COMPENSATION MANAGEMENT

By Prof- Priyanka kedia.

Objectives of the Chapter

Define Job Evaluation and explain its objectives and principles. Find out the various steps involved in job evaluation exercise. State the techniques of job evaluation namely quantitative & non- quantitative. Assess the advantages and limitations of job evaluation. Discuss the concept of wage and salary administration and the principles governing compensation administration. Compare and contrast between the various wage concepts. Determine the different plans of wage payments. Analyze the concepts of wage differentials and organizational rewards. Discuss the national wage policy. Evaluate the theories and surveys for wage and salary administration. Recognize the various wage fixing institutions and authorities. Classify the types of incentive plans ( Short term and Long Term). Identify the different types of non- monetary incentives. Characteristics of an effective incentive plan. Explain the concept of employee benefits & modern concepts.

Job Evaluation

The process of determining how much a job should be paid, balancing two goals. Internal Equity: Paying different jobs differently, based on what the job entails External Competitiveness: Paying satisfactory performers what the market is paying

Few More definitions of Job Evaluation.

Job evaluation is the analysis and evaluation of work for the purpose of determining the relative value of jobs within an organization. Job evaluation may also provide valuable information for organizational analysis and for human resource planning and management strategies such as succession planning, performance management, compensation, etc. For a job evaluation system to be effective, care must be taken in ensuring the system is as objective as possible. It is important that each job be evaluated on the basis of current, regular and on-going work conditions and job content. It is also essential that the focus of the evaluation process be on the purpose, scope and responsibilities of work assigned to the position, and not an incumbent's personal qualities or performance. In other words the focus is on the position and not the individual(s) in the position.

Objectives of Job Evaluation.

The following objectives are derived from the analysis of the abovementioned definitions: To gather data and information relating to job description, job specification and employee specifications for various jobs in an organization. To compare the duties, responsibilities and demands of a job with that of other jobs. To determine the hierarchy and place of various jobs in an organization. To determine the ranks or grades of various jobs. To ensure fair and equitable wages on the basis of relative worth or value of jobs. In other words equal wages are fixed to the jobs of equal worth or value. To minimize wage discrimination based on sex, age, caste, region, religion etc.

Principles of Job Evaluation.

Job evaluation programme should be implemented carefully. The following principles help in successful implementation of the programme: Rate the job but not the employee. Rate the elements on the basis of the job demands. The elements selected for rating should be easily understood. The elements should be defined clearly and properly selected. Employees concerned and the supervisors should be educated and convinced about the programme. Supervisors should be encouraged to participate in rating the jobs. Secure employee cooperation by encouraging them to participate in the rating programme. Discuss with the supervisors and employees about rating but not about assigning money values to the points. Do not establish too many occupational wages. For, better understanding let us look at the flowchart given

Process of Job Evaluation

Preparation of a job evaluation plan. Job Analysis. Job description and job specification. Selection of Job dimensions. Classification of jobs. Implementation of the evaluation. Maintenance.

Method of Job Evaluation.

Non Quantitative Techniques Ranking. a) Relative Ranking. b) Paired Comparison. c) Single Factor Ranking. Job Classification or Job Grading. Quantitative Techniques Pointing Rating Method. Factor Comparison Method. Decision Band Method.

Advantages of Job Evaluation.

Job Evaluation is a logical and objective method of ranking and grading jobs required for compensation management. It helps prevent and remove discrepancies in the wage structure, thus making the system of wage administration, simpler and more uniform. It can logically explain issues regarding wage differentials in an organization. It helps in the entry of new jobs into the organizations wage structure. It helps in making a comparison between the wage structure of an organization with that of its competitors and prevalent market rates. The information collected for conducting the job evaluation can be used for making decisions relating to selection, transfer and promotion of employees.

Limitations of Job Evaluation.

Changing technologies and systems result in changes in jobs & job factors, which may make the job evaluation techniques, outdated & irrelevant. If not properly formulated or implemented, it may give rise to employee grievances. It reduces flexibility and mangers discretion in pay system. Implementation of job evaluation requires a long time and may involve formalization of certain rules . This may lead to mismatch between the financial position of the organization and its wage structure. The job evaluation committees may sometimes have to make compromises to put up with the opinions and demands of different interest groups ( like the management, unions, employees etc ).

Compensation Management.
INTRODUCTION
Compensation is what employees receive in exchange for their contribution to the organization. Generally speaking, employees offer their services for three types of rewards Base pay Variable pay Benefits

The most important objective of any pay system is fairness or equity, generally expressed in three forms Internal equity: where more difficult jobs are paid more External equity: where jobs are fairly compensated in comparison to similar jobs in labour market Individual equity: where equal pay is ensured for equal work

Principles Governing Compensation Administration.

Maintaining Fairness in the distribution of wages and salaries. Maintaining competitiveness in the wage market with other players in the industry. Matching the expectations of employees. Strengthening positive employee behaviour and contribution. Removing discrepancies in wage administration. Devising a system which is most efficient for the organization. Optimizing the interests of the management and the employees.

Objectives of compensation planning

Attract talent Retain talent Ensure equity Reward appropriately(loyalty, commitment, experience, risk raking and other desired behaviors) Control costs Comply with legal rules Ease of operation

Wage And Salary Administration

It is the process of managing a companys compensation (base compensation as well as supplementary) programme Base compensation, here, refers to monetary payments to employees in the form of wages and salaries. It is a fixed, non-incentive kind of payment calculated on the basis of time spent by an employee on the job. Supplementary compensation signifies incentive payments based on the actual performance of an employee.

