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Group HR
Compensation and Rewards13th Dec 2011
Good Evening & Warm Welcome
Group HR
Basic Goals of a Compensation System• Attract Employees• Retain Employees• Motivate Employees• Compliance with Pay Laws• Administrative Simplicity• Cost Effective
Compensation Goals and Strategy
Group HR
Deciding on Compensation Models
Grade Structures are the basic underlying element of most compensation schemes.
No common approach for setting a grade structure –
Typically:
•The salary range is +/- 15 to 25 % of the midpoint•The salary midpoint of a grade is typically 20 to 30% higher
than the preceding grade’s salary midpoint. •The maximum of a grade may be higher than the minimum of
the next higher grade.
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• Broad banding: Sub category of grades since it suggests using very wide grades to create more flexible system
• Individual/market pay structure – Case by case based on specific market value of that job or individual
• Pay for points: instead of using grades to allocate jobs into categories, companies may build a pay range for specific points rather than using grades.
Companies also use
Group HR
Analyse present compensation structure
Formulate salary policies
Select compensation system
Develop implementation plan
Evaluate and monitor
Model for Compensation Systems
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Conduct job analysis
Identify compensable factors
Develop a job hierarchy
Construct job grades
Carry out compensation survey
Establish final pay policy
Job- Based compensation plan route
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• Strategic Choices can Strengthen or Dilute Organization Culture– Ex. What choices would support a Culture of High Employee
Involvement and Empowerment?– Ex. What choices would support a culture of Security and
employee Loyalty
• Strategic Choices should Support Human Resource and Business Strategies– Ex. What choices would support an HR strategy of Promote from
Within? – Ex. What choices would support a Business strategy of Innovation
and Growth?
Impact of Strategic Pay Choices on the Organization
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• Direct Compensation
• Indirect Compensation
Types of Compensation Management
Group HRDirect Compensation
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Indirect Compensation
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• Four fundamental reward categories make up the typical compensation system:– Base Salary– Pay Incentives– Benefits & Perquisites– Non Financial Rewards
Base
Salaries
Pay
Incentives
Total
Rewards
Benefits&
Perquisites
Non Financial
Rewards
Intrinsic Rewards – centers on the work itselfExtrinsic: Praise, recognition, time off and other rewards given to the employee by peers or superiors.
David Balking; Ingram, LaForge; Avilia, Schwenker; Jr, Williams
Compensation Systems
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Being Competitive– When is it okay to pay above competitive?
» Check your company’s performance» Losing mission critical employees or prospects» Remember, base salary decisions are difficult to undo
– What if you can’t afford competitive base salaries?» This is where a bonus plan can make a difference» Do you have any kind of equity compensation to offer?» What about other rewards?
Quality-of-life: flexi time or every alternate Saturday offCareer development: training or education allowanceCorporate culture and work atmosphere
Base Salary
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Reward Systems in most cases should be consistent with other HR systems.
The Reward System is a key driver of:
– HR Strategy
– Business Strategy
– Organization Culture
Strategic Reward System
Group HR
Culture
Performance Management
Employment
Training
Labor Relation
s
Rewards
Overtime pay rules incontract
Sign-on BonusMerit Pay
Merit pay reinforces performance culture
Skill-based pay
Strategic Reward Systems: Need for Consistency with Other HR Systems
Group HR
Pay and Performance should be Loosely Coupled – this gives managers more flexibility to make changes when new situations arise.
It is Necessary to Nurture the Belief that Performance Makes a Difference – there are important cultural values that are supported with pay for performance. Abandoning pay for performance may be more problematic than having an imperfect pay system.
Pay for Performance systems should be designed to fit each firm’s unique situation – imitation of other firm’s plans should be avoided.
Some Suggestions for More Effective Pay For Performance Plans
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• Productivity• Achievements & accomplishments• Acquisition of new skills• Longevity with the firm
How to administer incentive payA. Add it to the regular paycheck
Once acquired…forever paid…never is “earned” againIncentive pay mixed with base pay…workers lose motivation
B. Pay it all out as a lump-sum at one timeLarge cash outflows are difficult for the firm to manageOpposed by unions because annual wages don’t grow
Use of Incentive Pay to Reward
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• A Well-designed Annual Incentive Plan Should Meet Several Objectives:– Allow employees to benefit financially when company meets or exceeds
its short-term goals
– Support and reinforce the financial planning and goal setting process
– Strengthen and support the individual performance management system
– Use company’s cash wisely• Not a fixed cost like base salaries• Provides cash awards only when company performs well• Limits cash payments when company does not perform well
Annual Incentives
Group HR
• Example: Annual Incentive PlanHere is an example of a simple, three-step annual incentive plan.
EvaluateCompany
Performance
EstablishTotal
CompanyBonus Pool
DistributeBonusesBased onIndividual
Performance
1 2 3
Annual Incentives
David Balking; Ingram, LaForge; Avilia, Schwenker; Jr, Williams
Group HR
Two categories of long-term incentives
• Cash-Based– Performance units– Stock Appreciation Rights
• Equity-Based– Stock options– Restricted stock– Stock Appreciation Rights
Long-Term Incentives
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1. Performance indicators must be clearly defined2. Standards must be communicated to workers3. Workers must be able to influence performance
achievement4. Performance must be accurately evaluated5. Rewards must be based on worker performance6. Rewards offered must be highly valued by workers7. Workers and management must trust each other
For Incentive Systems to be Successful
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Non-Financial CompensationThe Job Itself
ChallengingMeaningfulResponsiblePotential for advancementIntrinsically rewarding
The Work EnvironmentCompetent supervisionCongenial coworkersAppropriate status symbolsEnlightened managerial philosophy & programs
Non-Financial Compensation
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Work SchedulesCompressed WorkweekFlextimeJob Sharing/Part-time WorkTelecommuting/Work-at-home
Innovative Company PoliciesAll-salary WorkforceOvertime for Exempt EmployeesSabbaticalsDaycare & Eldercare BenefitsCafeteria Benefit Plans
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• Volunteer to do someone else’s undesirable tasks • Have the CEO or company president visit with employees or write a personal
note of thanks • Let employees put their names on products they made • Create a Wall of Fame to display pictures of outstanding employees • Name a space or event after an employee • Designate a parking spot for the Employee of the Month • Have senior managers and executives serve employees breakfast or lunch • Praise people in public • Give someone a larger office, better tools, better location, etc. • Publish good deeds, praise, & print letters from satisfied customers in a company • Have the CEO or senior executives take lunch with the high performer. • Give your employees time off • Allow people to choose their next project • Let the employees create a paid holiday • Have casual days
Non- Financial Rewards
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Are we taking full advantage of the rewards we control?
Have we thought through the full impact that our reward system has on the organization?
Do employees highly value the rewards we make available to them?
Do employees know what they must do to obtain these rewards?
In short, do we reward excellence or mediocrity?
How to Encourage Excellence?
