EXECUTIVE BACHELOR HUMAN RESOURCE MANAGEMENTCONPENSATION MANAGEMENT

ASIA E UNIVERSITYPREPARED BY :

IGE MANJUNG

1) Elucidate the frame work of conpensation policy of organisation

Compensation In addition to competitive basic pay rates and regular salary increases, depending on the type of job held, most employees may also receive overtime pay, night shift differential, and Sunday premium pay.

Thecompensation policyis the basic document, which drives the detail of the compensation practices in the organization. As the compensation strategy sets the high level compensation goals of the organization, the compensation policy describes the details of the individual compensation components, their behavior and their role in the compensation scheme of the organization.

Thecompensation policydescribes the details of the compensation componentsin the organization, how they are used and the conditions for the employees as the compensation component can be applied in their specific situation.Each organization uses many compensation components and they have to be described. The compensation policy provides the basic explanation of the compensation component, how it is calculated, who is eligible for the usage and the approval procedure.

The compensation policy belongs to most read and discussed internal policiesof the organization as it drives the salaries of the individual employees. Each employee is interested in the structure of the salary and the potential total cash achievable in the organization. The compensation policy is the main tool to find out the details about the compensation components and the way, how to achieve the highest total cash.The compensation policy drives the effort and performance of employees as the employees will find the smart and easiest way how to achieve the highest possible income with the smallest possible individual performance. The compensation policy has to be set the smart way as it avoids the potential work-around and abuse.

The compensation policy has to betransparentand it has to provide just the only way of the interpretation. It is extremely important, the employees and managers are not unsure about the compensation component and they understand clearly, what conditions are applied for the approval of the specific compensation component.The transparent compensation policy supports the high performance corporate culture organization as the employees understand, what behaviour and performance levels are expected to be eligible for the specific compensation component and it drives the behaviour and performance specifically the right way for the organization.The policy has to cover all the compensation components, which are used in the organization and affects large populations. The exceptional managerial component tools can be referenced from the general compensation policy, but they should not stay hidden. The employees cannot trust the compensation policy, which does not mention all the compensation components.

1 (b) Explain the various types of incentives meant for blue colour workers

Incentive plans are used to motivate employees to increase production. According to the business resource Business Town, employees given an incentive plan tend to feel more attached to the company's success and may work harder to help achieve it. Incentives can come in many forms.

Stock OptionsA stock option is an incentive offered to employees that want to invest their money into the company stock by purchasing stock with pre-tax money. According to HR Guide, employees that participate in a stock option incentive plan are able to defer paying income tax on the gains realized by their stock purchases until the stock is sold. The company itself does not get any kind of tax break by offering a stock option incentive, but it does reap the benefits of selling more stock.

Profit SharingAccording to Business Town, profit sharing is another incentive plan done with pre-tax dollars. The company sets aside a portion of their pre-tax profits and distributes that money to the employees. In most cases, an employee must qualify to receive profit sharing by meeting company performance metrics, and by having a predetermined amount of service in with the company. Some companies offer to place the pre-tax dollars into the employees' company retirement plans, so it can add to future fund growth. Companies may also develop a profit sharing percentage based on the amount of time worked for the company, the position held within the company or a combination of both conditions.

Performance UnitsAccording to the Society for Human Resource Management, one type of incentive plan for executives is known as the performance unit. In the executive's agreement there is a schedule of financial milestones that the company must achieve for the executive to get awarded a pre-determined amount of units. The amount of a performance unit varies by company. Performance units are paid out based on a schedule agreed to by the executive and the company.

Bonus PayThe bonus pay structure is common in professions such as sales, marketing and production. When the employees reach a predetermined goal, the company may create an incentive plan that pays a bonus for going beyond that goal. For example, if a manufacturing plant has a goal of 100 units in a month, the company may offer to pay each employee a bonus for each unit manufactured beyond 100 in that month.

