Amity Business School

INTRODUCTION TO

COMPENSATION & REWARD MANAGEMENT

Amity Business School

Topics covered after the learning:

1. Concept of Compensation,

2. System of Compensating,

3. Concept of Reward and Reward System,

4. Economic Theory of Wages,

5. Limitations of Economic Theories,

6. Wage and Salary Administration at micro level,

7. Wage concepts,

8. Role of various parties Employees, Employers, Unions & Government,

9. Overview of Legislations affecting Compensation

Amity Business School

CONCEPT OF COMPENSATION

Compensation is what employees receive in exchange for their contribution to the organization

An employees standard of living, status in the society, Motivation, Loyalty and Productivity depend upon the compensation he/she receives

For the employer to employee remuneration is significant because of its contribution to cost of production

Amity Business School

NATURE OF COMPENSATION

Compensation can be offered by an organization both directly( Base Pay & Variable Pay) and Indirectly (Benefits)

1. Base Pay -Basic compensation an employee gets usually as a wage or salary 2 Variable Pay -Compensation linked directly to the performance 3. Benefits- Indirect rewards given as a part of organizational membership.

Amity Business School

MAIN OBJECTIVES OF COMPENSATION

1. Internal Equity- Ensures that more difficult jobs are paid more.

2. External Parity- Aims to compensate fairly in comparison to similar jobs in labor market.

3. Individual Equity-Equal Pay for equal work.

Amity Business School

SOME OTHER OBJECTIVES

To attract talent

To retain talent

Ensure equity

To motivate new & desired behavior

Control cost

Comply with legal rules

Ease of operation

Amity Business School

FACTORS INFLUENCING EMPLOYEE COMPENSATION

I. External Factors

i. Labor Market

ii. Cost of Living

iii. Labor Laws

iv. Society

v. Economy

Amity Business School

Contd./

II. Internal Factors:

i. Business Strategy

ii. Job Evaluation & Performance

Appraisal

iii. Employee

Amity Business School

SYSTEM OF

COMPENSATING

Dimensions
Amity Business School

Pay for Work & Performance

Pay for Time not Work

Disability Income Continuation

Deferred Income

Spouse (Family) Income Continuation

Health, Accident & Liability Protection

Income Equivalent Payments Perks

Organizations Develop Compensation Policy

Amity Business School

HOW IS COMPENSATION USED?

Compensation may be adjusted according the business needs, goals, and available resources Compensation may be used to:

recruit and retain qualified employees.

increase or maintain morale/satisfaction.

reward and encourage peak performance.

achieve internal and external equity.

reduce turnover and encourage company loyalty.

modify (through negotiations) practices of unions.

Amity Business School

WHAT ARE THE COMPONENTS OF A COMPENSATION SYSTEM?

The components of a compensation system include:

Job Descriptions

Job Analysis

Job Evaluation

Pay Structures

Salary Surveys

Policies and Regulations

Amity Business School

WHAT ARE DIFFERENT TYPES OF COMPENSATION?

Different types of compensation include:

Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

COMPENSATION PLAN

Amity Business School

Develop a program outline Designate an individual to oversee Develop a compensation philosophy Conduct a job analysis of all positions Evaluate jobs Determine grades Establish grade pricing and salary range Determine an appropriate salary structure Develop a salary administration policy Obtain top executives' approval of the basic salary program Communicate the final program to employees and managers Monitor the program

Amity Business School

CONCEPT OF REWARD

Amity Business School

Reward is a composite of all

organizational mechanism and

strategies used to finally acknowledge

employees behavior and performance.

Amity Business School

OBJECTIVE OF REWARD

To motivate employees to perform effectively

To motivate employees to join the organization

To motivate employees to continue to work

Enhance Loyalty

Satisfaction

Amity Business School

Financial Rewards + Non Financial Rewards = Total Reward

Amity Business School

FINANCIAL REWARDS

A number of monetary benefits offered to

employees to obtain short term and long term

commitment.

Types of financial rewards given are; base

pay, variable pay, share ownership, bonus, etc.

Amity Business School

NON FINANCIAL REWARDS

Non-financial rewards cater mainly to fulfill

the psychological needs of the employees

Types of non financial rewards given to

employees are; recognition, opportunities to

develop skills, quality of work life, etc.

Amity Business School

REWARD SYSTEM

Amity Business School

Rate of Pay

Level of skill

Adopted from Banfield Paul and Kay Rebecca Introduction to HRM. Oxford University Press Vol. 4 Page No. 308

Amity Business School

WHY REWARD SYSTEMS?

Attracting, retaining & motivating employees

To get desired behavior

To achieve stretch standards

To cater individual needs

Amity Business School

REWARD MECHANISMS

Praise/recognition from supervisors

Challenging work assignments

Promotions and lateral moves

Paid leave to employees

Amity Business School

GETTING MORE OUT OF REWARDS

Aligning rewards with objectives

Outcome-based evaluation of employee

Agreeing what behaviors and capabilities

will be rewarded

Amity Business School

Designing Reward System

Whom to Reward?

