What is Compensation ?

Compensation is the process of directly and indirectly rewarding employees on a current or deferred basis, for their performance of assigned tasks.

Human Resource Systems

Components Of Compensation: y Basic Salary/Wage y Dearness Allowance y Bonus y Commissions y Mixed Plan y Sign On Bonus

Objectives of Compensation
y Legal Compliance regulations

with

all

appropriate

laws

and

y Cost effectiveness for the organization y Internal, External and Individual equity for employees y Performance enhancement for the organization

Compensation Types DIRECT

Base Pay  Wage  Salarie Variable Pay  Bonu e  In en i e  Sto Option Benefits  Medi al In uran e  Paid time o  Retirement Pen ion  Wor er Compen ation

INDIRECT

Division of Compensation -Responsibility

HR Ma ager
 Deve ops
Adm n sters Compensat on system and

L e Ma ager
 Attempt
to march

performance and rewards

 Recommend

pay

rates

 Conducts job eva uat on

and wage surveys

and increment based on guide ines from HR unit

 Deve ops wage / sa ary

structures and po c es

 Eva uate
performance

emp oyee based

compensation purposes

COMPENSATION STRATEGIES
y Compensation Philosophies
y Strate

c Compensat on Des n

y Compensat on and Or an zat ona Cu ture y Cost Effect veness and

abor Market Pos t on n

y Competency Based Pay y Broad banding and Career Development

Compensation Philosophy
ENTIT EMENT Seni rity ased Across the board raises ERF RMANCE No raises for length of service No raises for longer service poor performers G aranteed movement of scales Industry comparisons only Santa Claus Bonuses Market adjusted pay structure Broader Industry comparisons Bonuses tied to performance results

Changing Compensation Strategies

Yesterd
Fix s l ry for

Tod
V ri l pay as add-on to salary Variable pay emer ing t roughout organization Flexible benefits Industry-based career, moving around Flatter team-based organizations Total compensation (Look at benefits, too)

To orrow
Low fix d salary, variabl pay mor

onus s/perks executives only

Variable pay common throughout the organization ortable benefits kill-based, employment Network organizations interim virtual

Fixed benefits, reward long tenure ompany-based career moving up Hierarchical organizations ookie cutter pay plans

Customized, integrated pay systems; pay, benefits, intangibles

Quartile Strategy
Th rd Quart e Above-Market Strategy
(25% of f rms pay above and 75% pay be o )

Max mum

Second Quart e Middle-Market Strategy F rst Quart e Below-Market Strategy

Med um

(50% of f rms pay above and 50% pay be o )

M n mum

(75% of f rms pay above and 25% pay be o )

Outcomes from Competency Based Systems

Or anization-Related Outcomes
Greater workforce flexibility

Employee-Related Outcomes
Enhanced employee understanding of Organisational big picture Greater employee selfmanagement capabilities Improved employee satisfaction Greater employee commitment

Increased effectiveness of work Team Few bottlenecks in work flow Increased worker output

DESIGNING EFFECTIVE COMPENSATION PROGRAM

Job Analysis (Job Descriptions, Job Specifications)

Job Evaluation

Pay Surveys

Pay Policies

Pay Structures

Performance Appraisal

Individual Pay

Implementation, Communication, Monitoring

Salary Structure
Job Evaluation Results Pay Survey Data

Develop Market Line

Identify Different Pay Structures

Establish Pay Grades

Revise Pay Grades and Ranges as Needed Compare Current Pay to Pay Ranges

Compute Pay Ranges

COMPENSATION POLICIES AND PROCEDURES

y Know what the competition is doing and benchmark your structure to reflect competitive practices for retention and recruitment purposes. y Salaries should reflect level of responsibility employees may have in the organization. y Form a compensation committee (preferably represented by management and employees).

Contd...

COMPENSATION POLICIES AND PROCEDURES

y Create a structure where salaries and any increases reflect company performance as espoused by the compensation committee. y Develop and document a general company policy and strategy for pay increases. y Liaison with the compensation committee for review, adjustments and approval.

Team Based Compensation

Types of Team Incentives

Same size reward for each team member Different size rewards for each team member

Criteria for Best Team Work

Significant interdependence exists among the work of several individuals, and team work and co-operation is absolutely essential. Contd..

Team Based Compensation

Difficulties exist in identifying exactly who is responsible for different levels of performance. Management wants to create or reinforce team work and co-operation among employees Rewards are seen as being allocated in a fair and equitable manner.