2 (a) Job evaluation forms basis of compensation management. Discuss what you know about this Job Evaluation

Theobjectiveof job evaluation is to determine which jobs should get morepaythan others. Severalmethodssuch as job ranking, job grading, and factor comparison areemployedin job evaluation.Researchindicates, however, that each method is nearly asaccurateand reliable as the other in ranking and pricing different jobs. Job evaluationformsthe basis forwageandsalarynegotiations.

Job evaluations will determine the salary grade of a job and may occur at any time during the year. The table below describes the most common reasons for a job evaluation and the corresponding actions.In the event that a department manager/supervisor would like to recommend a job evaluation, he or she should contact his or her human resources representative to discuss the situation and process for conducting the evaluation.If the HR representative and department manager/supervisor reach agreement that an evaluation is necessary, they will then complete ajob (re)evaluation tool, obtain the necessary departmental approvals for the review, and then forward the request to the Compensation unit for review.Once the Compensation unit has reviewed the request, a recommendation will be sent back to the HR representative. Any pay changes resulting from the Compensation unit's recommendation will follow the salary increase guidelines.

Job evaluation (Internal equity)Job evaluation is the systematic process for assessing the relative worth of jobs within an organization. A comprehensive analysis of each positions tasks, responsibilities, knowledge, and skill requirements is used to assess the value to the employer of the jobs content and provide an internal ranking of the jobs. It is important to remember that job evaluation is a measurement of the internal relativity of the position and not the incumbent in the position. This analysis can also contribute to effective job design by establishing the organizational context and value of the job, and to hiring and promotion processes by providing job analysis on skill and competencies required to successfully meet job requirements. Job evaluation provides a rational and consistent approach for determining the pay of employees within an organization. Paying fairly based on internal relative worth is called Internal Equity. Job evaluation can be used independently, although it is usually part of a compensation system designed to provide appropriate salary ranges for all positions. This process will ensure an equitable and defensible compensation structure that compensates employees fairly for job value. When to conduct job evaluationThe job evaluation process should be conducted after completing a job analysis but before creating a compensation programcompensation program. Job evaluation should be conducted for every new position in order to ensure the organization is hiring the correct level based on expected tasks, qualifications and responsibilities of the job. Job evaluations should also be conducted when a job has changed substantially in order to reflect the current role, which is known as reclassification or re-evaluation.The goal is to identify what is required to ensure satisfactory performance and/or progression. Therefore, the same criteria should be used when hiring a new employee, during the establishment of goals and expectations, in recognizing achievement, or in promotion of an employee.2 (b) Analyze the factors involved in formulating compensation package for marketing professionals

According to the Bureau of Labor Statistics, marketing workers are typically classified into one of three major categories: survey researchers, market research analysts and marketing managers. Salaries for each of these different types of positions vary. Starting salaries at a marketing agency can be low in comparison to other business fields, but the earning potential can offset the lower pay in the long run.

compensation plan will have a base salary attached. Sure, it might seem inviting to hire sales agents who do not get paid unless a deal closes. However, you risk hiring less-qualified or less-dedicated sales professionals with a commission-only package. A commission-only sales agent has a feast or famine mentality. If he is not closing business with your company, he will not stay with your business for very long. This type of sales agent is generally operating in his best interest rather than your company's or the client's. Paying a sales agent a base salary ensures that he can support himself while going through training or building relationships with prospects. A 30 percent base with 70 percent commission is fairly typical in most sales environments.

CommissionWell-structured commissions can serve as a wonderful incentive for your sales force. The more money sales agents make by meeting or exceeding sales targets, the harder your sales force will work to exceed them. The best sales compensation plans have a competitive base salary and a tiered commission structure. The better your agents perform, the higher the commissions. This pay-for-performance model is commonplace in many sales environments. Some companies may also pay more commission when agents sell to new versus existing customers or focus on new products versus existing ones.BonusesWhile commissions are earned whenever a sales agent closes business, bonuses are earned when a sales agent exceeds her sales target. Bonuses reward superior performance and may be paid quarterly, semi-annually or yearly. Bonuses may come in the form of cash incentives or an all-expenses-paid vacation package. An ideal compensation plan will have several bonuses in addition to commissions and a base salary for agents.ConsiderationsMake sure your compensation plan includes a base salary, tiered commission structure and multiple bonuses if your aim is to create the best plan. Your commissions should be structured so that your agents will meet sales targets while the targets for bonus awards should be set so that your agents supersede the annual sales target. Be careful not to set commission or bonus payout goals too aggressively. Your aim is to motivate your agents not discourage them. Review performance to determine how well agents did and then set reasonable expectations for the revenue your agents will bring in.

