Compensation

Objectives and goals

Reward for Above below or
performance equal markets
Stay Competitive Acceptable to
Maintain equity employs
Align performance
Pay differentials
and ogals between senior and
juniors
Control budgets To achieve sound
Reduce turnover financial
performance
 Key Issues
Equity External
Procedural Labor Market conditions
Distributive Cost Of index- Areas
Interactional Legal
Pay Secrecy Distrust Strategy of the
Disclose defend -free company
Basis for Pay Market based
Hourly work Meet Market
Piece Meal work Lead Market
Relative worth of the Job Lag Market
Ability ollective bargaining
 Fixed Pay
Basic - Salary PF
Wages Gratuity
Dearness pay- Bonus
Prices, time and Medical
Point Leave Travel
HRA 60% of basic Conveyance
Special allowance Leave
Performance Insurance
Incentives Retd
 Steps - Develop Pay

1. Job Analysis

2. Job Evaluation

3. Individual
Pay Policy Pay

4. Pay
Performance
Structure

5.
Implementati
on
 JobEvaluation
Systematicprocessofdeterminingthe
relativeworthofjobsinordertodeterminethe
priceorpayPrice/Valueoftheworkbasedon
itsvaluetoachievegoalsofbusiness!!!
Classify

Benchmark

Awardpoints
Job Evaluation Systems

Job Ranking Job Classification

Common
Common
Methods
Methods of
of Job
Job
Comparison
Comparison

Point System Factor Comparison

 JobSystem
Ranking:Simplestandoldestsystemofjobevaluationby
whichjobsarearrayedonthebasisoftheirrelativeworth
Classification:Classifyandgroupaccordingtoaseries
ofpredeterminedwagegrades
Points:Quantitativejobevaluationprocedure

thatdeterminestherelativevalueofajob
bythetotalpointsassignedtoitthe
Factor Comparison : Evaluation process to be
accomplishedonafactorbyfactorbasisbydevelopinga
factorcomparisonscale/table
 HayProfileMethod

Jobevaluationtechniqueusingthree
factorsknowledge,mentalactivity,
andaccountabilitytoevaluate
executiveandmanagerialpositions
 Job Evaluation
Ranking Method
Rank the job from simplest
to comples on the basis of
relative worth
Describe the TDR cards and
place them in order of imp.
Individual or committee
does
Max for 15 jobs , Not
precise, Clumsy, for SME
Does not reflect correct
difference as interval is
unequal.
Grades
Group the set of jobs into a
grade 1,2, 3 etc on the
basis of Difficulty -
Sophisticated
Simplify - Complexity
Less SKA - More SKA
Decide how many grades
Write definition of each
More detailed than rank
Assumes relations between
jobs and force grouping
 Job Evaluation
Ranking Method
Rank the job from
simplest to compels on
the basis of relative worth
Describe the TDR cards
and place them in order
of imp..
Clumsy, unreliable, meant
for small org.
Does not reflect correct
difference as interval is
unequal.
Grades
Group the set of jobs into a
grade 1,2, 3 etc on the
basis of Difficulty -
Sophisticated
Simplify - Complexity
Less SKA - More SKA
Decide how many grades
Write definition of each
More detailed than rank
Assumes relations between
jobs and force grouping
 Job Evaluation
Job Classification Factor Comparison
Classified into JE by factor by factor
predetermined grades Responsibilities Money
Each grade will have Skill variety - Physical,
increasing SKA, mental
responsible Efforts - Physical &
Each Job class varies mental
against the job WC
specifications Difficult to establish
Compare job descriptions Total compensable factors
, suggest wage grades and weights, and points
Simple but less precise given
 Job Evaluation
Points or HAY Method
Quantifies the value of job
Based on total points assigned
to the job
Refined but Complicated to
establish but simple to
understand use
1. Identify compensable factors
Know how, Problem solving SKA,
risk, team, working conditions ,
risk, travel, Accountability,
leadership, financial impact
International business know,
decisions,
Points or HAY Method
2. Assign total points on the
basis of compensable factors
3. Assigns points to
individual job specific factors
4. Take weight age & Total
Point Manual
A hand book describing
factors degree to which they
are required with points
Job job description and point
manual table to assign points
 Job Evaluation
Points or HAY Method
Assign points on the basis of
compensable factors namely
Know how
Problem solving ability
Accountability
Sophisticated than others
Quantifies the value of job
Assigns points to factors
like International business
know, decisions, mobility,
risk etc
Factor Comparison
JE by factor by factor
Responsibilities Money
Skill variety - Physical,
mental
Efforts - Physical &
mental
WC
Difficult to establish
Total compensable factors
and weights, and points
given
 Implementation
Structure
Wage and Salary
Surveys

