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Contents of presentation2

Review of meaning of compensation

Total compensation why employees leave the organisation? Two ways to address this problem: Reviewing Employement Deal Or go for Strategic Compensation Planning Goals and areas of concerns for strategic

compensation planning In detail the whole concept of Strategic Compensation Planning Process of strategic compensation planning

Review of Compensation meaning:3

In simple words: Compensation is the remuneration which employee receives in return for his or her contribution to the organization. compensation occupies an important place in the life of an employee. His or her standard of living, status in the society, motivation, loyalty, and productivity depend upon the compensation he or she receives. For the employer too, employee compensation is significant because of its contribution to the cost of production. Also it is a perception of worth by an employee.

Total Compensation

Direct Wages / Salaries Commissions Bonuses Gainsharing

Indirect Time Not Worked Vacations Breaks Holidays

Insurance Plans Medical Dental Life

Security Plans Pensions

Employee Services

Educational assistance Recreational programs


Still Employees are Dissatisfied,why??Reason why employees choose to leave their company: Most of Employees believe their pay is linked to their companys performance But, they are neither satisfied with their pay nor their benefitsREASONS CITED FOR WANTING TO LEAVE COMPANY --INDIA* Better Compensation Package Better Career Opportunities Better Opportunities to Utilise My Skills Success Better Benefits More Meaningful Work 24% 19% 15% 10% 9% 62% 60% 30% 17% 13%

So what can be done to address this issue?

Review the employment dealEmployerValue Creation Through People: Attract Develop Focus and engage Build commitment, ownership and loyalty


A meaningful work experience: Personal fulfillment Wealth accumulation Competitive Pay Security



Strategic Compensation Planning9

Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization. Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard. Seeks to motivate employees through compensation.

Strategic Compensation Goals10

To reward employees performance To remain competitive in the labor market To maintain salary equity among employees To fit together employees future performance with

organizational goals To control the compensation budget To attract new employees To reduce unnecessary employee turnover

Strategic Compensation planning Concerns11

The rate of pay within the organization and whether it is to be

above, below, or at the prevailing market rate. The ability of the pay program to gain employee acceptance

while motivating employees to perform to the best of their abilities. The pay level at which employees may be recruited and the pay

gap between new and more senior employees. The intervals at which pay raises are to be granted and the

extent to which merit and/or seniority will influence the raises. The pay levels needed to facilitate the achievement of a sound

financial position in relation to the products or services offered.

Issues in Developing Benefits Plans12

Benefits to be offered. Coverage of retirees in the plan Denial of benefits to employees during initial

probationary periods Financing of benefits. Benefit choices to give employees. Cost containment procedures to use. Communicating benefits options to employees.

1.Linking Compensation to Organizational Objectives13

Value-added Compensation Evaluating the individual components of the compensation program (pay and benefits) to see if they advance the needs of employees and the goals of the organization.How does this compensation practice benefit the organization? Does the benefit equal to the cost incurred by the company or more or less?

Significant Goals Driving Pay and Reward Changes14

2.The Pay-for-Performance Standard15

Pay-for-Performance Standard The standard by which managers tie compensation to employee effort and performance. Refers to a wide range of compensation options, including merit-based pay, bonuses, salary commissions,team/ group incentives, and various gain sharing programs.

Designing a Pay-for-Performance System16

How will performance be measured? Which employees will be eligible? How will payouts be made?

How often will payouts occur? How large will the payouts be? Will employees perceive the rewards as valued?

3.Compensation Management and Other HRM Functions17 Supply of applicants affects wage rates Selection standards affect level of pay required support or damage recruitment


Pay rates affect selectivity

Selection Training and Development

Pay can motivate training

Increased knowledge leads to higher pay

Low pay encourages unionization

Labor Relations

Pay rates determined through negotiation

4.Motivating Employees through Compensation18

Pay Equity (also Distributive Fairness) An employees perception that compensation received is equal to the value of the work performed. A motivation theory that explains how people respond to situations in which they feel they have received less (or more) than they deserve. Individuals form a ratio of their inputs to outcomes in their job and then compare the value of that ratio with the value of the ratio for other individuals in similar jobs.

Relationship between Pay Equity and Motivation19

The greater the perceived disparity between my input/output ratio and the comparison persons input/output ratio, the greater my motivation to reduce the inequity.

Relationship b/w Expectancy Theory and Pay20

Expectancy Theory

A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward.

Pay-for-Performance and Expectancy Theory21

Strategic compensation planning process22

Strategic compensation planning allows

an organization to focus on its strategic objectives and develop a comprehensive plan, considering base pay, short- and long-term incentives, benefits and growth opportunities. This kind of planning helps to ensure that the compensation system will support the organization's long-and short-term objectives. The ultimate objective of this process is to ensure that the compensation system attracts and retains the desired employees and that it motivates them to do those things that support the business plan.

The steps involved are:23

Step 1: Identify business objectives.Begin the

process by focusing on the strategic objectives of the organization. What does the company plan to do in the short and long term to gain and to keep a competitive advantage? Will it increase its market share? Expand into new markets? Develop new products? Flatten its structure? Next, the focus is on the tactical level: How will the organization achieve these objectives? Will it work in teams? Will it reduce materials or overhead costs? Will it focus on customer service? Will it improve the quality of its goods or services? Some specific objectives can be extracted from the strategic planquality,productivity, service, teamwork, cost reduction and so forth. The potential list is long and different for each organization.


Step 2: Assess the current compensation system.

Look at the current pay system to assess the level at which it supports the objectives and the people necessary for the business. By taking this step, we will discover gaps or holes in the current system and uncover areas that are "overfunded." Step 3: Identify potential plan types which can fill the

gaps. Finally, we can look at the gaps in the current

system and identify new or existing pay systems and their funding sources. This step can help close the gaps and make the pay system work effectively.


So this is how the whole concept and process of strategic compensation planning works