HRM Section 7 Compensation Management

7/30/2019 HRM Section 7 Compensation Management

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Compensation, EmployeePayroll & IncentiveManagement


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Compensation & EmployeePayrollWhat is Compensation & Employee

Payroll?

Compensation is an integral part ofhuman resource management which

helps in motivating the employees and

improving organizational effectiveness.


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Compensation ManagementCompensation systems

are designed keeping inminds the strategicgoals and businessobjectives.

Compensation systemsare designed on thebasis of certain factorsafter analyzing the job

work andresponsibilities


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Compensation Philosophy


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Compensation GoalsAttracting good employees

Retaining good employees

Motivating employeesComplying with the law

Having a cost effective

compensation system


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Compensation Policy Issues Pay for performance

Pay for seniority

The pay cycle

Salary increases and promotions

Overtime and shift pay

Incentives & Benefits

Deferred payments

Paid and unpaid leaves / Paid holidays

Salary compression

Geographic costs of living differences


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Equity and Its Impact onPay Rates

External

Equity

Procedural

Equity

Internal

Equity

Individual

Equity

Forms of Equity


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Addressing Equity IssuesSalary Surveys

Job Analysis and

Job Evaluation

Performance Appraisaland Incentive Pay

Communications, GrievanceMechanisms, and Employees

Participation

Methods toAddress Equity

Issues


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Establishing Pay Rates

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Steps in Establishing Pay Rates

Determine the worth of each job in your organization

throughjob evaluation (to ensure internal equity).

Conduct a salary survey of what other employers arepaying for comparable jobs (to help ensure external equity).

Group similar jobs into pay grades.

Price each pay grade by using wage curves.

Fine-tune pay rates.


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Compensation and theThree EquitiesExternal Equity

Attracting good employees

Internal Equity Retaining good employees

Individual or Employee Equity Motivating employees


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External EquityAttracting good employees

Labor Market Model

Market SurveysPay strategy/policies

Where do you position yourself vis--vis the market


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Internal EquityRetaining good employees

Job Evaluation Techniques Ranking

Jobs are compared to each other based on their

overall worth to the company. The worth of a job isusually measured by judgments of skill, effort,responsibility, and working conditions.

The advantage of the ranking method is that it issimple.

The disadvantages, similar to the ranking method of

performance appraisal, are that the intervals betweenthe ranks are assumed to be equal, the judgments areglobal, and as the number of jobs for evaluationincreases it becomes increasingly difficult. Also, theevaluators must have knowledge of all jobs.


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Classification method Jobs are classified into a grade/category structure. Each

tier of the structure has a description and associated jobtitles. For example, the Westinghouse system had: Grade 1 Unskilled ex. File clerk

Grade 2 Skilled ex. Typist, lathe operator

Grade 3 Interpretive ex. Chief clerk

Grade 4 Creative ex. Engineers, sales reps

Grade 5 Executive ex. Department heads

Grade 6 Administrative ex. Chief engineer, Director of R&D

Grade 7 Policy ex. Vice-president of Marketing

Each job is assigned to the grade/category providing theclosest match to the job. Standards are developed mainlyalong occupational lines. The standards help identify anddescribe key characteristics of occupations that areimportant for distinguishing different levels of work.

Pay ranges are then assigned to grades. The advantages of this method are that it is simple and has

been in use for many years. Its disadvantages include the fact that classification

judgments are subjective, and the standard used forcomparison may have built-in biases. Also, some jobs mayfit into more than one grade/category or their descriptionsare so broad that they do not relate to specific jobs.


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Factor Comparison Select benchmark jobs.

Sets of compensable factors are identified as

determining the worth of jobs. The number of factorsis usually four or five and typically relate to skill,responsibility, effort and working conditions.

Jobs are then ranked on each factor.

Wages are then allocated to the factors. The

organizations other jobs are then compared to thebenchmark jobs and rates of pay for each of the other

jobs.

Factor comparison has the advantage that the value ofthe job is expressed in monetary terms, and the

method is applicable to a wide range of jobs. The methods disadvantages are that the pay points

for each factor is based on subjective judgments.


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Point Method The point method is an extension of the factor

comparison method. Usually between eight andfourteen compensable factors (typically related toskill, effort, responsibility, and working conditions)are identified as determining the worth of jobs.

Factors are divided into degrees

Points are assigned the degrees Benchmark jobs are compared to market rates


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Establishing Pay RatesPoint Method

Ranking Method

Classification Methods

Group SimilarJobs into PayGrades


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Establishing Pay RatesPrice Each Pay GradeWage

Curve

Shows the pay rates paid for jobs in each pay grade,relative to the points or rankings assigned to each

job or grade by the job evaluation.

Shows the relationships between the value of the

job as determined by one of the job evaluationmethods and the current average pay rates for yourgrades.


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Plotting aWage Curve


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Establishing Pay Rates

Fine-Tune Pay Rates Developing pay ranges

Flexibility in meeting external job market rates.

Easier for employees to move into higher pay grades.

Allows for rewarding performance differences andseniority.

Correcting out-of-line rates

Raising underpaid jobs to the minimum of the raterange for their pay grade.