Administration

Concept of Wage & Salary

Wage and Salary Administration is the activities involved in the development, implementation and maintenance of a pay system. It can also be called the ongoing process of managing a wage and salary structure. Wage: Paid to blue-collar workers-paid daily, weekly or monthly-paid for the jobs which can , to some extent, be measured in terms of moneys worth. Salary: Paid to white collar workers-paid monthly-paid to employees whose contribution cannot be easily measured.

Factors influencing Wages and Salary

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Wage policy of the company- The company may have a policy to fix the wages externally competitive and internally compatible, i.e. they pay according to the competition and maintain equity among various employees in the company. Sometimes the company may have a wage policy that it should be above the industry average or below it or comparable to it

Factors influencing Wages and Salary

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Prevailing wages in the region. Financial position of the company. Trade Unions pressure on the Management. Government policy on wages and salaries. Relative worth of job done. Demand and supply of labor. Economic conditions of the nation.

Wage Policy In India

A wage policy offers certain guidelines for determining a wage structure. The term wage structure refers to various pay scales showing rages of pay within each grade. Three important elements of wage policy in India need to be elaborated here Minimum wage: Wage sufficient to sustain and preserve the efficiency of the worker and offer basic amenities of life.

Fair wage: It is above the minimum wage but below the living wage. It is fixed, taking into account factors such as the productivity of labour, prevailing wage rates, level of national income and its distribution, the employers capacity to pay etc.
Living wage: This is the highest amount of wages proposed by the government, offering basic amenities of life and satisfying thesocial needs of worker.

Basic Wage Plans

Time Wage Plan. Piece Wage Plan.

Skillbased pay (SBP) is a compensation system that rewards employees with additional pay in exchange for formal certification of the employees mastery of skills, knowledge, and/or competencies. Skill is acquired and observable expertise in performing tasks. Knowledge is acquired information used in performing tasks. Competencies are more general skills or traits needed to perform tasks, often in multiple jobs or roles. In SBP systems, employees receive additional pay only after they demonstrate the skills, knowledge, and/or competencies that the system rewards. Thus, SBP is a personbased system, because it is based on the characteristics of the person rather than the job. In more common jobbased pay systems, pay is based on

Competency Based Pay

Why pay employees based on the skill, knowledge or competency level they achieve rather than based on the duties of the jobs theyre assigned to? For example, why pay an Accounting Clerk III who has achieved a certain mastery of accounting techniques the same (or more than) someone who is an Accounting Clerk IV? There are reasons for doing so. Performance management means aligning employees goals training appraisals and rewards so that they support the companys strategic goals. The manager can influence an employees competencies (skills or knowledge) There is not much a manager can to do manage the employees job duties. So, paying or competencies rather than duties thus gives the employer more control over managing the employees performance. At Canon, this might mean training appraising and paying some employees based on their miniaturization and precision manufacturing competencies. Competency based pay in practice In practice skill / competency /knowledge based pay programs generally contain four main elements: 1) a system for defining skills, and a process for tying the persons pay to his or her skill level; 2) a training system that lets employees seek and acquire skills; 3) A formal competency testing system, and 4) A work design that lets employees move among jobs to permit work assignment flexibility.

Broad Banding.

Broad banding is defined as a strategy for salary structures that consolidate a large number of pay grades into a few "broad bands." Broad banding has been successfully implemented in large, hierarchical organizations which attempted to flatten their organizations and remove levels of management. For example, organizations that had eight levels of management could eliminate four levels, widen the salary ranges of the remaining four levels, and simply slot each manager into one of those ranges. With broad banding, a manager can more easily encourage his/her employees to broaden their skills and abilities. This is valuable to organizations because employees with broad skills and abilities are critical for the success in a total quality/continuous improvement environment. In contrast, the jobs in traditional organizations are narrow and specialized. In order for employees to advance in pay and responsibility, they have to further develop their specialized skill. Thus a bias exists against the broadening of skills.

State regulation of wages

Institutions involved in fixation of wages
Employer Collective Bargaining Legislation Wage Boards Pay Commissions Minimum Wages Act Payment of Wages Act Adjudication Machinery

Legal framework on wages

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1.

2.
3. 4.

5.

The Government has enacted various laws to regulate and govern the wages. They are: The payment of Wages Act 1936 The payment of Bonus Act 1965 The Equal Remuneration Act The Minimum Wages Act The Companies Act 1956

Types of Incentive Plan

A)Short Term Plans. The Halsey Plan. The Rowan Plan. The Barth System of Wages. The Task Bonus System The Point Rating System Progressive Bonus. B) Long Term Plans Annual Bonus Profit Sharing. Gain Sharing. Employee Stock Plans. C) Non Monetary Incentives.

Employee Benefits.

Guidelines for Effective Incentive Plans. Employee Benefits. Objectives of Employee Benefits. Some Modern Concepts in Employee Benefit Schemes.

Guidelines for Effective Incentive Plan.

It should be related to employee performance. It should be clearly communicated to the employees. It should value and reward employee suggestions and be proportional to the contribution of each employee. It should be flexible enough to accommodate changes in external factors. It should also benefit the management in terms of tangible savings in labour costs. It should add values and not have a negative influence on the bottom line of the company. It should include both monetary and non- monetary incentives for employees. It should be possible to measure their value.

We Are what we repeatedly do. EXCELENCY is Not a ACT but HABIT!!! Thank you!!