Individual Employees

Teams

Organization

Outsiders

Amity Business School

Designing Reward System

What to Reward?

Performance

Organizational Level

Unit / Departmental Level

Speed and Efficiency

Loyalty

Innovation

Upholding Values

Amity Business School

Technical Solution

Learning

Good Behavior

Sense of Humor

Teaching

Publications

Event Management

Social Concern

Amity Business School

Characteristics of rewards

Rewards must have the following characteristics

Value

Relevant

Purpose

Behavioral effect

Recognition

Amity Business School

Concept of Total Reward System

Total Reward Strategies should include

Direct Financial

Indirect Financial

Identification

Work Content

Career Opportunities

Rewards can fail in the form of incentives Kohn

Amity Business School

Pay is not a motivator Rewards punish Rewards rupture relationships Rewards ignore reasons Rewards discourage risk taking Rewards undermine interest

Amity Business School

ECONOMIC THEORY OF WAGES

Amity Business School

ECONOMIC THEORIES
Wage fund Theory Residual Claimant Theory

1.Social Wage Theories

Marxian Theory

Subsistence Theory

2.Justification Marginal Bargaining Theories Productivity

Theory

Theory

Supply and Demand Theory

Competitive Theory

3.Behavioral

Theories

Employees Acceptance level

Internal Wage Structure

Wage and Motivation

LIMITATIONS OF ECONOMIC THEORY

Amity Business School

Wages and Prices are either fully fixed or

fully flexible. Assumption of Full Employment Wages could be influenced by factors other than wages too. Wage and Benefits reflect Industry characteristics and personal characteristics. Interference by government Technology and Productivity are major determinants Pressure for linking labour standards with International Trade.

Amity Business School

WAGES AND SALARY ADMINISTRATION AT MICRO LEVEL

Amity Business School

Policies

Techniques

Objectives

ALIGNMENT

Work analysis

Description INTERNAL STRUCTURE

EFFICIENCY

COMPETITVENESS
Market

Surveys PAY STRUCTURE

-Performance -Quality -Customers -Costs

FAIRNESS

CONTRIBUTION

Seniority Performance/ INCENTIVE Based Merit Based PROGRAMS

MANAGEMENT
Costs

Communication EVALUATION COMPLIANCE

Amity Business School

INTERNAL ALIGNMENT

Dependent of Internal Pay Structure

Levels

Differentials

Criteria -Content and Value -Use Value and Exchange Value -Job and Person Based

Amity Business School

EXTERNAL COMPETITIVENESS

Factors Shaping External Competitiveness

Labour Market Nature of Demand Nature of Supply EXTERNAL COMPETITIVENESS

Product Market Factors Degree of Competition Level of Product Demand

Organisation Factors Industry, Strategy, Size Individual Manager

Amity Business School

CONTRIBUTION

Seniority Based

Performance Based Pay

Merit Guidelines

Amity Business School

MANAGEMENT

Managing Labour Cost -Controlling Employment -Controlling av. Cash Compensation

Communication -Managing the Massage

Pay

-Change Agent in Restructuring

Amity Business School

WAGE CONCEPT

Amity Business School

WAGE AND SALARY

Wage: Index of productivity

Definition of Wage

Wage vs Salary

Amity Business School

ROLE OF VARIOUS PARTIES IN COMPENSATION & REWARD MANAGEMENT

Amity Business School

ROLE OF EMPLOYERS

Ability to pay

Cost effect

Wage costs

Unit labour costs

Cost reduction

Amity Business School

ROLE OF EMPLOYEES

Ability to live and work

Price effect

Wage levels

Effort put in

Wage maximization

Amity Business School

ROLE OF THE GOVERNMENT

Five Year Plans & Wage Policy -Payment of Wages Act 1936
-Minimum Wages Act 1948 -Payment of Bonus Act 1965 -Equal Remuneration Act 1976

Legal Framework

Unilateral Pay Fixation

Pay Commissions

Wage Boards

Adjudication

ROLE OF UNIONS

Amity Business School

Collective Bargaining (Levels)

Sectoral Bargaining at National Level

Industry-cum- Region wide Agreements

Decentralized Firm/ Plant Level

Agreements

Amity Business School

LEGISLATIONS AFFECTING COMPENSATION

Amity Business School

ACTS AFFECTING COMPENSATION

Payment of Gratuity Act, 1972

The Workmens Compensation Act, 1923

The Contract Labor (R & A) Act,

Article 43 of Constitution Of India

All acts with Wage or Salary or any compensation between

the Employer and Employee

Amity Business School

THANK YOU!