Managing Compensation - PowerPoint PPT Presentation

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Managing Compensation

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Title: PowerPoint Presentation Author: Swati Agarwal Last modified by: sagarwal Created Date: 1/1/1601 12:00:00 AM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: Managing Compensation


1
Managing Compensation
2
  1. Explain employer concerns in developing a
    strategic compensation program.
  2. Indicate the various factors that influence the
    setting of wages.
  3. Explain the purpose of a wage survey.
  4. Define the wage curve, pay grades, and rate
    ranges as parts of the compensation structure.

3
Compensation
  • Pay is a statement of an employees worth by an
    employer.
  • Pay is a perception of worth by an employee.

4
Total Compensation
  • Time Not Worked
  • Vacations
  • Breaks
  • Holidays

Wages / Salaries
Commissions
  • Insurance Plans
  • Medical
  • Dental
  • Life

Bonuses
Gainsharing
  • Security Plans
  • Pensions
  • Employee Services
  • Educational assistance
  • Recreational programs

5
Common Strategic Compensation Goals
  1. To reward employees past performance
  2. To remain competitive in the labor market
  3. To maintain salary equity among employees
  4. To link employees future performance with
    organizational goals
  5. To control the compensation budget
  6. To attract new employees
  7. To reduce unnecessary turnover

6
Strategic Compensation Policy Concerns
  1. The rate of pay within the organization and
    whether it is to be above, below, or at the
    prevailing community rate.
  2. The ability of the pay program to gain employee
    acceptance while motivating employees to perform
    to the best of their abilities.
  3. The pay level at which employees may be recruited
    and the pay differential between new and more
    senior employees.
  4. The intervals at which pay raises are to be
    granted and the extent to which merit and/or
    seniority will influence the raises.

7
Designing a Pay-for-Performance System
  • How will performance be measured?
  • How will allocation be done for compensation
    increases.
  • 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?

8
The Bases for Compensation
  • Hourly Work
  • Work paid on an hourly basis.
  • Piecework
  • Work paid according to the number of units
    produced.
  • Salary Workers
  • Employees whose compensation is computed on the
    basis of weekly, biweekly, or monthly pay periods.

9
Factors Affecting the Wage Mix
10
The Wage MixInternal Factors
  • Employers Compensation Strategy
  • Setting organization compensation policy to lead,
    lag, or match competitors pay.
  • Worth of a Job
  • Establishing the internal wage relationship among
    jobs and skill levels.
  • Employees Relative Worth
  • Rewarding individual employee performance
  • Employers Ability-to-Pay
  • Having the resources and profits to pay employees.

11
The Wage MixExternal Factors
  • Labor Market Conditions
  • Availability and quality of potential employees
    is affected by economic conditions, government
    regulations and policies, and the presence of
    unions.
  • Area Wage Rates
  • A firms formal wage structure of rates is
    influenced by those being paid by other area
    employers for comparable jobs.

12
The Wage MixExternal Factors
  • Cost of Living
  • Local housing and environmental conditions can
    cause wide variations in the cost of living for
    employees.
  • Inflation can require that compensation rates be
    adjusted upward periodically to help employees
    maintain their purchasing power.

13
Job Evaluation Systems
  • Job Evaluation
  • The systematic process of determining the
    relative worth of jobs in order to establish
    which jobs should be paid more than others within
    an organization.

14
Job Evaluation Systems
  • Job Ranking System
  • Oldest system of job evaluation by which jobs are
    arranged on the basis of their relative worth.
  • Disadvantages
  • Does not provide a precise measure of each jobs
    worth.
  • Final job rankings indicate the relative
    importance of jobs, not extent of differences
    between jobs.
  • Method can used to consider only a reasonably
    small number of jobs.

15
Job Evaluation Systems
  • Job Classification system
  • A system of job evaluation in which jobs are
    classified and grouped according to a series of
    predetermined wage grades.
  • Successive grades require increasing amounts of
    job responsibility, skill, knowledge, ability, or
    other factors selected to compare jobs.

16
Point System
  • Point System
  • A quantitative job evaluation procedure that
    determines the relative value of a job by the
    total points assigned to it.
  • Permits jobs to be evaluated quantitatively on
    the basis of factors or elementscompensable
    factorsthat constitute the job.

17
The Compensation Structure
  • Wage and Salary survey
  • A survey of the wages paid to employees of other
    employers in the surveying organizations
    relevant labor market.
  • Helps maintain internal and external pay equity
    for employees.
  • Labor Market
  • The area from which employers obtain certain
    types of workers.

18
Collecting Survey Data
  • Conducting Employer-initiated Surveys
  • Select key jobs.
  • Determine relevant labor market.
  • Select organizations.
  • Decide on information to collect wages/
    benefits/ pay policies.
  • Compile data received.
  • Determine wage structure and benefits to pay.

