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Wage and Salary
Administration
- Nora Bhatia
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Compensation : concept andcontext
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Compensation
Why :
Rewards that motivate employees to perform
Help foster the values, culture, behavior
required
Achievement of business objectives
Attract and retain talent
Sense of commitment to the orgn
Acquire a competitive advantage
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Compensation
Direct compensation : financial
remuneration, usually cash. Basic, DA,
Shift allowance, bonus, incentives etc
Indirect compensation : benefits like PF,
Pension, medical, health insurance, sick
leave
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Compensation
Internal equity : wage differentials reflect
the degree of difficultly. Corresponds to
the difference in the evaluated contents of
the job
External equity : wage rate in an orgn is
commensurate with wage rate for similar
jobs in the industry, region
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Functions & responsibilities of a
compensation program
Formulate compensation plans
Job evaluation system
Ascertain going rates for jobs across the industry
Make policy recommendations
Supervise and maintain records pertaining to all
matters of compensation
Framing a compensation policy aligned to businessgoals and objectives
Promote team and unit performance
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Corporate compensation policy
Strategy of wage increase : productivity
linked / cost reduction factor
Rationality and hygiene factors : linked to
job outcome
Internal equity
External equity Review : evolutionary process
Managerial compensation
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Issues and current trends
Broad banding : greater flexibility
Pay for knowledge, skills and competency
(Ph.D, MBAs)
Team pay plans
Coping with change : increasing
expectations, multi-skilled
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Group work and discussion
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Wage Theories
Subsistence theory :
David Ricardo
Price of labour depends on the subsistence of labour
Price equals to the amount of commodities requiredto feed, clothe a worker and to subsist and perpetuate
his race
Labor like any commodity can be bought and sold
Supply less : higher than subsistence wage, morechildren, back to subsistence wage
Supply high : lower than subsistence wage, fewer
children, back to subsistence wage
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Wage Theories
Surplus value theory :
Karl Marx
Tendency of the capitalist, chronic unemployment and
existence of industrial reserve army that kept wagesat subsistence level
Supply of labor always tended to be kept in excess
Worker did not get full compensation for work done
Rate of surplus labor which is the ratio of surpluslabor to necessary labor is called rate of exploitation
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Wage Theories
Wage fund theory :
Adam smith
Wage fund assumed to be fixed
Any change in wages was due to the number
of workers seeking employment
Bargaining Theory :
John Davidson
Upper limit (beyond which employer will incur
losses)
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Wage Theories
Purchasing power theory :
High wage rate : more purchasing power,
increase in demand and thus higher output
Low wage rate : less purchasing power, fall in
demand will affect employment and output
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Behavioral Theories
Content theories : What motivate people to work
Hierarchy of needs : Abraham Maslow
Two factor theory Friedrich Herzberg
Hygiene factors company policy and administration
supervision technical
salary
working conditions
If absent will lead to employee dissatisfaction
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Behavioral Theories
Two factor theory Friedrich Herzberg
Motivating factors
recognition work itself
responsibility
advancement
If present can lead to employee satisfaction and motivation
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Wage Theories
ERG theory
Clayton Alderfer
Existence (survival or physical being
Relatedness (interpersonal)
Growth (personal development)
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Process theories
Motivation and effort : the relation
Expectancy theory : Victor Vroom
An individuals preference for a particular
outcome
Youngsters : single, unmarried, lesser need
for childrens education, health benefits, travel
concessions Senior employees : retiral benefits, health
insurance,
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Equity theory
Inequity occurs when a person perceives
that the ratio of his/her outcomes to inputs
and the ratio of a relevant others
outcomes to inputs are unequal.
Persons outcomes Others outcomes
Persons inputs Others inputs
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Key considerations : public policy
Fix statutory minimum wages
Equal pay for equal work
Regulate wages to reduce disparities Compensate for rise in cost of living
Capacity to pay : Supreme court an
employer who cannot pay minimum wageshas no right to exist
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Key considerations : public policy
Practical problems :
Minimum wage : organized and unorganized sector
Possible to pay for ones need, not his greed Labour cost and productivity : ITC cost per cigarette
at the same level for a 5-year period
Merit and seniority progression : time boundpromotions ?
Motivation : money may not be everything buteverything else is way behind
Integrity : compensate them adequately enough tokeep them out of temptation
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Group work and discussion
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Legal framework of wage and
salary administration
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Minimum wage : not only for bare subsistence
but also for preservation of efficiency and
providing some measure of medical, education,etc
Living wage : protection against ill-health,
requirements of essential social heads,
insurance against some future misfortune, etc
Fair wage : Lower limit is minimum wage and
upper limit is the capacity of the industry to pay.
