COMPENSATION AND

REWARD MANAGEMENT
 Remuneration & Rewards

Financial Non-Financial

INDIRECT JOB ENVIRONMENT

DIRECT •Interesting •Good policies
(benefits)
(cash) work and practices
•Insurance
•Holidays •Challenge •Competent
•Salaries
•Medical and •Responsibilit supervision
•Incentives
health y •Congenial
•Bonuses
•Child care •Recognition co-workers
•Employee •Advancement •Safe and
assistance healthy work
• environment
•Fair treatment
Components of Employee Remuneration
 The Elements of Total
Compensation

Total
Compensation

Base Pay Indirect

Compensation/
Compensation Incentives
Benefits
Factors Influencing Pay

Market
Organisation
Forces
Policy

Work Individual
Value Performance
 Three Pay Policies

Pay Policy Attract Retain Motivate Control

Costs

Lead + + ? ?

Match = = ? =

Lag - ? ? +
Govt. regulation of Compensation in
India
• Minimum Wages Act, 1948
• Payment of Wages Act, 1936
• Adjudication of Wage Disputes
• Wage boards
• Pay Commissions
• Payment of Bonus Act, 1965
The Compensation Structure
Job Evaluation

Issues
Issues Involved
Involved Wage and Salary
Surveys
in
in Setting
Setting
Compensation
Compensation Pay Grades
Structures
Structures
Rate Ranges
 Step 1 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.
 Establishing a Salary Structure

• Step 2. Salary Surveys

– Salary surveys compare an organisation’s
salaries to those offered in other
organisations.


• Does the organisation want to compare

itself with:
– Organisations in the same or related industries?
– Organisations in the same geographic area?
– ‘Best practice’ companies?
 Establishing a Salary Structure

Step 3
• Group jobs into Pay Grades or Job
Classes
• Groups of jobs within a particular
class that are paid the same rate or
rate range
– jobs of equal difficulty

 TECHNIQUES OF JOB
EVALUATION

NON-QUANTITATIVE
• Ranking
• Job Classification Or Job Grading

QUANTITATIVE
• Point Rating Method
• Factor Comparison
• Decision Band

 Hierarchy of Clerical Jobs, JE Points and
Pay Grades for a Hypothetical Office
JOB Pt. Grd.
Customer Service Rep. 300 5
Executive Secretary/Admin. Asst. 298
Senior Secretary 290
Secretary 230 4
Senior General Clerk 225
Credit and Collection 220
Accounting Clerk 175 3
General Clerk 170
Legal Secretary/Assistant 165
Senior Word Processing Operator 160
 Establishing a Salary Structure


Step 4. Price Each Pay Grade
— Wage Curve
– Shows the pay rates currently paid for
jobs in each pay grade, relative to the
points or rankings assigned to each job
or grade by the job evaluation.
 Wage Curve
Wage Curve

monthly 6
salary 5
(Rs.000)
4
PAY
3 Line of Best Fit :
using Market-Survey data
2
or current organization
1 data

JE Points 40 80 120 160 200 240 280 320

Jobs AB CDEF GHIJ KLM 0P QRS TUV
Grades 1 2 3 4 5 6 7
 Establishing a Salary Structure: Step 5
• Formulate a Rate Structure

Single Rate Structure vs Rate Range
GR JOBS SALARY (Rs.)
Single Rate I AB 5000
Structure II CDEF 7000
III GHIJ 9000

GR JOBS SALARY (Rs.)

Overlapping I AB 3000–250–4500–500-9000

Rate Range II CDEF 6000–400–8400–750-14400

III GHIJ 10000–600–13600–900-20800

 Pay Structure
39.50
37.00
Wage Curve (or line)
34.50
32.00
Maximum Rate
Rates (Rs. 000)

29.50
27.00
24.50
22.00
22.00
19.50
17.00
14.50 Minimum Rate
12.00
9.50
I II III IV V VI

0 50 100 150 200 250 300

 Red & Green Circle Jobs
39.50
37.00
34.50
32.00
29.50
Rates (Rs. 000)

27.00
24.50
22.00
22.00
19.50
17.00
14.50
12.00
9.50
I II III IV V VI
0 50 100 150 200 250 300
 What Is Competency-based Pay?