19
Characteristics of Key Jobs
  • Key Jobs
  • Jobs that are important for wage-setting purposes
    and are widely known in the labor market.
  • Characteristics of Key Jobs
  • They are important to employees and the
    organization.
  • They contain a large number of positions.
  • They have relatively stable job content.
  • They have the same job content across many
    organizations.
  • They are acceptable to employees, management, and
    labor as appropriate for pay comparisons.

20
The Wage Curve
  • Wage Curve
  • A curve in a scatter gram representing the
    relationship between relative worth of jobs and
    wage rates.
  • Pay Grades
  • Groups of jobs within a particular class that are
    paid the same rate.
  • Rate Ranges
  • A range of rates for each pay grade that may be
    the same for each grade or proportionately
    greater for each successive grade.
  • Red Circle Rates
  • Payment rates above the maximum of the pay range.

21
Freehand Wage Curve
22
Wage Structure with Increasing Rate Ranges
23
The Wage Curve (contd)
  • Competence-based Pay, (also skill-based pay or
    knowledge-based pay)
  • Compensation for the different skills or
    increased knowledge employees possess rather than
    for the job they hold in a designated job
    category.
  • Greater productivity, increased employee learning
    and commitment to work, improved staffing
    flexibility to meet production or service
    demands, and the reduced effects of absenteeism
    and turnover,
  • Broadbanding
  • Collapses many traditional salary grades into a
    few wide salary bands.

24
Approaches of compensation management
  • There are 3P approach of developing a
    compensation policy centered on the fundamentals
    of paying for
  • Position,
  • Person and
  • Performance.

25
  • The management of any organization considers
    three parameters while deciding the salary as
    well as incentives
  • Pay for position
  • Broad banding
  • Through broad banding the traditional narrowly
    structured pay grades generally determined
    through job evaluation are replaced by fewer and
    wider bands, and a grading structure is created.

26
Broad Banding
  • It is a compensation technique that reduces many
    different compensation categories to several
    broad compensation bands. A banding procedure
    takes place when jobs are grouped together by
    common characteristics

27
Broad Banding
  • On recruitment or promotion, employee
    compensation may be set at levels in the
    broadband deemed to be appropriate to an
    employees qualifications, education,
    training and experience. Employees typically
    progress up through the broad band if their
    performance ratings are good, rather than
    progressing up through a grade by steps based on
    time in the grade.

28
Pay for Person
  • Pay for person takes into account a persons
    capabilities and experience in setting a pay
    level that is both equitable and competitive. It
    also considers the market demand of a persons
    unique skills and experience.
  • Pay for person is associated with competency
    based pay. It also incorporates market based
    pay approach.

29
  • Pay for performance
  • An individuals performance is managed through a
    performance contract which comprises the
    clarification of the role, the setting up of
    objectives, and the review of performance. As an
    outcome a measure of performance at the
    corporate, unit and individual level becomes the
    basis for setting the performance pay.

30
  • DA forms a variable component of pay packet since
    rate of dearness increases more than once every
    year, whereas the basic pay scales are revised
    after long spells of time.

31
  • Perquisites
  • These are normally provided to managerial
    personnel either to facilitate their job
    performance or to retain them in the
  • organization.
  • Such perquisites include company car, club
    membership, free residential accommodation, paid
    holiday trips, stock
  • options, etc.

32
  • Incentives-
  • Incentives are paid in addition to wages and
    salaries and are also called payments by
    results. Incentives depend upon productivity,
    sales, profit, or cost reduction efforts. There
    are (a) Individual incentive schemes, and (b)
    Group incentive programs.
  • Individual incentives are applicable to specific
    employee performance. Where a given task demands
    group efforts for completion, incentives are paid
    to the group as a whole. The amount is later
    divided among group members on an equitable basis.

33
  • Bonus-
  • The bonus can be paid in different ways. It can
    be fixed percentage on the basic wage paid
    annually or in proportion to the profitability.
    The Government also prescribes a minimum
    statutory bonus for all employees and workers.
    There is also a bonus plan which compensates the
    Managers and employees based on the sales revenue
    or Profit margin achieved.

34
Separation
  • Employee Separation is the termination of service
    agreement between the employee and the employer
    when either of them decides to put an end to the
    service.
  • Resignation Layoff
  • Retirement Retrenchment
  • VRS
  • Death

35
VRS
  • Rule 48 A of Pension Rule-1972
  • --- Any time after completing 20 years of service
  • -- By giving notice of not less than 3 months in
    writing to the appointing authority
  • -- 25 days salary(BDA) for the remaining days of
    service until retirement
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