Sales, marketing and business development staff typically have both fixed and variable salary components that together comprise each employee's total compensation. At higher levels in an organization, the amount of variable compensation is usually greater than at lower levels because it is only paid when sales goals are met. Some salespeople may not have any fixed component of pay at all and instead are paid a commission for each sale they make.Fixed CompensationMost non-commissioned staff in sales, marketing and business development have a fixed component to their earnings, which is essentially a guaranteed payment. The fixed component is paid as either an hourly rate or as an annual salary, depending on a job's classification as exempt or non-exempt from overtime. By federal law, hourly employees also receive overtime pay for each hour worked beyond 40 hours in a work week. In some states, a similar law applies to salaried employees as well.Variable CompensationStaff at all levels may also earn a bonus or incentive. For sales, marketing and business development employees, incentives are usually based on individual, team and company sales goals. Unlike a fixed component, such as a salary, bonuses and incentives are variable pay because the amount an employee is paid varies based on actual performance. Bonuses and incentives are also called "at risk" pay, because there is no guarantee that an employee will receive any compensation at all if, for example, sales targets are not met.Pay MixMost organizations establish a pay mix, the ratio of fixed pay to total compensation, that varies based on an employee's role and level in the organization. Hourly and salaried employees at lower levels may have an 90/10 pay mix, meaning that only 10 percent of pay is at risk if conditions aren't met to earn the incentive. These employees have less opportunity to directly influence sales, so have a lower risk. Full-time sales staff and higher level management may have a 70/30 pay mix, meaning that 30 percent of pay is at risk if incentivized goals aren't met, because of their ability to directly influence sales.Sales CommissionsSome sales staff may not have any fixed pay component at all, or may have a very small fixed component. These employees are typically paid a commission for each sale they make, usually a percentage of the total sale. Commissioned salespeople have high risk and high reward. The risk is that they will have no income if they don't sell anything. The reward is that they can make substantially more money than other employees when they sell a lot. In fact, it's not unusual for the top salespeople in a company to make more money than the CEO in any given year.

3(a) Explain various forms of wage differential

COMPENSATING WAGE DIFFERENTIALS:Different wages paid to different workers or in different markets that adjust for differences in the jobs or in the productivity of the workers. Wage differentials occur for many reasons. Quite often they are the result of the personal preferences of workers. In some cases workers are willing to "buy" leisure-time or other types of household production by taking lower wages. Differences in job risks, education, and location are also reasons for the persistence of wage differentials.Wage differentials observed in the labormarketare often compensatingwagedifferentials. Some employers find it necessary to pay higher wages to compensate workers for dirty, dangerous, and generally undesirable working conditions. Other employers can pay less for comparable work because conditions are more pleasant.Three reasons for compensating wage differentials are worth noting: Risk and Hazardous Conditions: Jobs that are riskier, more dangerous, and have a greater likelihood of injury, typically pay higher wages. For example, coal miners, deep sea divers, and security guards are likely to be paid higher wages than similar jobs due to the hazardous nature of their duties.

Education and Skill: Jobs that require more education, skill, and training also tend to pay higher wages. Higher wages compensate for greater productivity and provide returns oninvestmentin education and training.

Location: Jobs that are at undesirable, more distant, or hard to reach locations also pay higher wages. Firms in cities that have high living costs, inhospitable climates, high crime rates, or other "disamenities" find it necessary to offer higher wages to attract workers.Compensating wage differentials have an important allocative function for the economy for two reasons: First, they provide incentives for people to undertake less desirable work. If society decides that resources need to be allocated to production that involves undesirable work, then compensating wage differentials are necessary. Without extra wages, this work is not done.

