Transcript
Page 1: Compensation Planning Final Ppt

PRESENTATION ON

STRATEGIC COMPENSATION PLANNING

Page 2: Compensation Planning Final Ppt

Contents of presentation

Review of meaning of compensationTotal compensation why employees leave the organisation?Two ways to address this problem: Reviewing Employement Deal Or go for Strategic Compensation PlanningGoals and areas of concerns for strategic

compensation planningIn detail the whole concept of Strategic

Compensation PlanningProcess of strategic compensation planning

2

Page 3: Compensation Planning Final Ppt

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.

Page 4: Compensation Planning Final Ppt

4

Total CompensationTotal CompensationTotal CompensationTotal Compensation

DirectDirectDirectDirect IndirectIndirectIndirectIndirect

BonusesBonusesBonusesBonuses

GainsharingGainsharingGainsharingGainsharingSecurity Plans• Pensions

Security Plans• Pensions

Employee Services• Educational assistance• Recreational programs

Employee Services• Educational assistance• Recreational programs

CommissionsCommissionsCommissionsCommissions

Wages / SalariesWages / SalariesWages / SalariesWages / Salaries

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Page 5: Compensation Planning Final Ppt

Still Employees are Dissatisfied,why??

Reason why employees choose to leave their company: Most of Employees believe their pay is linked to their

company’s performance But, they are neither satisfied with their pay nor their

benefits

 

13% 9%

More Meaningful Work 17%

10% Better Benefits

30% 15%

Better Opportunities to Utilise My Skills Success

60% 19%

Better Career Opportunities 62%

24% Better Compensation Package

REASONS CITED FOR WANTING TO LEAVE COMPANY --INDIA*

Page 6: Compensation Planning Final Ppt

So what can be done to address

this issue?

Page 7: Compensation Planning Final Ppt

Review the employment deal…

Employer

Value Creation Through People:• Attract• Develop• Focus and engage• Build commitment,

ownership and loyalty

Employee

A meaningful work experience:• Personal fulfillment• Wealth

accumulation• Competitive Pay• Security

Page 8: Compensation Planning Final Ppt

OR

GO FOR A BETTER STARTING

BY “PLANNING COMPENSATION

STRATEGICALLY”

8

Page 9: Compensation Planning Final Ppt

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.

Page 10: Compensation Planning Final Ppt

Strategic Compensation Goals10

To reward employee’s performanceTo remain competitive in the labor marketTo maintain salary equity among employeesTo fit together employees’ future

performance with organizational goalsTo control the compensation budgetTo attract new employeesTo reduce unnecessary employee turnover

Page 11: Compensation Planning Final Ppt

Strategic Compensation planning Concerns

11

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.

Page 12: Compensation Planning Final Ppt

Issues in Developing Benefits Plans

12

Benefits to be offered.Coverage of retirees in the planDenial of benefits to employees during

initial “probationary” periodsFinancing of benefits. Benefit choices to give employees.Cost containment procedures to use.Communicating benefits options to

employees.

Page 13: Compensation Planning Final Ppt

1.Linking Compensation to Organizational Objectives

13

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?”

Page 14: Compensation Planning Final Ppt

Significant Goals Driving Pay and Reward Changes

14

Page 15: Compensation Planning Final Ppt

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.

Page 16: Compensation Planning Final Ppt

Designing a Pay-for-Performance System

16

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?

Page 17: Compensation Planning Final Ppt

3.Compensation Management and Other HRM Functions

17

Pay rates affect selectivityPay rates affect selectivityPay rates affect selectivityPay rates affect selectivitySelectionSelectionSelectionSelection Selection standards affect Selection standards affect

level of pay requiredlevel of pay required

Selection standards affect Selection standards affect level of pay requiredlevel of pay required

Pay can motivate trainingPay can motivate trainingPay can motivate trainingPay can motivate training Training and Training and DevelopmentDevelopment

Training and Training and DevelopmentDevelopment

Increased knowledge leads Increased knowledge leads to higher payto higher pay

Increased knowledge leads Increased knowledge leads to higher payto higher pay

support or damage recruitmentsupport or damage recruitmentsupport or damage recruitmentsupport or damage recruitment RecruitmentRecruitmentRecruitmentRecruitment Supply of applicants Supply of applicants affects wage ratesaffects wage rates

Supply of applicants Supply of applicants affects wage ratesaffects wage rates

Low pay encourages Low pay encourages unionizationunionization

Low pay encourages Low pay encourages unionizationunionization Labor RelationsLabor RelationsLabor RelationsLabor Relations Pay rates determined Pay rates determined

through negotiationthrough negotiation

Pay rates determined Pay rates determined through negotiationthrough negotiation

Page 18: Compensation Planning Final Ppt

4.Motivating Employees through Compensation

18

Pay Equity (also Distributive Fairness) An employee’s 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.

Page 19: Compensation Planning Final Ppt

Relationship between Pay Equity and Motivation

19

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

Page 20: Compensation Planning Final Ppt

Relationship b/w Expectancy Theory and Pay

20

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.

Page 21: Compensation Planning Final Ppt

Pay-for-Performance and Expectancy Theory

21

Page 22: Compensation Planning Final Ppt

Strategic compensation planning process

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.

22

Page 23: Compensation Planning Final Ppt

The steps involved are:

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 plan—quality,productivity, service, team-work, cost reduction and so forth. The potential list is long and different for each organization.

23

Page 24: Compensation Planning Final Ppt

Continue….

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.

 

24

Page 25: Compensation Planning Final Ppt

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

planning works”

25

Page 26: Compensation Planning Final Ppt

26