Issues
Issues Involved
Involved Wage Curve

in
in Setting
Setting
Compensation
Compensation Pay Grades
Structures
Structures

Rate Ranges
 WageandSalarySurvey
Job Evaluation is a basis for
Equity and rationality but not determine
Worth of jobs into Rank, class, points or monetary
worth must be done into hourly, weekly, monthly rate
Toolstosurveymarketforimplementationare
Wagesalarysurvey
TheWagecurve

PayGrades

Rateranges

Competencebasedpay

Broadbanding
Wage and Salary Surveys
Survey of the wages paid by emplyers in a
market
What is the market Area ? Industry ?
Aids to maintain external equity similar
to all
Survey for external equity and JE for
internal Equity
 Collecting Data
Collect the information Wage Curve
wages/benefits/pay Scatter diagram
policies. representing the
Statistics published not relationship between
relative worth of jobs
compatible and wage rates
Sites on salary sruveys Pay Grades
Employer initiated survey Grouping of jobs into
Select key jobs pay grades- all jobs
/benchmark within a particular
grade get the same
Determine factors & pay pay rate
Tabulate Number of pay grades
vary
 Pay Range
Single rate may be fixed for each pay grade
Range of rates provided for each pay grade
Higher range helps for promotion
Red Circle Rates
Wages paid above maximum range for
merit
Green Circle
Payment rates below the maximum of the pay
 Competencebasedpay
Job a basis to pay
Fails to reward skills - does not motivate to learn
new
Skill based pay or knowledge based pay or
increased knowledge than for the job
Motivate to learn and perform more skills
Shift - How work should be organized and paid for
Broad banding
Collapsing of traditional pay grades into few pay
grades and reduce the gaps
Reduces obsession with grades
 Significant
Compensation Issues
Equal Pay

Pay Compression

Low Wage Budgets

 Issues
Evaluate the Effectiveness of compensation
Link with the strategy
Identify potential problems with
transparency
Align compensation with org objectives
Monitor and compare compensation in depts
Prepare a score card - Performance and
Hike
 ComparableWorth
Equal Pay Wage-Rate
Compression
The concept that
Reduction in
male and female difference between low
jobs that are and high paying jobs
dissimilar, but Reduction of pay
equal in terms of between new and
value or worth to experienced
the employer, employees ,
differential between
should be paid the hourly
same
 Components of pay in
india
Basic wage
Not included in pay
Skills Experience
Bonus profit sharing Difficulty of work Training
not part of contract needed Responsibility
Hazardous
House
Dearness Allowance
accommodation A cushion against prices
materials given HRA
Expenses reimbursed Conveyance
Contribution to Special allowances meals
pension loans insurance clubs ---
Bonus
Amenity or services
 Benefits
Indirect compensation
Leave policy
Insurance
Accidental and life
secure
Leave Travel-LTA -
Medical
Retirement benefits
Holiday homes
Flexi times
 Objectives
Requirements for successful
incentive programs
Types of incentive plans.

