COMPENSATION PACKAGE

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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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Objectives of Compensation
Legal Compliance with all appropriate laws and regulations
Cost effectiveness for the organization Internal, External and Individual equity for employees Performance organization enhancement
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for

the

Compensation Types
DIRECT
Base Pay Wages Salaries

INDIRECT
Benefits Medical Insurance Paid time off Retirement Pensions Workers Compensation

Variable Pay Bonuses Incentives Stock Options

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Division of Compensation Responsibility

HR Manager
Develops Administers Compensation system Conducts job evaluation and wage surveys Develops wage / salary structures and policies and

Line Manager
Attempt to march

performance and rewards Recommend pay rates

and increment based on guidelines from HR unit Evaluate performance employee based

compensation purposes
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COMPENSATION STRATEGIES
Compensation Philosophies
Strategic Compensation Design Compensation and Organizational Culture

Cost Effectiveness and Labour Market

Positioning

Competency Based Pay Broadbanding and Career Development

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Compensation Philosophy
ENTITLEMENT Seniority Based Across the board raises PERFORMANCE No raises for length of service No raises for longer service poor performers Guaranteed movement of scales Industry comparisons only Santa Claus Bonuses Market adjusted pay structure Broader Industry comparisons Bonuses tied to performance results
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Changing Compensation Strategies

Yesterday
Fixed salary Bonuses/perks executives only for

Today
Variable pay as add-on to salary Variable pay emerging throughout organization Flexible benefits Industry-based career, moving around Flatter team-based organizations Total compensation (Look at benefits, too)

Tomorrow
Low fixed salary, variable pay more

Variable pay common throughout the organization Portable benefits Skill-based, employment Network organizations interim virtual

Fixed benefits, reward long tenure Company-based career moving up Hierarchical organizations Cookie cutter pay plans

Customized, integrated pay systems; pay, benefits, intangibles

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Quartile Strategy
Third Quartile Above-Market Strategy Second Quartile Middle-Market Strategy First Quartile Below-Market Strategy

Maximum

(25% of firms pay above and 75% pay below)

Medium

(50% of firms pay above and 50% pay below)

Minimum

(75% of firms pay above and 25% pay below)

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Outcomes from Competency Based Systems

Organization-Related Outcomes
Greater workforce flexibility

Employee-Related Outcomes
Enhanced employee understanding of Organisational big picture Greater employee selfmanagement capabilities Improved employee satisfaction Greater employee commitment

Increased effectiveness of work Team Few bottlenecks in work flow Increased worker output

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DESIGNING EFFECTIVE COMPENSATION PROGRAM

Job Analysis (Job Descriptions, Job Specifications)

Job Evaluation

Pay Surveys

Pay Policies

Pay Structures

Performance Appraisal

Individual Pay

Implementation, Communication, Monitoring

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Salary Structure
Job Evaluation Results Pay Survey Data

Develop Market Line

Identify Different Pay Structures

Establish Pay Grades

Revise Pay Grades and Ranges as Needed Compare Current Pay to Pay Ranges

Compute Pay Ranges

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COMPENSATION POLICIES AND PROCEDURES

Know what the competition is doing and benchmark your structure to reflect competitive practices for retention and recruitment purposes.

Salaries should reflect level of responsibility employees may have in the organization.
Form a compensation committee (preferably represented by management and employees).
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Contd...

COMPENSATION POLICIES AND PROCEDURES

Create a structure where salaries and any increases reflect company performance as espoused by the compensation committee. Develop and document a general company policy and strategy for pay increases. Liaison with the compensation committee for review, adjustments and approval.
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Team Based Compensation

Types of Team Incentives
Same size reward for each team member Different size rewards for each team member

Criteria for Best Team Work

Significant interdependence exists among the work of several individuals, and team work and co-operation is absolutely essential.
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Contd..

Team Based Compensation

Difficulties exist in identifying exactly who is responsible for different levels of performance.
Management wants to create or reinforce team work and co-operation among employees Rewards are seen as being allocated in a fair and equitable manner.

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