Between these two the actual wage depends on: prevailing wage rate, productivity of labour,
place of the industry in the national economy
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Wages defined in different enactments
Payment of wages Act 1936 "wages" means all remuneration (whether by way of salary, allowances, or
otherwise) expressed in terms of money or capable of being so expressedwhich would, if the terms of employment, express or implied, were fulfilled,be payable to a person employed in respect of his employment or of workdone in such employment, and includes-
(a) any remuneration payable under any award or settlement between the
parties or order of a court; (b) any remuneration to which the person employed is entitled in respect of
overtime work or holidays or any leave period;
(c) any additional remuneration payable under the terms of employment(whether called a bonus or by any other name);
(d) any sum which by reason of the termination of employment of the
person employed is payable under any law, contract or instrument whichprovides for the payment of such sum, whether with or without deductions,but does not provide for the time within which the payment is to be made;
(e) any sum to which the person employed is entitled under any schemeframed under any law for the time being in force,
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Wages defined in different
enactments but does not include-
(1) any bonus (whether under a scheme of profit sharing orotherwise) which does not form part of the remuneration payableunder the terms of employment or which is not payable under anyaward or settlement between the parties or order of a court;
(2) the value of any house-accommodation, or of the supply of light,water, medical attendance or other amenity or of any serviceexcluded from the computation of wages by a general or specialorder of the State Government;
(3) any contribution paid by the employer to any pension orprovident fund, and the interest which may have accrued thereon;
(4) any travelling allowance or the value of any travellingconcession;
(5) any sum paid to the employed person to defray special expensesentailed on him by the nature of his employment; or
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Wages defined in different enactments
Minimum wages Act 1948 wages" means all remuneration, capable of being expressed in terms of
money, which would, if the terms of the contract of employment, express orimplied, were fulfilled, be payable to a person employed in respect of hisemployment or of work done in such employment [and includes house rentallowance], but does not include-
(i) the value of-
(a) any house, accommodation, supply of light, water, medical attendance,or
(b) any other amenity or any service excluded by general or special order ofthe appropriate government;
(ii) any contribution paid by the employer to any pension fund or providentfund or under any scheme of social insurance;
(iii) any travelling allowance or the value of any travelling concession;
(iv) any sum paid to the person employed to defray special expensesentailed on him by the nature of his employment; or
(v) any gratuity payable on discharge;
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Payment of wages Act : 1936
Payment of bonus Act 1965
Minimum Wages Act 1948 Payment of Gratuity Act 1972
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Compensation structure and
differentials
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DA
COLA
CPI Incentive payments :
Individual payment by result
Group payment by result scheme Enterprise level schemes
Managerial Incentive Plans
Percentage of profit
Shares on concessional rates
Bonuses in cash or kind (discount coupons,paid holidays, etc)
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Fringe benefits
Humanistic consideration : education, health, housing
Statutory : canteens, rest sheds, crche, maternity,paternity,
Security : Gratuity, PF, Pension, Medical
Hazard of industrial life : ESIC, workmen compensationact, Hospitals
Tax considerations : transport, interest free loans, loansat concessional rates
Utilization of leisure time : holiday homes, foreign trips,guest houses
Inculcating a sense of involvement : concessional lunch,subsidized picnics
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Legal framework
Tripartite boards :
Employers, workers, govt representatives
Lok Adalats
Grievance redressal mechanisms
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Collective bargaining
Levels of bargaining : Sectoral bargaining at national level : govt is a long
term player. Long term settlements
Banks, coal, ports
Industry cum region wide agreements : Cotton, jute, textile, tea
Decentralized firm/plant level agreements
Duration : 3-4 years Trends : something for nothing, something for
anything, something for something, nothing fornothing
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Pay commissions :
Central govt employees
Recommendations
Govt usually take economic decisions on political
considerations
Wage Boards
Constitution : (equal number of representatives :
employee, employer and 2 independent members
economist, consumer representative
Functions of the wage board
Procedure
Award of the wage board
Enforcement of the award
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Group work and discussion
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Job evaluation
Right man for the right job
Right pay for the right job
Method to determine the relative worth of
a job
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Job evaluation
Job analysis : breaking down to tasks, functions,processes, operation and elements
Job Description : description of a job based onjob analysis
Person / job specification : statement of contentof job based on JD
Job grading : ranking of a job based on JA
Job classification : grouping jobs according totheir worth
Job assessment : monetary value on the basison job grading
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Job evaluation
Objectives :
Primary :
Establish wage level of a plant
Bring new jobs in parity with existing jobs
Facilitate wage negotiations
Secondary :
Criteria for merit rating and promotion Scope for automation and improvement
Analyse wage rates
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Job evaluation
Procedure :
Select the group of jobs
Study the job job analysis
Prepare the job description Device an evaluation plan (education, experience,
responsibilities)
Committee of raters / evaluate
Group / classify the jobs Convert job grades to money value
Obtain approval from union and management
Establish a grievance procedure
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Job evaluation methods
Ranking method :
All jobs are ranked in order of complexity,
responsibility and demands on respective
employees Made easier by identifying those at the two
extreme ends and then the middle region
Ranking more than once arrive at finalranking
Simplest method and less time consuming
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Job evaluation methods
Classification method :
Grades are established
JDs description and nature of the job
Jobs are classified into one of the other
grades
Less time consuming, comparatively easier.