Second, they provide incentives for employers to reduce the undesirable nature of the work. If otherwise identical firms have different working conditions, then one is forced to pay higher wages to attract workers. Higher labor cost encourages employers to improve working conditions to remain competitive.As long as workers have complete information about the risks and hazards of a job and are free to choose between different employers, then compensating wage differentials are allocatively efficient. This is important in terms of government worker safety regulations--primarily undertaken by the Occupational Safety and Health Administration (OSHA).A key function of OSHA is to reduce the amount of risk that workers face. However, some workers undertake more risky jobs to receive higher compensating wages. If the amount of risk is reduced, then so too are the wages (and presumably the welfare) of these workers. By attempting to help workers, OSHA can actually make them worse off.Of course, if the labor market is not competitive and does not have well-informed workers, then job-related risks do not generate compensating wage differentials. Such is the case for jobs that use new and untested technologies. For example, the risks of coal mining and deep sea diving are well known and generate relatively high compensating wages. However, the risks of working for extended periods with computer video screens or recently developed chemicals are not yet known.While wage differentials can enhanceefficiency, they can also inhibit efficiency. When caused by discrimination, union market power, or government policies, wage differentials create inefficiencies in the economy.

Executive DutiesExecutives typically are considered exempt employees, which means they can be paid a salary without overtime requirements. Generally, to be considered an executive, an employee must regularly supervise two or more employees and have the ability to hire and fire. Additionally, the employee's duties should be primarily managerial in nature.

Administrative DutiesAdministrative duties include those that are essentially nonmanual and relate to some type of office function. Additionally, to be considered exempt under the administrative duties exception, the administrative employee must be able to exercise discretion and independent judgment regarding significant matters. Therefore, this exception does not include administrative assistants, for example, since these employees have little discretion over significant business matters.

Other Major ExceptionsThree other categories of employees are considered exempt under the FLSA. The one that is most likely to impact small businesses is the exemption for professionals. For example, if a small law firm hired a new associate attorney, that attorney, as a licensed professional, would be exempt from the FLSA overtime requirements. The same would hold true for accountants or other professionals. The other two exceptions are for outside sales representatives and computer analysts or professionals.

3 (b) List out and explain the various incentive plan design by compensation experts.Companies are being forced to totally rethink their business model and marketing strategy as a result of an extremely challenging economic marketplace.Stakeholders and boards are demanding increases in the bottom line. Because of the economic stagnation, companies are finding it increasingly more difficult to increase prices, and are facing market pressures to drop prices even further.

In the past, as revenue increased, sales commission plans built on revenues actually created an unintended, yet,de factoincrease in commissions.This invisible increase in compensation resulted from sale of the same units with increased costs.The economic situation has put a halt to run-away sales and price increases, and actually exacerbated the pressure on margins.More importantly than before, it is critical that companies take a hard look at their sales commission plans, and determine if the company and their sales force are actually being well-served by a pay program that in all likelihood needs to be revamped.

A well-designed sales compensation package will enable the company to focus its sales activities on desired results, tie the rewards directly toachievement level, and be sufficiently flexible to handle future market shifts.As the organizations business model and marketing plan vary, the sales compensation package needs to reflect this new strategy.

The key to a successful sales compensation program can be achieved in four (4) steps:

1. Clearly defining sales expectations and goals that are realistic but challenging.2. Tracking and accurately measuring performance against expectations.3. Rewarding achievement with competitive compensation and motivational features that provide a Win/Win for both the company and the sale force.4. Monitoring the results, modifying the plan when necessary, and keeping the sales personnel informed.

Sales compensation packages typically comprise one or more of the following components:

Base salaryor draw against commissions Commissions tied to short-term goal attainment Incentives/bonuses tied to annual sales results Spiffs and other focused incentives Achievement or Career recognition Participation in long-term equity type plans, particularly for Super Stars