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Compensation Policy Chapter 02

Compensation Administration
Process

Recommended books

Milkovich, G.T. Newman, C.S (latest edition), Tata McGraw-Hill, New Delhi

Henderson, R.I (latest edition), Compensation Management in a knowledge-based


World,

Gerhart, B.&Rynes, S.L. (latest edition) Compensation: Theory, Evidence and


Strategic Implications, SAGE South Asia Edition

Bangladesh Labor Law, 2006 version with latest updates

Principles of Administration of Compensation

There should be a definite plan to ensure that differences in pay for jobs are
based upon variations in job requirements.

Prompt and correct payments of the dues of the employees.

The plan should carefully distinguish between jobs and employees.

Equal pay for equal work.

The wage and salary structure should be flexible.

The employees and the trade union, if there is one, should be informed about
the procedures used to establish wage rates.

The wage should be sufficient to ensure for the worker and his family
reasonable standard of living.

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Purpose of Compensation

For Employer

Brand image (employer of choice) for attracting candidates

Motivating employees for higher productivity and performance

Retaining talent

Consistency in compensation

Provoking healthy internal competition

For Employee

Work-life Balance

Recognition as tool to self esteem

Planning for better quality of life

Factors affecting Compensation

Mental requirements,
Physical requirements,
Skill requirements,
Responsibility level, and
Working conditions (risk, time, hazards)
Organizational Affordability
Man power planning
Output vs salary ratio
Market Rate for Talent
Economic Conditions

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Laws governing and affecting Pay Structure

Minimum Wages Act (minimum remuneration, its heads)


Income Tax Act (heads which provide tax relief)
Equal Remuneration Act
Payment of Wages Act (permissible deductions)
Acts on social securities (PF, Bonus, Gratuity, Employee Compensation)

Inputs we get in Compensation Structure

Job Evaluation
Job Specification
Job Description
Time and Motion Study
Market Survey
Demand and Supply- Talent Mapping
Industry wise bench marking

Sources of Compensation Data

Labor Market
Employer Information
Employer Association
Professional Association
Salary Survey
HR Service Providers

Compensation Administration

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
The major functions of an administration consist of the following:
Approval and /or recommendation of management on job evaluation
methods and findings.
Review and recommendation of basic wage and salary structure.
Co-ordination and review of relative departmental rates to ensure conformity.
Review of budget estimates for wage and salary adjustments and increases.

Compensation Administration process

Job Evaluation & job description

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
JOB EVALUATION: The process of analysing jobs from which job descriptions are
developed.
Job evaluation techniques include the use of interviews, questionnaires, and
observation.

A system for comparing jobs for the purpose of determining appropriate


compensation levels for individual jobs or job elements.

JOB DESCRIPTION: A critical component of both compensation and selection


systems, job descriptions define in writing the responsibilities, requirements,
functions, duties, location, environment, conditions, and other aspects of jobs.
Descriptions may be developed for jobs individually or for entire job families.

Job Evaluation - Objectives

Job evaluation is used to determine the relative value of each job in relation to all
jobs within the organization.
Immediate objective: to obtain internal and external consistency in wages and
salaries.
Ultimate objective: employee and employer satisfaction with wages and salaries
paid.

Job Evaluation HISTORY

1865 - Karl Marx wrote in Das Kapital that the value of goods and services is
based on the amount of labor that goes into them
1885 - Frederick Winslow Taylor stated that the content of labor in labor
determines the price of labor
1935 - Edward Hay developed the Hay point factor system
1963 - The Equal Pay Act prohibited discrimination on the basis of sexfor
equal work on jobs, the performance of which requires equal skill, effort, and
responsibility and which are performed under similar working conditions.

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Importance of job evaluation

1. To involve the people occupying the positions under evaluation. This is


especially so if you think your organizations job descriptions are poorly
written or out of date. The people in positions and their immediate
supervisors have the best idea of what the job is really about.
2. Job evaluation is most effective as a participative exercise and this in
itself can improve employment relations. It is therefore recommended
that job evaluation is introduced or revised jointly by allowing
management and employee representatives to discuss relevant issues
initially in a non-negotiating forum
3. To ensure integration of internal fairness and external
competitiveness.

Job Evaluation Methods

Job Ranking Method


Examines job description and arrange jobs according to value to
company e.g. highest to lowest.
Job Classification Method
Classes or grades are defined to describe a group of jobs
Point Method
Breaking down jobs on identifiable criteria and the degree to
which these criteria exist on the job.
Factor Comparison
Comparing value of different jobs and deciding the value of that
job.

Job Evaluation Methods (advantage Vs Disadvantage)

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Advantage Disadvantage

Ranking Fast, simple, easy to Cumbersome as number of jobs


explain. increases. Basis for comparisons is
not always acceptable.
Classificati Can group a wide range of Descriptions may leave too much
on work together in one room for manipulation.
system.
Point/Factor Compensable factors call Can become bureaucratic and rule-
s out basis for comparisons. bound.
Compensable factors
communicate what is
valued.

JOBS evaluation FACTORS

A set of compensable factors are identified as determining the worth of jobs.


Typically the compensable factors include the major categories of

RESPONSIBILITI
SKILLL EFFORT WORKING ES
CONDITION - Fiscal
Experience Mental - Supervisory
Education Physical Locati
Ability on
Hazar
ds
Extre
mes in
Environment
Decision making and problem Accountability
solving

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Job Evaluation benchmarking

Job Evaluation

External
Internal
consisten
consistency
cy

Intra- Industry, national,


organisation global

This potential to blend internal forces and external market forces both
strength and an opportunity to job evaluation system.

Hays Method 3 Factors

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Hays Method Process

Success factors of job evaluations

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd
Purpose of evaluation should be clearly defined
Adoption of appropriate technique
Allocation of sufficient resources

HRM 611 Compensation Policy, , MBA Program, School of Business, Brac University,
Course Instructor: MD. Tariqul Haque, tariq@enroute.com.bd