Freezing rates or cutting pay rates for overpaid (redcircle) jobs to maximum in the pay range for their paygrade.


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Wage Structure


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Compensation Management


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Compensation ManagementCompensation provided to employees

can be direct in the form of monetarybenefits and/or indirect in the form of

non-monetary benefits known as perks,

time off, etc.

Compensation does not include only

salary but it is the sum total of all

rewards and allowances provided to the

employees in return for their services.


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Types of Compensation Management

Direct Compensation

Indirect Compensation


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Direct Compensation


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Direct CompensationDirect compensation refers to monetary

benefits offered and provided toemployees in return of the services theyprovide to the organization.

The monetary benefits include basicsalary, house rent allowance,conveyance, leave travel allowance,

medical reimbursements, specialallowances, bonus, PF/Gratuity, etc.


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Components Of DirectCompensationBasic SalaryHRA (House Rent Allowance)

CA (Conveyance Allowance)

LTA (Leave Travel Allowance)

Medical Reimbursement

Bonus (Salary Bonus)

SA (Special Allowance)

Other Allowances


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Components of DirectCompensation1) HRA (House Rent Allowance):Organizations either provide

accommodations to its employeeswho are from different location orcountry or they provide house rentallowances to its employees


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Components of DirectCompensation2) Conveyance :

Organizations provide for cab facilities to

their employees.

Few organizations also provide vehicles

and petrol allowances to their employees

IT Act allows a Conveyance Allowance ofupto Rs.800/- p.m. as non-taxable

allowance.


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Components of DirectCompensation3) Leave Travel Allowance:

The employees are given allowances to visit

any place they wish with their families.

The IT Act allows 2 trips in a block of 4 yearsas tax free, once to the home town and once

anywhere else in the country

The allowances are scaled as per the positionof employee in the organization.


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Components of DirectCompensation4) Medical Reimbursement :

Organizations also look after the health

conditions of their employees.

The employees are provided with medi-

claim insurance for them and their family

members.IT Act allows upto a reimbursement of

Rs. 15,000/- p.a. as non-taxable


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Components in DirectCompensation5) 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 months salary of the employee.This is apart from the salary.


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Components in DirectCompensation6) Special Allowance :

Special allowance such as overtime,

mobile allowances, meals, commissions,

travel expenses, reduced interest loans;

insurance, club memberships, etc are

provided to employees for motivation

and companys Productivity.


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Indirect Compensation


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Indirect CompensationIndirect compensation refers to non-monetary

benefits offered and provided to employees inlieu of the services provided by them to the

organization.

They include Leave Policy, Overtime Policy, Carpolicy, Hospitalization, Insurance, Leave travel

Assistance Limits, Retirement Benefits,

Holiday Homes.


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Components of IndirectCompensationLeave PolicyOvertime Policy

Hospitalization

InsuranceLeave Travel

Retirement Benefits

Holiday HomesFlexible Timings


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Components of IndirectCompensation1) Leave Policy:

It is the right of employee to get adequate

number of leave while working with the

organization.The Leave Policy differs in every organization.

The organizations provide for paid leaves such

as, casual leaves, medical leaves (sick leave),and maternity leaves, statutory pay, etc.


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Components of IndirectCompensation2) Overtime Policy :

Employees should be provided with

the adequate allowances andfacilities during their overtime, if

they happened to do so, such as

transport facilities, overtime pay, etc.


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Components of IndirectCompensation3) Hospitalization :

The employees should be provided

allowances to get their regular check-

ups, say at an interval of one year.

Even their dependents should be eligible

for the medi-claims that provide them

emotional and social security.


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Components of IndirectCompensation4) Insurance :

Organizations also provide for accidental

insurance and life insurance for

employees.

This gives them the emotional security

and they feel themselves valued in the

organization.


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Components of IndirectCompensation5) Leave Travel :The employees are provided with leaves

and travel allowances to go for holiday

with their families. Some organizationsarrange for a tour for the employees ofthe organization.

This is usually done to make theemployees stress free.


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Components of IndirectCompensation6) Retirement Benefits :

Organizations provide for pension plans

and other benefits for their employees

which benefits them after they retire

from the organization at the prescribed

age.


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Components of IndirectCompensation7) Holiday Homes :

Organizations provide for holiday homes and

guest house for their employees at different

locations.These holiday homes are usually located in hill

stations and other most wanted holiday spots.

The organizations make sure that theemployees do not face any kind of difficulties

during their stay in the guest house.


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Components of IndirectCompensation8) Flexible Timings :

Organizations provide for flexible timings

to the employees who cannot come to

work during normal shifts due to their

personal problems and valid reasons.


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Payroll Management


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Payroll ManagementPayroll refers to the administration of

employees' salaries, wages, bonuses, net pay,and deductions.It consist of the employee ID, employee name,

date of joining, daily attendance record, basic

salary, allowances, overtime pay, bonus,commissions, incentives, pay for holidays,vacations and sickness, value of meals andlodging etc.

There are some deductions such as PF, taxes,loan installments or advances taken by

employee.


