Modul 11 - Total Compensation Concept

8/15/2019 Modul 11 - Total Compensation Concept

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Certification on Human Resource Professional (CHRP), AtmaJaya University Jakarta, 2006

TOTAL

COMPENSATION

CONCEPTModul 11

CERTIFIED HUMAN RESOURCES

PROFESSIONAL (CHRP)


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Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

OBJECTIVESOBJECTIVES

By the conclusion of this Module, you willBy the conclusion of this Module, you willbe able to accomplish the following:be able to accomplish the following:

Explain the alignment of TotalExplain the alignment of TotalCompensation to Company’s Mission,Compensation to Company’s Mission,Vision, Values, and Business Strategy.Vision, Values, and Business Strategy.

Define the concept and components ofTotal Compensation.

Identify the purposes of each componentof Total Compensation.


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TOTAL COMPENSATION DESIGNTOTAL COMPENSATION DESIGN

PROCESSPROCESS

COMPANY MVVO

EVALUATION

SALARY ADMINISTRATION

TRAINING/COMMUNICATION

SALARY STRUCTURE

POLICY / SYSTEM SALARY PROGRAM

JOB DESCRIPTION

COMPENSATION OBJECTIVE

SALARY SURVEYJOB EVALUATION


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Total Compensation DesignProcess

Total Compensation DesignProcess

The design process begins with the corporate vision and

mission. The human resources philosophy builds on the

business strategy and serves as a guiding light in the design of all HR Programs.

Human resources philosophy and strategy is the “big picture,”

Total Compensation philosophy and strategy narrows this HR

philosophy and strategy specifically to the three facets of total

compensation (compensation, benefits and the work

experience).

The design of any compensation program should maintain

alignment with the other elements in the process. The synergy

created by this alignment will help to ensure program success


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Vision What do we want to be

Mission What do we want to do

Core Competencies What are we good at

Internal/ External What is the context

Influences within which we work

Critical success factors What has to happen for us to win

Performance Mgmt System How can we tell how well we did

Staffing, development, What should our HR strategy be

Remuneration Strategies

Aligning HR Strategy with Organizational Vision & Mission

Aligning HR Strategy with Organizational Vision & Mission


6/43Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

VISION A vision pulls people forward. It projects a clear

image of a possible future. It generates theenthusiasm and energy to strive toward the

goal All inspiring visions offer the following

attributes:

Ideal (a high standard to aspire to) Unique (pride of being different, an identity)

Image (a concept or mental picture made real ortangible through descriptive language)

Future oriented a map of the journey and statementof the goal ahead)

Common purpose (a way people can join together)



Mission

Definition: An organization’s reason for existence or

its purpose for being.

Purpose: To guide Management’s planning anddecision making. The mission answers the

question, “Where is the organization heading?”

Sample Mission Statements:•An Energy Company – The aim of our Company is to meetthe energy needs of society, in ways that are economically,

socially and environmentally viable, now and in the future.

•A Consumer Products Company – Our purpose at our Company is

to meet the everyday needs of people everywhere – to anticipate

the aspirations of our customers and to respond creatively and

competitively with branded products and services which raise the

quality of life.



Business Strategy

Definition: Business Strategy is the Company’s broad plan

for competitively positioning its products or services with

the intent to accomplish or support the Company’s mission.

Elements of Business Strategy (Key Success Factors):

•Production Innovation: Sony, Johnson & Johnson

•Customer Intimacy: Singapore Airlines, Garuda

•Operational Excellence: Wall Mart, Dell Computer

Functions: Business Strategy drives Human ResourcesPhilosophy and Total Compensation Design



SAMPLE OF VISION AND VALUES

VISION

VALUESHonesty Integrity Excellence Trust

To be the world’s leading energy resource

and project development company

Best People Best Partner Best Performance

To improve the lives of people wherever we work

VISION

VALUESHonesty Integrity Excellence Trust

To be the world’s leading energy resource

and project development company

Best People Best Partner Best Performance

To improve the lives of people wherever we work



“Best People” and “Best Performance”

