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Shubham Agarwal
Shikha Kassodhan
Shikha Bhandari
Vinod Kumar
Vipul Gangwar
Saurabh Mishra
Somesh Prasad
]ABLE OF CON]EN] -
Ú Introduction to compensation
Ú ]
pes of compensation
Ú Salar
compression
Ú Equit
theor
of motivation
Ú Establishing pa
rates
Ú Competenc
based pa

Ú Compensation trends
MEANING -
Ú Compensation is the total amount of the monetar
and
non-monetar
pa
provided to an emplo
ee b
an
emplo
er in return for work performed as required.

Ú Compensation also includes pa
ments such

as bonuses, profit sharing, overtime pa
, recognition
rewards and checks, and sales commission.
Compensation can also include non-
monetar
perks such as a compan
-paid car, stock
options in certain instances, compan
-paid housing etc.
SURVEY REPOR] OF MERCER
Ú Mercer¶s surve
included responses from more than 1,100 mid-size and large emplo
ers
across the U.S. and reflects pa
practices for more than 12 million workers.

Ú ]he surve
results are captured for five categories of emplo
ees executive, management,
professional (sales and non-sales), office/clerical/technician, and trades/production/service.

Ú According to Mercer 2010/2011 US Compensation Planning Surve
, more than 98% of

companies plan to award base pa
, increases in 2011.

Ú Moreover, just 2% of companies are planning across-the-board salar
freezes next
ear as
compared to 13% in 2010 for all emplo
ees.

Ú Of the emplo
ers projecting to grant base pa
increases, the average increase is expected to
be 2.9% in 2011, up from an actual 2.7% in 2010 for all emplo
ees.

Ú Moreover, just 2 percent of companies are planning across-the-board salar
freezes in 2011,
compared with 13 percent for the management.
Ú However, more emplo
ers are taking a segmented approach to salar
increase allocations and
continuing to focus on high-performing talent.
a

 

 







 





 


% firms Average raises Average raises % firms Average raises Average raises
freez (excludi (includi freezi (excludi (includin
ing ng 0s*) ng 0s) ng ng 0s*) g 0s)
salari salari
es es
13% 2.7% 2.3% 2% 2.9% 2.8%
All emplo
ees
Executives 17% 2.9% 2.3% 3% 3.0% 2.9%

Management 13% 2.7% 2.3% 2% 2.9% 2.8%

Professional
11% 2.7% 2.3% 2% 2.9% 2.8%
(sales and
non-sales)
11% 2.7% 2.3% 2% 2.9% 2.8%
Office/
clerical/
technician
]rades/ 10% 2.6% 2.3% 1% 2.9% 2.8%
production
/
service
?

Ë 
        
a


 


 


 

 













Oil and gas 3.4% 3.5%

Pharmaceutical 2.9% 2.9%

Utilities²energy 2.9% 3.0%

Banking 2.6% 2.7%

Business/ 2.8% 3.2%

professional services

Retail 2.6% 2.8%

Telecommunications 2.7% 2.9%

Education 2.8% 2.6%

Health care 2.5% 2.8%

Hospitality/restaurant 2.6% 3.0%

Real estate 2.4% 2.5%

?

Ë]




 

 










INDUS]RY OVERVIEW -
Ú Despite salar
increases being lower than in recent
ears, variations
exist among industr
sectors.

Ú ]he oil and gas industr
is among the highest with projected average
pa
increases of 3.5 percent, followed b
the business/professional
services industr
at 3.2 percent.

Ú In contrast, other industries expect to award less in 2011, including

education at 2.6 percent and real estate at 2.5 percent.

Ú In general, increasing pa
will continue to be a challenging priorit
for

emplo
ers until improved economic conditions are evident and the
economic outlook significantl
improves.
]YPES OF COMPENSA]ION PLAN -

DIREC] FINANCIAL PAYMEN]

INDIREC] FINANCIAL PAYMEN]S

DIREC] PAY IS GIVEN BASED ON -

Ú Increments of time
Wage (Hourl
)
Salaried
Ú Performance
Piecework
Commission
WAGES ± It refers to hourl
compensation
paid to operating emplo
ees;
basis for wages is time .

SALARY ± A form of periodic pa
ment from

an emplo
er to an emplo
ee.
PIECEWORK â Pa
is directl
related to what the
worker produces.

EXAMPLE- A to
maker is paid as per the

number of to
s made.
DIREC] FINANCIAL REWARDS
Ú WAGES
Ú SALARIES
Ú COMMISSIONS
Ú INCEN]IVES
Ú BONUSES
INDIREC] - FINANCIAL REWARDS

Ú FREE MEDICAL FACILI]Y

Ú VACA]IONS
Ú EMPLOYER PAID INSURANCE
Ú COMPANY PAID CAR
NON - FINANCIAL REWARDS

Ú IN]RES]ING WORK
Ú WORKING CONDI]ION
Ú GROW]H OPPOR]UNI]Y
Ú RECOGONI]ION
Ú INCREASE IN RESPONSIBILI]Y
Salar
Compression
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How the starting salaries increased over time
How salar
compression occurs
Ú Pa
imbalances can be caused in a professional
services environment when firms need to find
specialized talent - and must pa
a high price for doing
so. When staff come in at that higher rate, the
ma

outpace even those at the level ahead of them.