Irrational in the absence of logic andsometimes similar (nearby) jobs are put in
different classes
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Job evaluation methods
Point rating method : Job is analysed through 5-8 factors and 20-30 sub
factors
Given points which total out as the overall position of
the job Not scientific but systematic. Outcome in hardnumbers
Time consuming
Plan for clerical employees is not suitable for factory
operators (physical effort is not essential as against asedentary job)
In a sophisticated process plant, the factor ofmental/visual effect will have a higher weightage asagainst physical effort
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Job evaluation methods
Factor comparision method :
Factors or elements of a job are evaluated in
terms of monetary value, eg. Mental
requirement, skill, physical requirement,responsibility and working conditions
Internal / external comparision of job are
considered
Conflict may arise on the valuation of each
factor
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Job evaluation other methods Time span of discretion methods
Effect of decisions is felt after a period of time A decision by :
Unskilled worker - few hours
Marketing manager 1-2 years
Board of director 4-5 yrs
Decision band method : type of decision Band E policy making decisions top mgmt
Band D programing decisions sr managers
Band C interpretive decisions middle managers
Band B routine decisions skilled operators Band A automatic decisions (when, how, where)
semi skilled workmen
Band O Defined decisions by unskilled workmen
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Group work and discussion
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Compensation Survey Informal surveys
External surveys
Commissioned surveys
External survey method :
Job title method
Job Description method
Job evaluation method
Process : Selection of jobs for wage survey
Organizations to be included
Information to be collected
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Compensation Survey
Benefits :
Compare pay structure
Entry level pay scales
Pay differentials in select jobs
Info on employee benefits
Trends in compensation
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Reward systems, incentives
and pay restructuring
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Merit incentive pay
Determination of result-oriented meritrating procedures
Identification of job factors
Scale of reward Communication on the basis of monetary
reward
Salesman (sales promotion, collection ofoutstandings, good will calls, after sales
service
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Incentive schemes
Select the objective Determine the parameters of performance
Determine the performance-reward relationship
Determine the maximum payable incentive amount
Formulating a communication and review scheme
Group incentive and productivity sharing
Long term incentive (ESOP)
Competency based pay
St i d i i i ti
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Steps in designing incentive
schemes Custom tailored Objectives (short long term)
Selection of performance measures behaviorsconsidered important for organizational performance(increasing output, reducing labor, other costs, improvingquality)
External influences (changes in production methods,product mix, prices of inputs, outputs)
Distribution avoid absenteeism varied with number ofdays/hours worked
Equity equal opportunity for all to earn
Involvement and communication
Union participation
Review
I ti h I d
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Incentive schemes Issues and
Trends
Levels of education which scheme will
be easily understood and motivate them
Trade union
Organizational culture team spirit and
involvement
Monetary and non monetary incentives
Rewarding good performance enriched
role, publicity in newsletter
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Group incentives
Advantages : Better co-operation
Less supervision
Reduced incidence of absenteeism Shorter training time
Disadvantages :
Efficient worker may be penalized for theinefficiency of other members
Incentive may not be strong enough
Rivalry amongst group members, defeats the
purpose
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Incentives
Merits :
Motivation
Enhanced earnings
Productivity improves
Reduced supervision
Better utilization on equipment
Reduced scrap
Reduced absenteeism and turnover
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Incentives
Demerits :
Maintenance of quality checking and
inspection
Jealousies some earn more than others
May oppose introduction of new machinery /
processes
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Incentives pre-requisites
Co-operation of workers in the
implementation
Scientific work measurement
Indirect workers, like crane operators,
helpers, store keepers should also be
covered
Need for greater planning
I ti t
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Incentives systems
The Halsey system standard time to complete
a task
Minimum wage is guaranteed
Time saved in completion of a task
Usually @50% Taylor differential piece rate system
Expected to do certain units within a certain period of
time
Encourages the efficient worker with a higher wagerage