• Competency-based pay
– Where the company pays for the
employee’s range, depth, and types
of skills and knowledge, rather than
for the job title he or she holds.
• Competencies
– Demonstrable characteristics of a
person, including knowledge, skills,
and behaviors, that enable
performance.
 Concept of Different Wages
• MINIMUM WAGE
• FAIR WAGE
• LIVING WAGE (HIGHEST IN
VALUE)

 BASIC WAGE PLANS
• TIME WAGE PLAN
• PIECE WAGE PLAN
• SKILL BASED PAY
• COMPETENCY BASED PAY
• BROADBANDING
 Other Compensation Trends
• Broadbanding
– Consolidating salary grades and ranges
into just a few wide levels or
“bands,” each of which contains a
relatively wide range of jobs and
salary levels.
• Wide bands provide for more
flexibility in assigning workers to
different job grades.
• Lack of permanence in job
responsibilities can be unsettling to
 Broadbanding
39.50 Wage Curve (or line)
Maximum Rate
37.00
34.50
Previous
Rates (Rs. 000)

32.00 Maximum Rate

29.50
27.00
24.50
Minimum Rate
22.00
22.00
Previous
19.50
Minimum Rate
17.00
14.50 I II III IV V VI
12.00 0 50 100 150 200 250 300
 VARIABLE PAY

Tying pay to some



measure of individual,
group, or
organizational
performance.
 Types of Incentive Plans
INDIVIDUAL GROUP ENTERPRISE
Piecework Team Plan Profit sharing
Standard hour Gainsharing Stock options
Bonuses
Merit pay
Sales incentives
 FEW SHORT TERM PLANS
• HALSEY PLAN

Plan % * Time Saved * Hourly Rate
• ROWAN PLAN
• (Time Saved * Time Taken * Hourly
Rate)/ Standard time
• BARTH SYSTEM OF WAGES

SQ ROOT( Std time* time
taken*hourly rate)
•
Conditions Under Which Individual-
Based Plans Are Most Likely to
Succeed
• When the contributions of individual
employees can be accurately
isolated.
• When the job demands autonomy.
• When cooperation is less critical to
successful performance or when
competition is to be encouraged.
 Conditions Under Which Team-
Based Plans Are Most Likely to
Succeed
• When work tasks are so intertwined that it
is difficult to single out who did what.
• When the firm’s structure and systems
facilitate the implementation of team-
based incentives.
• When the objective is to foster
entrepreneurship in self-managed work
groups.
 Conditions Favoring Gainsharing
Plans
• Gainsharing is most appropriate in situations
where the demand for the firm’s product
or service is relatively stable.
• If a firm has multiple plants with varying
levels of efficiency, the plan must take
this variance into account so that efficient
plants are not penalized and inefficient
plants rewarded.
• Less likely to work well when technology
limits improvements in efficiency.
 Conditions Favoring Profit sharing
Plans
• Most attractive to firms facing highly cyclical
ups and downs in the demand for their
product.
• When used in conjunction with other
incentives, corporatewide programs can
promote greater commitment to the
organization by creating common goals and a
sense of partnership among managers and
workers.
Pay for Performance: The Challenges
• The “Do Only What You Get Paid For”
Syndrome
• Negative Effects on the Spirit of
Cooperation
• Difficulties in Measuring Performance
• The Credibility Gap
• Job Dissatisfaction and Stress
• Potential Reduction of Intrinsic
Drives
Meeting the Challenges of Pay for
Performance Systems
• Link Pay and Performance
Appropriately
• Use Pay for Performance as Part of a
Broader HRM System
• Build Employee Trust
• Use Multiple Layers of Rewards
• Increase Employee Involvement
• Use Motivation and Nonfinancial
Incentives
FRINGE BENEFITS
 FEATURES OF FRINGE BENEFITS
• An employee enjoys them in addition to the
salary he/she receives.
• They are not given for specific jobs performed
but to make jobs more attractive.
• They are not linked to productivity so do not
reward performance in any way, criteria used
is other than performance.
• They have an indirect impact on workers’
efficiency. If impact is direct, it is not a
fringe benefit.
•
 Types of Fringe Benefits
• Pay for time not worked
• Employee security
• Safety and health
• Welfare and recreation
• Old age and retirement
 Flexible Benefits Plans
(Cafeteria Plans) & Golden
Parachute

Benefit plans that enable individual
employees to choose the benefits
that are best suited to their
particular needs
•
 Flexible Benefit (Cafeteria)
Plans
• Advantages
– more appreciation of benefits
offered
– better match between benefits
and employee preference
• Disadvantages
– increased design and
administrative costs
•