VISION

Employee

Administr’n

Employee

Administr’nComp &Benefits

Comp &Benefits

SelectionSelectionSelection

MedicalServices

MedicalServices

People

Dev’t(CP/CD)

People

Dev’t(CP/CD)

Labor

Relations

Labor

Relations

PerformanceManagement

Performance

Management

HRProcesses

HRProcesses

Best PeopleBest Partner

Best Performance

Best PeopleBest Partner Best Performance

HRISHRIS



Total Compensation Model Compensation & Benefits are two core components of total

compensation

Overlap at varying degrees depending on organization cultureand intended impact

Each has unique and distinct body of knowledge

Strategic advantage and impact

Work Experience is the third component

Includes elements of rewards that are important to employeesand employers but are less tangible than compensation andbenefits

Overlaps and relates to compensation & benefits

Employees place high value Will differ with different geographic regions and cultures

Internal & External Influences

All three components are influenced by many factors that overlayor act on the entire total rewards process and may or may not becontrollable

Examples of internal influences include corporate mission, cost,culture and organizational structure

Examples of external influences include competition, labor

market & the economy.



Human Resource Philosophy and

StrategyHuman Resources

Philosophy & Strategy

Job Design and

Accountabilities

Performance Measures

and Objectives

Personnel Selection andDevelopment Strategy

Total Compensation


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TOTAL COMPENSATION

FRAMEWORK

What kind of work must be performed to meetyour customers’ need ?

What kind of performance standards must youhave to be successful ?

What kind of people and talent do you need toaccomplish this work and achieve team standards?

Your compensation program can be designed onlyafter identifying the talent required.


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Total Compensation Management

COMPENSATION: Something in return for something. “Compensation”

implies that at least two parties are involved in thetransaction: Employer

Employee

Both parties are givers or providers and both partiesare receivers. Stated very simply, the employeegives his/her services (from purely manual to highlyintellectual) to the employer. In return the employercompensates the employee in many ways:

Cash and Non-Cash


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(continued)MANAGEMENT

The process needs to have common elements in

order to be of value to the employee and employer.This value is not always dollar-based, but it can bevalued in terms of total dollars for the most part.

Perception plays a big role in determining this valueespecially from the employee’s standpoint.Therefore, a key factor in a successful total

compensation program is the effectivecommunication of the program. Appropriatecommunication helps manage perceptions.


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(continued)Direct Compensation/Cash Compensation:

Cash payments made to employees in exchange fortheir contributions to an organization.

Indirect Compensation/Benefits: All forms of non-direct, i.e., non-cash, compensationmade to employees in exchange for their contributionto an organization.


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Direct Pay Compensation

Attract

Retain

Motivate

Indirect Compensation

Attract

Retain

Motivate

Total Compensation

Attract

RetainMotivate

• What elements of the program can attract new employees ?

• What elements of the program can help an organization keep key employees ?

• Can any part of the total compensation program motivate performance ?

TOTAL COMPENSATION

PROGRAM


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To provide internally equitable and

externally competitive compensation

program that attracts, motivates and retains

high caliber employees to ensure company’s

achievement of its vision and mission in the

most economical cost.

OBJECTIVES OF TOTAL

COMPENSATION


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OBJECTIVES OF TOTAL

COMPENSATION (continued) To attract, retain and motivate individuals of the caliber necessary

to achieve the organization’s objectives.

To provide a coordinated, cost-effective total compensationprogram which is responsive to organizational and employeeneeds.

To recognize individual and group performance and contributions

meeting short-and long-term organizational objectives. To provide equitable pay opportunity and pay levels.

To communicate organizational objectives and align employeeefforts with those objectives.

To provide a competitive benefits package through cost-effectiveprograms which are responsive to the differing needs ofemployees.

To comply with legal/regulatory requirements.


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THE COMPONENTS:

Among others………..(1)

•Base Pay

• Regular & Location Related Allowance

• Housing & Transportation Allowance

• Vacation Travel Allowance• Annual Leave Allowance

• Variable Pay (Cash Incentive, Bonus, etc.)

•

Share Grant/ Share Option Plan• Savings Plan

• Medical Outpatient

• Hospitalization

• Dental & Optical

• Medical Check-up & Maternity

• Death & Disability Benefits

No one component can do it all !!