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Components of Monthly Payrollof an Employee


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Payroll ManagementDeductions such as tax and loan/advances

taken by the employee from organizations arededucted only where applicable.Dearness Allowance and House rent

allowance is provided at a fixed rate stated by

the employment law.Provident fund is deducted from the gross

salary of employee on the monthly basis asper the employment law, which is provided

later to the employee.Organizations also contribute the same

amount to the provident fund of theemployee.


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Annual Payroll ManagementWhat is Annual Payroll?

Annual payroll consists of leave

travel allowances, incentives, annualbonuses, meal vouchers/

reimbursements, and medical

reimbursements.


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Components of Annual Payroll


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Incentive Management


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Incentive ManagementIn todays strategic compensation systems,

incentives forms an integral part of the

performance based compensation packages.

It is a challenge for organizations to formulate

strategies to maintain the internal equity andexternal equity and provide the most

competitive compensation packages to attract

and retain the talented workforce


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Incentive ManagementFor the purpose effective incentives

programs are undertaken. Employees are

involved in the process so as to deliver

un-biased packages to all the employees.

The compensation strategies should be

effective.

All the employees should be aware ofthe organizational goals and objectives.


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Benefits of Incentives


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Benefits of IncentivesDeserving employees should receive

significant rewards .Incentives accounts for employees high

productivity.

Today youngsters believe in performancebased pay, thus incentives will help tomotivate them to produce more.

In the hospitality and retail industry it isthe incentive that accounts for theoverall package of the employee.


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Free Powerpoint Templates

Variable PayPlans

N d f i bl
http://www.powerpointstyles.com/http://www.powerpointstyles.com/http://www.powerpointstyles.com/


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Need for variable pay

Encourage certain behavior

Differentiate best and the rest

Reward achievementHedge financial risk

T A di


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Target Audience

Individual Target to strive for Sense of fulfillment Sense of differentiation

Team Healthy competition Sharing success

Super ordinate goals

Entire Company

T


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Types

Long Term Shared ownership

Wealth creation

Short Term Risk sharing

Promoting a certainbehavior/ pattern

Sales Target Realization

Direct Contributionto Top & Bottom lines

Non Sales Alignment to goals

Track and Measureperformance

F k D i


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Framework Design

Life cycle & culture of thecompany

Operating IndustryProduct/Service/Solution stage

Operating GeographiesIncentive ROI

I d t T d


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Industry Trend


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Sales Incentive Plans

G idi P i i l


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Guiding Principles

KISS (but realistic)Communicate clearly

Align with strategy &

job role

Integrate with the totalrewards package

Reward for results, not

activities

Link to quantifiable

measures

U d di Li k


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Understanding Linkages

Inputs

ProcessOutput

TARGET TOTALCOMPENSATION

Payoutmechanics

Performancemeasures and

weights Incentive form Pay mix Payout frequency

Businessstrategy

Sellingroles


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Sales Roles by salesmen

New business acquisition

Cold calling or prospecting

Little post-sale effort

Retain and grow accounts

Identifying and addressing customer needs

Significant post-sale effort

Hunter

Farmer

Selling roles by


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Selling roles bycustomers

Transactional Consultative

Product or services have

known value to customers

Sales cycle is short

Price is a key component of

the purchase decision

Customers want an efficient

buying process

Sales focus on generatingmaximum revenue at

minimum cost

Customers need help making


The sales cycle is moderate

to long

Value is a key component of


Customers want a solution

Sales focus on creating long-term, profitable customer

relationships


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2D Framework

Relationshipmanagers who grow

the business with

long-term customers

Service reps whotend the crop to

keep from losing

customers

Big Game Hunter

closing fewer, larger

deals

Traditional Small

Game Hunter

closing many smalldeals


Hunter

Farmer


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Contd

Excellent relationship-

building skills

Deep customer/industry

knowledgeFunctional management

experience

Deep industry experience(may have been acustomer)

Excellent problem-solving

skills

Able to use technology to

facilitate the processMinimal experience

required

Mastery of sales process

execution

Deep technical knowledge

Significant hunter model

selling experience

Mastery of sales process

execution

Minimal to modest salesexperience

Hunter

Farmer



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Typical examples

Hunter

Farmer


InsuranceAgent

Service RepKey Account

Manager

MajorAccount

Development

Lif l i i


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Time

Sales

Volume

Hunter role ismore common

Farmer role ismore common

Introduction Growth Maturity

Life cycle position

Elements-Sales Incentive


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Elements Sales Incentive

Pay levels

Payoutfrequency

Performancemeasures:definition

Performancemeasures: relativeimportance

Mechanics

Mix

Incentive form

Revenue

Volume

Profit

Market share

Growth

Baseline

2011

Jan Feb Mar Apr

May Jun Jul Aug

Sep Oct Nov Dec

% Weight

Fixed %versus variable

CommissionBonus

0% 80% 100% 120% 140%

Payout

Performance

$

//

Communication


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Communication

From CXO desk

Clarity on outcomes

Consistent

communicationReiterate at regular

intervals

Measurement Parameters


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Measurement Parameters

Gross Margins

Incremental Margins

Sales Product Mix

Distribution effectiveness

CSAT

DSOROI

Documents

HRM Section 7 Compensation Management