Compensation Concepts
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Transcript of Compensation Concepts
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8/6/2019 Compensation Concepts
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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.
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Human Resource SystemsComponents Of Compensation:
y Basic Salary/Wage
y Dearness Allowancey Bonus
y Commissions
y Mixed Plan
y Sign On Bonus
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Objectives of Compensation
y Legal Compliance with all appropriate laws andregulations
y Cost effectiveness for the organization
y Internal, External and Individual equity for employees
y Performance enhancement for the organization
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Compensation Types
DIRECT INDIRECT
Base Pay
Wage Salarie
Variable Pay
Bonu e
In en i e
Sto Option
Benefits
Medi al In uran e Paid timeo
Retirement Pen ion
Wor er Compen ation
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Division of Compensation -Responsibility
HR Ma ager L e Ma ager
Deve ops and
Adm n sters
Compensat onsystem
Conducts job eva uat on
andwagesurveys
Deve ops wage / sa ary
structuresandpo c es
Attempt to march
performanceandrewards
Recommend pay rates
and increment based on
guide inesfrom HRunit
Eva uate emp oyee
performance based
compensationpurposes
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COMPENSATIONSTRATEGIES
y CompensationPhilosophies
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 CompetencyBasedPay
yBroadbandingandCareer Development
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Compensation Philosophy
ENTIT EMENT ERF RMANCE
Seni rity ased Noraises forlength ofservice
Across the boardraises No raises for longer service poor
performers
G aranteedmovement ofscales Market adjusted paystructure
Industrycomparisonsonly Br oader Industrycomparisons
Santa ClausBonuses Bonuses tied to performanceresults
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Changing Compensation Strategies
Yesterd Tod To orrow
Fix s l ry V ri l a as add-on
to salary
Low fix d salar , mor
variabl pay
onus s/ erks for
executives only
Variable a emer in
t roughout organization
Variable a common
throughoutthe organization
Fixed benefits,
reward long tenure
Flexible benefits ortable benefits
ompany-based
careermoving up
Industry-based career,
moving around
kill-based, interim
employment
Hierarchicalorganizations
Flatter team-basedorganizations
Network virtualorganizations
ookie cutter pay
plans
Total compensation
(Look at benefits,too)
Customized, integrated pay
s stems; a , benefits,
intangibles
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Quartile Strategy
Th rd Quart e
Above-Market Strategy Max mum(25% of f rms pay above and 75% pay be o )
Second Quart e
Middle-Market Strategy Med um
(50% of f rms pay above and 50% pay be o )
F rst Quart e
Below-Market Strategy M n mum(75% of f rms pay above and 25% pay be o )
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Outcomes from Competency Based Systems
Or anization-Related
Outcomes
Employee-Related
Outcomes
Greaterworkforce flexibility Enhancedemployeeunderstandingof Organisationalbigpicture
IncreasedeffectivenessofworkTeam
Greateremployeeself-management capabilities
Fewbottlenecksinwork flow Improvedemployeesatisfaction
Increasedworkeroutput Greateremployeecommitment
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DESIGNINGEFFECTIVE COMPENSATIONPROGRAM
JobAnalysis
(Job Descriptions,JobSpecifications)
JobEvaluation
PayPolicies PayStructures
Performance
AppraisalIndividualPay
Implementation,
Communication,Monitoring
PaySurveys
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Salary
Structure
JobEvaluationResults PaySurvey Data
DevelopMarketLine
Identify Different
PayStructures
EstablishPayGrades
ComputePayRanges
RevisePayGradesandRangesasNeeded
CompareCurrent
Pay toPayRanges
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COMPENSATIONPOLICIESANDPROCEDURES
y Know what the competition is doing and benchmark yourstructure to reflect competitive practices for retention andrecruitment purposes.
y Salaries should reflect level of responsibility employeesmay have in the organization.
y Form a compensation committee (preferably represented
by management and employees).
Contd...
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COMPENSATIONPOLICIESANDPROCEDURES
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 andstrategy for pay increases.
y Liaison with the compensation committee for review,adjustments and approval.
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Team Based Compensation
TypesofTeamIncentives
Same size reward for each team member
Different size rewards for each team member
CriteriaforBestTeamWorkSignificant interdependence exists among the work of
several individuals, and team work and co-operation isabsolutely essential.
Contd..
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Team Based Compensation
Difficulties exist in identifying exactly who is
responsible for different levels of performance.
Management wants to create or reinforce teamwork and co-operation among employees
Rewards are seen as being allocated in a fair and
equitable manner.