Penalizes the inefficient with a lower rate of payment
Seldom used now
I ti t
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Incentives systems
Premium and task bonuses : Workers who complete the task in std time or
less receive wages for the std time plus a
bonus
When a worker fails to turn out the requiredquantity he simply gets the wage rate and no
bonus
Profit sharing system
I ti t
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Incentives systems
Scanlon Plan : Developed by Joseph Scanlon of United steel
workers of USA
Adopting a measure for increased productivity
Sharing the gain from that increased
productivity
Promotes teamwork
High flexibility in generation of decisions andexecution of the plan
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Group work and discussion
Stock Options
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Stock Options
MeritsAttraction
Retention
Motivation
Financial participation of employees in wealth
created through joint efforts
Commitment
Develop a common purpose / ideologybetween employees and employers
Dearness allowance
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Dearness allowance
Not linked to CPI Flat rate : payment is a method under which afixed amount is paid to employees
irrespective of their categories and wage
scales Graduated scale : DA increase which each
scale of salary increase but after a limit there
is no increase in the amount of DA.
A minimum amount of DA is also set for workers in
each scale below which DA is not allowed to fall
Dearness allowance
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Dearness allowance
Linked to CPI Flat rate : rate per point with variations inpoints of CPI
As a percentage of pay :
DA is fixed
DA is expressed as a fixed percentage of pay and
equated to a scale of points of the CPI
Other allowances
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Other allowances
HRA LTA/LTC
Washing allowance
Conveyance Shift allowance
Cash handling allowance
Lunch / dinner allowance
City compensatory allowance
OT allowance
Fringe benefits
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Fringe benefits
Holiday homes Medical facilities
Subsidized meals
Low interest loans
Downsizing
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Downsizing
External reasons :
Structural and other changes in the economy
Changes in technology
Changes in ownership and control
Business process re-engineering
Internal reasons :
Improper / inadequate HR planning
Wrong selection / recruitment Inadequate training
Substitution of labour with capital
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Approaches to deal with worker
redundancy Worker flexibility with employment security
multi-skilled
Review job specifications at regular
intervals skill requirements
Employment practices perpetuate
obsolescence heirs
Measures to avoid downsizing or
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Measures to avoid downsizing or
minimize job losses
Restrictions on hiring for a limited period
Spreading reductions over time
Training and retraining VRS
Counselling and outplacement
VRS
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VRS
Cost and benefits to company :
Relative health of the enterprise somethingis better than nothing
Real cost to the company less skilled, less
motivated under-performers may not leave asthey may not get better opportunitieselsewhere
Cost and benefits to employees
Golden parachute : secure investment Family obligations substantial amount spent
in repaying debt
How to go about a VRS ?
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How to go about a VRS ?
Should be the last option rather than firsttraumatic experience
Identify who will be covered, who not, whowill opt, who will not
Awareness. Share the info withemployees, union, communicationchannels
Communication and counselling Phased manner to avoid massive
reduction in manpower. Cash flow effect
VRS should cover the following
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VRS should cover the following
aspects
Applicability
Eligibility
Effective date of the scheme
Duration of the scheme
Compensation and benefits
Procedure for application, acceptance and withdrawal
Mode of payment
Due date for payments
Procedure for redressal of grievances/settlement ofdisputes
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Group work and discussion
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Emerging issues and trends
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Tax planning
A conscious well thought out process of
arranging ones financial affairs
Taking advantage of deductions,
exemptions, rebates
Minimizing tax liability
Without infringing on any provision tax
avoidance
Composition of compensation
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Composition of compensation
package
Salary payment for services rendered
Relationship employer / employee
(power on selection, payment, kind of
work, supervision, dismissal
Salary v/s wage
Allowances : payments by employer by
way of allowances for personal benefit of
the latter chargeable to IT.
Composition of compensation
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Composition of compensation
package
Perquisites : gain / profit incidental fromemployment in addition to regular salary /
wages.
