COMPENSATION MANAGEMENT

Session Overview

Benefits of Proper Compensation

Consequences of Inadequate Compensation

Concepts of Wages

Components of Remuneration

Theories of Remuneration

Factors Influencing Remuneration

Remuneration Model

Challenges of Remuneration

Skill based and Job based Pay

Session Overview

Incentive Payments

Prerequisites of Effective Incentive System

Types of Incentive System

Group Incentive Plans

Incentives for Indirect Workers

Nature of Benefits and Services

Benefits as Incentive

Types of Employee Benefits and Services

Principles of Fringes

Session Overview

Significant Benefits and Service Programs

Common Benefits in Pakistan

Advantages and Disadvantages of Long Term Benefits

Administration of Fringe Benefits

Remunerating Top Executives

Components of Executive Remuneration

Issues in Executive Remuneration

Chapter 11

MANAGING BASIC REMUNERATION

Benefits of Proper Compensation Administration

1 2 3 4 5

Attracts talent Motivates Employees

Rewards Performance

Reduces Turnover

Manages Compensation Budget

Compensation policy aims to attract talented employees and motivate them to put their efforts and commitment to work that increase job satisfaction work performance

Benefits of Proper Compensation

Consequences of Pay Dissatisfaction

grievances

Desire for more pay

Pay dissatisfaction

performance

strikes

Search for new job

Lower attractiveness of job

absenteeism

turnover

Job dissatisfaction

absenteeism

Psychological withdrawal

Poor health

Visits to the doctors

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289

Concepts of Wages

1 Minimum Wage

2 Fair Wage

3 Living Wage

4 Team based Pay

5 Remunerating Professionals

6 Contract Employees

7 Expatriates and Executives

Components of Remuneration

Benefits include both financial and non financial

•Wages and Salary

•Incentives

•Fringe Benefits

•Perquisites

•Non Monetary Benefits

Components of Remuneration

Remuneration

Financial Non Financial

Wages and Salary

Hourly wages and monthly rates salary

Incentives

Individual plansGroup plans

Fringe benefits

CPFGratuityMedical etc.

Perquisites

Company carClub membershipFurnished houseStock option schemes etc.

Job content

Challenging job responsibilitiesSupervisionGrowth prospectsWorking conditionsEtc.

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286

Theories of Remuneration

Employee set expectations and goals

Performance is rewarded

Employee consider equity of reward and performance

Feedback to employee

Employee sets new goals and expectations based on experience

Theories of Remuneration

Reinforcement Theory

Positive Experience Behavior is repeatedBehavior rewarded

Theories of Remuneration

Equity Theory•Adam’s equity theory emphasizes to have equity in pay structure of employee

•If employee feel that their efforts are well rewarded they will put more efforts and will be satisfied with their job

•In case of inequity feeling they will be de moralized and dissatisfied resulting into low productivity

Individual equity

Internal equity

Externalequity

Perception offairness

Motivation

Commitment

Performance

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 287

Agency Theory

•In the organizations employer and employees are two main stakeholders

•Employer act as principals and employees assume the role of agent

•The remuneration of employee is agency cost

•Principal tries to agency cost and agent expect to have more agency cost

•The principal (Employer) should try to choose remunerating schemes that align its own interest with expectation of agents (employees)

•Behavior oriented (merit based pay)

•Outcome oriented (profit sharing, commission)

Theories of Remuneration

Factors Influencing Remuneration

Internal Factors External Factors

Organization Strategy Economy

Employee Society

Job Evaluation Labour Market

Performance Appraisal Cost of Living

Labor Unions

Legislation

Factors Influencing Remuneration

Business Strategy

Market Position

Remuneration Strategy

Blend of Remuneration

Invest to grow Merging or grow rapidly

Encourage innovation and entrepreneurship

High cash and incentives for performance. Modest benefits

Manage earningProtect Markets

Normal growth to maturity

Reward management skills

Average incentives with average cash on unit and individual performance. Standard benefits

Harvest earnings invest somewhere else

Maturity or decline

Focus on cost control

Below average cash with few incentives that too tied with cost control efforts. Standard benefits

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Remuneration Model

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Job description

Job evaluation

Job hierarchy

Pay survey

Pricing Jobs

Pay levels

Pay grades

Challenges of Remuneration

Remuneration

Salary ReviewsMonetary and non monetary rewards

Skill based pay

Comparable worthBelow market or above market pay

Eliticism or Egalitarianism

Employee participation

Pay Secrecy

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300

Factors Skill based Job based

Pay structure Based on ability to perform

Based on job performance

Employer’s focus Employee carriers wages, Employee linked to skills

Job carries wages. Employee linked to job

Employee focus Skill acquisition for more pay

Job promotion for better pay

Procedures required Skills assessment, Value skills

Job content assessment, Value jobs

Advantages Flexibility, Reduced workforce

Pay based on value of job and work performed

Disadvantages Cost controls Inflexibility

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 301.

Skill Based and Job Based Pay

•Benefits of Proper Compensation

•Consequences of Inadequate Compensation

•Concepts of Wages

•Components of Remuneration

•Theories of Remuneration

•Factors Influencing Remuneration

•Remuneration Model

•Challenges of Remuneration

Summary