand visa versa

Reduction of costs

Employees benefit from improved employmentstability and the chance for increased wages andpromotions.


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Devaluation Theory

Wage differentials as a result of biases towards

those employed and earning wages.

Devaluation Theory suggests that the wage

difference stems from the bias of the wage

payer, the firm. Bias from those gauging

productivity could result in women earning

less


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Reward Policies

Reward Policies provide guidelines for

implementation of the reward strategies and

aids in designing and managing the reward

processes

It indicates how the management should behave

in various issues related to Reward

management

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Reward Policy

2.Market rate and Equity:-A policy should

be formulated on the extent to which rewards

are market driven rather than equitable.It is possible to use market supplements to the

rate of the job as determined by job

evaluation which reflect market rates

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Reward Policy

3.Attraction and Retention-Golden hellos

and golden hand cuffs to attract and retain

high quality people ie having a totalreward policy.

To attract prospective employees, factors

for specific occupations should beanalysed .

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Reward Policy

Retention policiesshould take into account

the major retention issues the company is

facing and sets out ways by which the issues

can be dealt with

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Reward Policy

4.Relating rewards to business performance:-

The rewards can vary according to results.

This policy includes guidelines on how gain

sharing and profit-sharing schemes shouldoperate in the company

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Reward Policy

5.Total reward Policy:-assesses the

importance of the non-financial rewards and

how they should complement the financialawards.

6.Contingent Reward:- this policy states

whether the company is willing to pay forcontribution, skill, performance ,competence

etc and if so, to what extent and under what

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Reward Policy

7.Assimilation policies:-When new pay

policies are introduced, measures to be

taken to assimilate existing employees intoit. This policy should state, where should

they be placed and what needs to be done if

their present rate is above or below the new

scale.

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Reward Policy

8.Flexibility:- The extent to which the

organisation wants to introduce benefits in

response to the fast changing business

conditions.

9.The role of Line managers:- The policy will

cover the level of decisions, the line manager

can make and the guidance that should begiven to them

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10.Transpaency:-Employees will be satisfied

only if they know what is the criteria for

rewards and how they are used to determine

their pay and their methods of pay progression.

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Reward Policy


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Reward Policy

11.Involve employees:- Reward policies are

more likely to be understood and will be

more effective if employees are also given a

voice in the design and management of thepolicy.This is very much applicable to job

evaluation and relating pay to the performance

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Reward Policy

12.Communicating to employees:- Reward

processes in an organisation is a powerful

media to convey messages relating to theorganisational goals to the employees. This

will convey to the employees how their total

remuneration package is made up

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Wage - Definition

Money paid to the workers is considered aswages

The wage is the payment made to the

workers for placing their skill and energy atthe disposal of the employer.

The method of use of that skill and energy

being at the employers discretion andamount to the payment being in accordance

with terms stipulated in an contract of

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Compensation Management fundamentals