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COMPENSATION AND REWARD MANAGEMENT

Remuneration & Rewards Financial Non-Financial

DIRECT (cash) Salaries Incentives Bonuses

INDIRECT (benefits) Insurance Holidays Medical and health Child care Employee assistance

JOB Interesting work Challenge Responsibility Recognition Advancement

ENVIRONMENT Good policies and practices Competent supervision Congenial co-workers Safe and healthy work environment Fair treatment

Components of Employee Remuneration

The Elements of Total Compensation


Total Compensation Base Compensation Pay Incentives
Indirect Compensation/ Benefits

Factors Influencing Pay


Market Forces
Organisation Policy

Work Value

Individual Performance

Three Pay Policies


Pay Policy Lead Match Lag Attract + = Retain + = ? Motivate ? ? ? Control Costs ? = +

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 Involved in Setting Compensation Structures

Wage and Salary Surveys Pay Grades

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 organisations 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? Domestic companies? Multinationals?

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

NON-QUANTITATIVE Ranking Job Classification Or Job Grading QUANTITATIVE Point Rating Method Factor Comparison Decision Band

TECHNIQUES OF JOB EVALUATION

Hierarchy of Clerical Jobs, JE Points and Pay Grades for a Hypothetical Office
JOB Customer Service Rep. Executive Secretary/Admin. Asst. Senior Secretary Secretary Senior General Clerk Credit and Collection Accounting Clerk General Clerk Legal Secretary/Assistant Senior Word Processing Operator Pt. 300 298 290 230 225 220 175 170 165 160 Grd. 5
4 3

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
8 7

monthly salary 5 (Rs.000)

PAY

4 3 2 1

Line of Best Fit : using Market-Survey data or current organization data


40 AB 1 80 160 200 240 280 320 120 CDEF GHIJ KLM 0P QRS TUV 2 3 4 5 6 7

JE Points
Jobs Grades

Establishing a Salary Structure: Step 5


Formulate a Rate Structure
Single Rate Structure vs Rate Range

Single Rate Structure

GR I II III
GR
I

JOBS AB CDEF GHIJ

SALARY (Rs.) 5000 7000 9000


SALARY (Rs.)

Overlapping Rate Range

JOBS
AB

30002504500500-9000

II
III

CDEF
GHIJ

60004008400750-14400
1000060013600900-20800

Pay Structure
39.50 37.00 34.50 Wage Curve (or line) Maximum Rate

Rates (Rs. 000)

32.00 29.50 27.00

24.50
22.00 22.00 19.50

17.00
14.50 12.00 9.50 0

Minimum Rate

I
50

II
100

III
150

IV
200

V
250

VI
300

Red & Green Circle Jobs


39.50 37.00 34.50 32.00 Rates (Rs. 000) 29.50 27.00 24.50 22.00 22.00 19.50

17.00
14.50 12.00 9.50 0

I
50

II
100

III
150

IV
200

V
250

VI
300

What Is Competency-based Pay?


Competency-based pay
Where the company pays for the employees 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 new employees.

Broadbanding
39.50 37.00 34.50 Rates (Rs. 000) 32.00 29.50 27.00 Maximum Rate Previous Maximum Rate Wage Curve (or line)

24.50
22.00 22.00 19.50 Minimum Rate Previous Minimum Rate

17.00
14.50 12.00 9.50 0

I
50

II
100

III
150

IV
200

V
250

VI
300

VARIABLE PAY
Tying pay to some measure of individual, group, or organizational performance.

Types of Incentive Plans


INDIVIDUAL Piecework Standard hour Bonuses Merit pay Sales incentives GROUP Team Plan Gainsharing ENTERPRISE Profit sharing Stock options

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 IndividualBased 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 TeamBased Plans Are Most Likely to Succeed


When work tasks are so intertwined that it is difficult to single out who did what.
When the firms structure and systems facilitate the implementation of teambased incentives. When the objective is to foster entrepreneurship in self-managed work groups.

Gainsharing is most appropriate in situations where the demand for the firms 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 Gainsharing Plans

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

Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs

Flexible Benefits Plans (Cafeteria Plans) & Golden Parachute

Advantages

Flexible Benefit (Cafeteria) Plans

Disadvantages

more appreciation of benefits offered better match between benefits and employee preference
increased design and administrative costs