hrm reward and incentives

COMPENSATION MANAGEMENT

AND REWARD SYSTEMS

Understandıng Compensatıon

• What motivates who?• Comparing “apples to apples”• Non-financial compensation• Managing expectations …

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Compensation• Compensation is one of the most important

HRM functions.• It can help to reinforce the organisation’s

culture and key values and facilitate the achievement of its strategic business objectives.

• If there is any significant mismatch between compensation and organisational strategy, it is likely to result in major barriers to the achievement of strategic business objectives.

• Compensating an employee is not simply a process of settling upon a mutually agreeable salary. There are a number of regulations and reporting requirements that need to be met.

Compensation Approach in various countries

• In USA - Compensation package includes: base salary, bonus, long term incentives & other benefits and peaks. The base salary is the small part of the total package.

• In Europe – Paid less compensation than that of American executives, but benefits and Employee perks are much better in Europe than America.

• In Japan – The compensation levels of CEO’s of large companies are just one-third of those of American CEO’s. Japanese compensation is based on seniority of employees.

Some Facts about compensation…

• A Chinese manager with 15 years experience costs less than USD 70,000 per annum, A US expatriate manager with corresponding expertise would cost his or her organization USD 300,000 per year

• Average wage of Chinese worker is only about 3-5% of that of the U.S. worker.

• Vacation time is not important in benefit to Japanese worker, they take off 3- 4 days off in a Year. However Vacation and holidays are important in AFRICA, AMERICA and Asian countries.

• In European countries , efforts are progressing to establish EUROPAY, by which member nations would develop common policies regarding compensation practices.

Job Evaluation and the Pay Structure

External factors also influence pay structure.

geographic differences (local supply and demand)

labor supply (low supply = higher wages and vice versa)

competition (HR can match, lead, or lag)

cost of living as determined by the CPI

collective bargaining (unions)

• Goverment influence the compenstion administration by legislation

Main influencing factor

Compensation Administration

Government Influence on Compensation Administration

• Fair Labor Standards Act :• Compensation act

– minimum wage– overtime pay– record-keeping– child labor restrictions



Fair Labor Standards Act• Exempt employees

– include professional and managerial employees

– not covered under FLSA overtime provisions• Nonexempt employees

– eligible for premium pay (time and one-half)– when they work more than 40 hours in a week



• Equal Pay Act of 1963 act requires that men and women hired for the same job be paid the same.

Equal Pay Act



• Civil Rights Act: – broader than Equal Pay Act– prohibits discrimination on the basis of gender– used to support comparable worth concept

• Salaries should be established on the basis of skill, responsibility, effort, and working conditions.

Special Cases of Compensation

Incentive Compensation Plans

Incentives can be added to the basic pay structure to provide rewards for performance.

Leave Travel Allowance

These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization.

Medical Reimbursement

Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for them and their family members. These medi-claims include health-insurances and treatment bills reimbursements.

Bonus

Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to one month’s salary of the employee.

Special Allowance

Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.

The charts on this page feature a breakdown of the total annual pay for the top executives at APPLE INC as reported in their proxy statements.Total Cash Compensation information is comprised of yearly Base Pay and Bonuses. APPLE INC income statements for executive base pay and bonus are filed yearly with the SEC in the edgar filing system. APPLE INC annual reports of executive compensation and pay are most commonly found in the Def 14a documents.Total Equity aggregates grant date fair value of stock and option awards and long term incentives granted during the fiscal year.Other Compensation covers all compensation-like awards that don't fit in any of these other standard categories. Numbers reported do not include change in pension value and non-qualified deferred compensation earnings.

Apple INC.

• Total Cash Compensation information is comprised of yearly Base Pay and Bonuses. TESLA MOTORS INC income statements for executive base pay and bonus are filed yearly with the SEC in the edgar filing system. TESLA MOTORS INC annual reports of executive compensation and pay are most commonly found in the Def 14a documents.

• Total Equity aggregates grant date fair value of stock and option awards and long term incentives granted during the fiscal year.

• Other Compensation covers all compensation-like awards that don't fit in any of these other standard categories. Numbers reported do not include change in pension value and non-qualified deferred compensation earnings.

TESLA MOTORS INC


Incentive Compensation Plans• Individual Incentives include

– merit pay plans (annual increase, based on performance)

– piecework plans (pay based on number of units produced typically in a specified time period.)

– time-savings bonuses and commissions


Incentive Compensation Plans

Individual Incentives:– Work best where clear objectives can be set

and tasks are independent. – Many organizations today require employees

to place a percentage of their salary “at risk” so that merit pay does not become a substitute for automatic cost-of-living raises.


Incentive Compensation Plans• Group Incentives

– Incentives can be offered to groups, rather than individuals, when employees' tasks are interdependent and require cooperation.


Incentive Compensation Plans:• Plant-wide Incentives: • Direct employee efforts toward

organizational goals (such as cost reduction) – Scanlon Plan - supervisor and employee

committees suggest labor-saving improvements

– IMPROSHARE - formula is used to determine bonuses based on labor cost savings


Paying for Performance • Pay is based on some measure of

performance. • Common performance measures are:

– piece-rate plans– gainsharing– wage incentive plans– profit sharing– lump sum bonuses


Paying for Performance • Competency-based compensation

– Rewarded for skills, knowledge and behaviors • leadership• problem solving• decision making• strategic planning

– Broad-banding - pre-set pay levels that determine what people are paid based upon the type and level of competencies they possess.

REWARD SYSTEMS

• People do what they do to satisfy some need and they look for a payoff or reward.

The most obvious reward is pay, but there are many others, including:-promotions-desirable work assignments-peer recognition-work freedom

Reward

Rewards Review

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bonuses

piecework

commission

incentiveplans

merit payplans

cost of living increase

labor marketadjustment

profit sharing

time-in-rankincrease

protectionProgram

pay for timenot worked

services/perks

assignedparking space

preferredassignments

businesscards

ownsecretary

impressivetitle

participation indecision making

greater jobfreedom

moreresponsibility

opportunitiesfor growth

diversityof activities

Financial Non-financial

Extrinsic

Impliedmembership-based

Performancebased

Explicitmembership-based

Intrinsic

Types of Reward Plans

intrinsic rewards (personal satisfactions) come from the job itself, such as:

pride in one’s work feelings of accomplishment being part of a work team

extrinsic rewards come from a source outside the job, mainly by management:

moneypromotionsbenefits

Intrinsic versus Extrinsic Rewards


financial rewards:

Financial versus Nonfinancial Rewards

nonfinancial rewards:

wages bonuses profit sharing pension plans paid leaves purchase discounts

make life on the job more attractive; employees vary greatly on what types they like


performance-based rewards are tied to specific job performance criteria• commissions• piecework pay plans• incentive systems• group bonuses• merit pay

membership-based rewards such as cost-of-living increases, benefits, and salary increases are offered to all employees

Performance-based versus Membership-Based

Documents

hrm reward and incentives