Attached to an office or employment
Payable only on continuance of
employment / service
Ceases when employment comes to an
end
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Tax implications of compensation
Salary Allowances :
HRA
Conveyance
Travelling allowance
Perquisites : Rent free accomodation
Company owned car Furniture
LTC / LTA
Medical
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Tax implications of compensation
Non taxable perquisites :
Refreshments provided during office hours,
in office premises
Subsidized lunch in canteen Goods manufactured sold to employees at a
discount
Subsidized transport office : residence Premium : Group insurance / Personal
Accident Insurance
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Emerging Trends
Comparative international compensation
Job content related compensation : link
annual increment to performance
Performance related compensation :
performance based annual increment and
periodic incentive linked to individual /
group performance. Allows risk ofbusiness to be shared with employees
E i T d
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Emerging Trends
Competency based compensation
Job holders competencies not the worth of
the job
Predictor of superior performanceAcquisition of competencies : improvement in
results significantly
Stock options Profit linked bonus
Paradox of performance related
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Paradox of performance related
compensation
Motivates those with high performanceratings
May help retain high performances,
though no evidence that poor performershave left the organization
Fairness
Clear linkage between effort andperformance and performance and reward
B d b d
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Broad pay bands
Progress from one level to another withdemonstration of requisite competencies
Must be based on competencies that drive
superior performance
Clear about requirements to move to the
next level
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360 degree feedback
Select the feedback tool
Select the raters
Use the feedback Review the feedback
Integrate the process into a larger PMS
C
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Competency
It is derived from the Latin word Competere,which means to be suitable.
The concept was orginally developed inPsychology denoting Individuals ability to
respond to demand placed on them by the
environment.
C t i d fi d
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Competencies defined A collection of characteristics (i.e. skills, knowledge and self-
concept, traits, behaviour, motivation, etc.), that enables us tosuccessfully complete a given task.
Self-concept(Attitude)
Skills Knowledge
I b M d l f C t i
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Iceberg Model of Competencies
C t b d ti
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Competency based compensation
Knowledge, skills, attitudes, personal traitsthat drive superior performance
Describes what makes people effective in
a given role
Behaviors associated with superior
performance
C t f t
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Concept of career stages
Stage 1 (Dependency) Willingly accepts supervision
Competent at detailed and routine tasks
Able to perform well under time / budget pressures Learns how of doing things
Stage 2 (Independence)
Assumes responsibility for definable projects
Relies less on supervision, works independently
Develops credibility and a reputation
Develops as an innovator
C t f t
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Concept of career stages
Stage 3 (Contribution through others) Stimulates others through ideas and
knowledge
Mentor in developing others Leader in team performance
Stage 4 (Leadership through vision)
Provides direction to the orgn
Represents the orgn on critical strategicissues
Champions significant technology and product
Communication : levels of
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89/94
89
Level 1 Level 2 Level 3 Level 4
Under some
supervision and / or
guidance effectively
uses written and verbalcommunication
Independently
maintains excellent
communication with
all appropriate
parties. Has strong
technical credibilitywithin the group
Communicates
effectively across
functional
boundaries to add
value to the
business and gain
support forrecommendations
Uses communication
skills and personal
credibility to shape long
term technical direction
and other significantbusiness decisions
achievement
Linking pay to achievement
G k d di i
7/29/2019 Wage and Salary Admin Nora Bhatia
90/94
90
Group work and discussion
Traditional v/s competency
7/29/2019 Wage and Salary Admin Nora Bhatia
91/94
91
p y
based model
Reward component Traditional system competency based system
Basic Pay
Based on internal job evaluation and
market survey
Based on competency level demonstrated by
employee
Progression - basic pay one more year of service
greater width and depth employee adds to core
business
Variable pay privilege of membership of the group
share of the employee as a partner in thesuccess of the business
Benefits
company decides as a matter of
policy
Employees share for undertaking risk and
accountability
Quality of work life
Does what is told. Labour is
important, not ideas Empowered
Career opportunity Job for loyalty Mutually responsible, employability
Compensation issues :
7/29/2019 Wage and Salary Admin Nora Bhatia
92/94
92
Compensation issues :
Employers : productivity
Employees : cost of living
Youngsters : now
Senior employees : retiral benefits
Take-home pay
Net pay Pay comparison with co-workers / other
industries
7/29/2019 Wage and Salary Admin Nora Bhatia
93/94
93
Group work and discussions :
7/29/2019 Wage and Salary Admin Nora Bhatia
94/94
Thank you !
All the best for the exams !
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