Explain why merit raises may fail to

motivate employees adequately and
discuss ways to increase their
motivational value.
Compensate salespersons.
 Rewarding performance
Well performing employees received additional
work but not rewarded ?
Strategic compensation
Use of incentive plans or variable pay
80% of companies offer variable pay
Flexible pay than salaries or hourly wages as it is
attached to costs as per conditions
Exercise fairness and equity ??? Do what org want
Pay for performance by establishing performance
threshold or minimum leve of performance to get
this
 Link - org objectives
Link organizational Do they work ?
goals Important metrics
Customize incentives
Individual rewards
to measure outputs
Group rewards Satisfies expectations
Goals Poor design
Productivity /implementation
Employees has no
Costs control on
Quality performance
standards
 Requirements for
Success
Credibility of the plans
Participation of
employees in
designing
Willingness to accept
Objective standards to
evaluate quality-
quantity
Trust-open 2 way
Entitlements X
Metrics - Fair - Link
Set performance
measure
Critical task distinguish
Individual Group
Avoid bias politics
Org contribution
Measures
Quantitative-Qualitative
Work independent of
others contribution
 Individual Incentives
Flexibility defines
individual plans
Units Performance goals
costs etc
Piecework-Time/cost
Straight piece work
No of units produced
Differential piece rate
Higher rate beyond
Piece rate criticism
Individual effort group
Quality Technology
Standard hour plan
Incentive on the basis of
completion of job before
standard of time
Ensure quality
Bonus
Payment given beyond normal
wages -20%
Efforts Costs Quality
Spot bonus - Unplanned bonus
given for efforts
Merit pay
Increase in pay to basic pay
due to performance
standard
 Incentives Awards
Non cash awards Basis
aligned to business Volume
goals New customers
Pacesetter award Stars Straight salary
Productive gains Pay for duties not related
achievements-service to sales
Right style and Straight commission
Sales incentives Pay based on percentage
Competitive of sales
Differences in jobs xxxx Stress high price
message
Service defeats sales
Seasons
 Group incentives
Cost reduction Process
Set performance
Productivity measure
Cooperative efforts Efficiency Quality
Team compensation Fix Size of incentives
based on team & org
Reward that is given
Social problems and
if agreed
complicated formulas
performance
standards are met
Gain sharing
Programs designed
Type of teams vary
increase productivity by
hence incentives fixing base line standard
tough
 Group Incentives
The Scanlon Plan Improshare
A gain sharing plan Individual bonus
that rewards paid on the basis
individual ideas, of over all team
efforts and
productivity
suggestions to
improve productivity Get psychological
by forming cooperation and
committees financial
To all as per formula understanding
 Organizational plans
To crease sense of Profit sharing
ownership Procedure by which all
employers are paid a
Profit-sharing sum based on profits
Stock options Increase your pay by
ESOPS contributing to profits
Equal or As per salary
5% to 50% of net profit
20 to 25
 Organizatinal
Stock Options
Motivate and Corporate
culture or benefit plans
Offer the employee option
to purchase the stocks at
a price guaranteed
Offer 1000 shares at 50
after 2 years another 3 y
Increase their role in firm
Boosts morale of
ESOPS
Wage Seniority
Organization contributes
shares of its stock to an
established trust
Employees can buy stock
Given it as a bonus
Obtain stock through a
profit sharing plan
Significant tax benefits
Buy at the time of leave
 Executive
Base Salary - 30 to 40% $ 500,000
Short Term incentives or bonus- Cash
or stock paid immediately deferred
payments used as retirement benefits
Long term incentives or Stock plans
Benefits
Perks
Golden parachute
 Requirements of
incentives
Identify Organizational metrics that
encourage
Involve employees in fixing Fairness
Find the right incentive payout simple and
open
Performance and pay link
Willingness of managers to reward differences
Large enough budget to reward performaers
Fix limits - assess overheads
 Variable Pay
Individual Group
organizational
Piece Rate-std & diff. Same size for all
Standard rate per unit-hour Different for different
Slab- diff cost diff unit Organizational
Quality Gain Sharing
Improshare- over all
Bonus productivity Profit Sharing Plans
One time pay per For increase in on the basis of
year-not part of pay Productivity Savings performance
For new ideas, skills, on material, input
successes Scanlon-
Lump sum for Employee Stock
Merit pay hike in basic
performance- saving options
Spot Pay
by participation-
Awarded any time for Extra
efforts-times Rucker Plan To motivate & reward
Covers production Divisive
Awards Cultural fit
workers for results
Performance awards Administer well
Recognition Best Sales incentives
Appropriate actions
Service award- Years Salary & Commission
 Executive Perquisites
company-provided car
free financial consulting
club memberships
use of company plane
and yacht
use of company loges at
sporting events
low-cost or no-cost
loans
special travel
allowances
limousine service
kidnap and ransom
protection
free legal counseling
family member travel
allowances
home entertainment
allowance
payment of childrens
educational expenses
executive dining
room
estate planning
Types of Group Incentive
Plans
Teams
Gainsharing Incentive Plans
Scanlon Plan
Rucker Plan

Improshare

Earnings-at-Risk
 Gain
Scanlon
Sharing
Rucker Improshare
Philosophy Share Economic Economic
improvements incentive for incentive to
Make employee increase
suggestions participation performance
Ideas to
improve
Primary Goals Productivity Productivity Productivity
Secondary Goal Cost reduction, Cost reduction, Attitude, work
Attitude, Attitude,
quality, quality,
Behavior Behavior. work

Worker Screening Screening No Shop floor

participation committee committee participation,
Production Some times Bonus
committee/consul
com. prod..
tant
Suggestions Formal Fromal None
Role of Chair of None None
 Benefits- Reward & services than
wages
Purpose - Value - Cost - Control
Improve quality of work - Enhance Productivity - Support employee interest
Health Care
benefits
Security
Family medical- Financial benefits
Work men
leaves Insurance
compensation
Child-old age
Retirement
care
Older emp care
Pension Time
Holidays-- Disability
Contributory
Vacation Long term- Short
Exgratia
Leave of absence- term
Vesting: Fixed
month Paid time off
Portability: Flexi
Severance Pay &
Gratuity Educational Relocation
Benefit when
leave
 Laws
Minimum wages Act, 1948
Lowest level below which wages cannot sink
Payment of Bonus Act, 1965
Minimum bonus of 8.33% of surplus - Maximum bonus
20% of allocable surplus of 67% of surplus
Payment of Gratuity Act, 1972
Maximum Gratuity since 2010 = 10,00,000
Gratuity = 15 days salary X no of years served
Salary = Monthly payment divided by 26 days
Employee Provident Fund, 1952
12% of Basic Plus DA - or Rs 1800
8.33% EPF and 3.67% Pension fund