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THE COMPONENTS (continued):


• Education Assistance

• Rest & Relaxation Program

• Annual Leave & Other Leave

• Credit Card

• Service Award

• Club Membership• Company Car

• Company Provided Housing

•

Cellular Phone



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The COMPONENTS (continued):


• Home Loan Program

• General Employee Loans

• Car Loan/ Car Ownership Plan

• Retirement Plan – DPLK – Defined Contribution

• Defined Benefit Pension Plan

• Termination Benefits

• Voluntary Resignation Benefit

• Big Table & Small Table Severance Payments



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Deferred Compensation/Benefits

Total Compensation looks at all the cash programs, all the non-cash programs, and all the

deferred compensation and benefit programs offered by an organization to its employees.

ELEMENTS OF TOTAL COMPENSATION

COMPANY XYZ

- Severance Pay

Defined Benefits)

- Monthly Pension (Defined

Contribution)

- Old Age Benefit - Coy Tax on Severance

Pay

- Medical Coverage- HOP Loan

- VPA

- Educational Loan

- Natural Death Benefit

- Long Term Disability-Industrial Death Benefit

- JK/JKK (XXVI.B)

-Salary Continuation

- Paid Vacations/Holidays

- Coy Tax


- Base Salary

-Regional Allowance

- Temporary Monetary

Assistance (MAC)

- Overtime Pay

- “Excess Working Hours”

- Shift Allowance

- Onshore Allow-Offshore Allow

-Leave Allowance

- “THRK”

- Vacation Travel Allowance

- AIP

- Coy Tax

Direct Compensation


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Allowance

Base AnnualIncentivePlan(s)

Long-TermIncentivePlan(s)

Benefits/

Perquisites

ValueTo Employee

Cost toThe company

•For 100% good-faith effort andresults

•To be competitive with themarket and meet statutoryrequirements

•For achievement of short-term financial/ operationalresults (KPIs)

•To provide basic,core protection, andmotivational non-cash rewards

•For achievement ofsustained, long-termfinancial/operational results(KPIs)

WHAT IS THE OPTIMUM MIX, LEVEL AND LEVERAGE TO SUPPORT THE BUSINESSSTRATEGY AND BUSINESS CULTURE OF THE COMPANY AND PROTECT THE INTERESTS OF

THE SHAREHOLDERS OF THE COMPANY

REWARD SYSTEM COMPONENTS


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REFERENCES

1. Total Remuneration Management, Seminar GR 1 WorldAtWork 2. Compensation Theory and Practice, Wallace, M.J., and Fay, C.H., PWS-

KENT Publishing Company, 1998Creating Corporate Culture, Hampden,

C.T., Addison-Wesley Publishing Company, 1992

3. Human Resource Management, Positioning for the 21st Century, Schuler,

R.S., Jackson, S.E., West Publishing Company, 1996

4. The Executive Handbook on Compensation, Linking Strategic Rewards to

Business Performance, Fay, C.H., The Free Press, 2001


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DIRECT COMPENSATION

Ones Lebang


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MODULE – 2

DIRECT COMPENSATION


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OBJECTIVESOBJECTIVES

By the conclusion of this Module, you willBy the conclusion of this Module, you willbe able to accomplish the following:be able to accomplish the following:

Differentiate Direct Compensation fromDifferentiate Direct Compensation fromIndirect and Deferred Compensation.Indirect and Deferred Compensation.

Define the concept and components ofDirect Compensation as applicable in acertain organization.

Identify the purposes of each componentof Direct Compensation as applicable in acertain organization


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Deferred Compensation/Benefits

Total Compensation looks at all the cash programs, all the non-cash programs, and all the

deferred compensation and benefit programs offered by an organization to its employees.

ELEMENTS OF TOTAL COMPENSATION

COMPANY XYZ

- Severance Pay

Defined Benefits)

- Monthly Pension (Defined

Contribution)

- Old Age Benefit - Coy Tax on Severance

Pay

- Medical Coverage- HOP Loan

- VPA

- Educational Loan

- Natural Death Benefit

- Long Term Disability

-Industrial Death Benefit

- JK/JKK (XXVI.B)

-Salary Continuation

- Paid Vacations/Holidays

- Coy Tax


- Base Salary

-Regional Allowance

- Temporary Monetary

Assistance (MAC)

- Overtime Pay

- “Excess Working Hours”

- Shift Allowance

- Onshore Allow-Offshore Allow

-Leave Allowance

- “THRK”

- Vacation Travel Allowance

- AIP

- Coy Tax

Direct Compensation


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DEFINITIONS :DEFINITIONS :

Upah adalah hak pekerja/buruh yang diterimadan dinyatakan dalam bentuk uang sebagaiimbalan dari pengusaha atau pemberi kerjakepada pekerja/buruh yang ditetapkan dandibayarkan menurut suatu perjanjian kerja,kesepakatan, atau peraturan perundang-undangan, termasuk tunjangan bagipekerja/buruh atas suatu pekerjaan dan/atau

jasa yang telah atau akan dilakukan.


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BASE PAY

What is Base Pay?

The amount of money you receive on anhourly, monthly, or annual basis that is . .

Based on the value of your job-related skills andexperience compared to the market; and,

Tied to individual performance and contribution

relative to others.


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BASE PAY (continued)

Objectives of Base Pay:

Base Pay is intended to:

Provide a fundamental level of reward based on how

the position compares externally (vs. market) and

internally (vs. other roles in a company).

Reward performance and contribution over time.


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BASE PAY (continued)

How Base Pay is Determined

The value of the job in the market.

– By position

– By geography

Comparison with salary structure.

– Salary Grades and Ranges

Individual performance and contributionrelative to others.


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EQUITY AND BASE PAY

SYSTEMS

O = OutcomesI = Inputs

S = Self

O = Relevant Others

S O

S O

O O

I I =

BEHAVIORAL THEORIES


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BEHAVIORAL THEORIES

Equity TheoryEquity Theory

1. If ratios are equal, satisfied

2. If employee’s ratio is greater than

others, over-rewarded

3. If employee’s ratio is less thanothers, under-rewarded and

dissatisfied


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INTERNAL EQUITYDifferent job, same

organization

Job Analysis

Job Descriptions Job Evaluation

Salary Structures


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EXTERNAL EQUITYSame job, different

organization

Salary Surveys

Benefit Surveys Market Pricing

Other Benchmarking


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INDIVIDUAL EQUITYSame job, same

organization, differentincumbent

Performance

Effort Seniority

Legitimate (and not so

legitimate) individual

differences


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PROCESS EQUITYProcedural justice

Fairness of process

Communication

Participation Appeals

COMPENASATION STRAEGY


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COMPENASATION STRAEGY

AND YOUR ORGANIZATION

What compensation strategy is implicit in

your Base Pay program?

How does it support organizational strategy?

Could it do better?

Is it aligned with other compensation

programs?


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Transportation AllowanceTransportation Allowance --

General IndustryGeneral Industry

Transportation Allowance in Rp’000 Per monthEmployee Category

Min LQ Med. UQ Max Avg.

Top Management* 151 - - - 1,000 575

Management 140 220 575 750 1,000 554

Officer/Spv. 140 220 300 400 750 358

Clerical 100 136 222 300 600 249Non-clerical 50 100 121 167 300 142

Source : Watson Wyatt Total Remuneration Survey 2002

*: Due to insufficient data, we only provide the Minimum, Maximum and Average information


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ALLOWANCES (CONTINUED) Labor Law No. 13. Article 94:

In the event the wage components consist of Base

Salary and Fixed Allowances, the magnitude of theBase Salary is at the minimum 75% (seventy fivepercent) of the sum of the Base Salary and Fixed Allowances.

Example: Base Salary: Rp. 5,000,000.-

Housing Allow: Rp. 1500,000.-Transport Allow: Rp. 1,000,000.-

Is the above in compliance with the LaborLaw?

ANSWER


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ANSWER

PROPORTION OF BASE PAY TO FIXED ALLOWANCES

67%

20%

13%

BASE

HOUSING

TRANSPORT

Documents

Modul 11 - Total Compensation Concept