Ú Mergers are another instance that can create tension

from salar
compression, since it often happens that
one merger firmµs pa
scales are just not as high as the
other firm¶s.
Ú Pa
freezes and reductions because of the
recession can exacerbate the effects of salar

compression. the situation can lead to
emotional issues such as resentment,
depression, and disengagement. Staff ma
feel
their tenure and experience are not valued.

Ú Geograph
also pla
s a role.

Possible solutions
Ú One of the best solutions to the compression
challenge is to establish a salar
structure,
which should be regularl
updated and act as a
guide when setting compensation levels.

Ú Salaries should be benchmarked regularl
to

ensure the
¶re keeping pace with market rates.
A clear career path also helps ease tensions
created b
salar
compression.
Ú ëIf people accept that the
have the opportunit
to
advance, the
ma
accept being paid a little bit less for
the time being with the knowledge that the
¶re
establishing a career and moving up,ë said Ulrich.

Ú Career paths, complete with established requirements,

ensure that
our firm gets value out of ever
staff
person. And the
encourage staff to develop, reducing
the firm¶s cost of having to recruit and train new hires

Ú New staff ma
be offered a hiring bonus instead of a

higher starting salar
.
EXAMPLE
Ú IBM once was facing the problem of salar

compression. ]o overcome this problem it decided to
install a more aggressive merit pa
program according
to which more rigid standards were set for individual
performance.

Ú Organizations developed a sound compensation

programs in which wage structures depends upon the
contribution each person makes to the organization's
goals.
Equit
]heor
of motivation
Ú Adams called personal efforts and rewards and other
similar 'give and take' issues at work respectivel

'inputs' and 'outputs'.

Ú Inputs are logicall
what we give or put into our work.

Outputs are ever
thing we take out in return.

Ú Example-Research conducted of capuchin monke
.

Person A Person B

Outputs Outputs U



Inputs
< Inputs

Outputs Outputs
Inputs
= Inputs



Outputs Outputs 



Inputs > Inputs
Forms of equit





  
  

  
 

 
 
 

Ú )

( refers to how a jobs¶s pa
rate in one compan

compares to the job¶s pa
rate in other companies.

Ú 

( refers how fair the job¶s pa
rate is, when compared
to other jobs within the same compan
.

Ú  
( refers to the fairness of an individuals pa
as

compared with what his or her co-workers are earning for the same or
similar job within the compan
, based on individual performance.

Ú 

( refers to the ³perceived fairness of the process &

procedures used to make decisions regarding the allocation of pa
.
EXAMPLE
Ú In India the difference between the salaries in private
and public sector has become a matter of concern. ]his
substantial salar
differentials has contributed towards
best talent getting less attracted towards public sector
and government jobs.

Ú For this pa
check India project was launched. ]his

involved a salar
questionnaire which was used to
collect salar
details from emplo
ed people.
Establishing Pa
Rates
After stud
ing this,
ou should be able to

1. List the basic factors in determining pa
rates.

2. Explain in detail how to establish pa
rates.
3. Explain how to price managerial and
professional jobs.
4. Discuss competenc
-based pa
and other
current trends in compensation.
]here are 5 steps in establishing pa
rates
1. Salar
surve

2. Job evaluation

3. Group similar jobs into pa
grades

4. Price each pa
grade b
using wage curves

5. Fine tune par rates

1. Salar
Surve

Ú Is what other emplo
ers are pa
ing for the comparable job.

Ú Pla
s a big role in Pricing Jobs.

Ú It is done through- Formal written surve
s, Informal

telephone, Newspaper.

Ú ]here are Commercial, Professional and Government salar

surve
.

Ú Internet is an expanding Compensation surve
technique.

2. Job Evaluation
Ú Is a s
stematic comparison done in order to determine
the worth of one job relative to another.

Ú Jobs with high responsibilities, qualification & duties

should be paid high and vice-versa.

Ú ]here are compensable factors such as skills, effort,

responsibilit
and working conditions.

Ú ]here are 4 methods of calculating job evaluation.

Ranking Method
r
  

    
     
       

 

 

       

 
    
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Classification method
It involves categorizing jobs into groups which are of
roughl
the same value for pa
purposes.
† a'
GRADE 6 Chef $21.50-32.00 / hr
GRADE 5 Manager $12.50-22.00 / hr
GRADE 4 Assistant Manager $8.50-13.00 / hr
GRADE 3 General Cook $7.50-9.00 / hr
GRADE 2 Server $7.00-8.00 / hr
Cashier
GRADE 1 Dishwasher $6.50-7.25 / hr
Point Method
It involves identif
ing several compensable factors,
each having several degrees as well as the degree
to which each factors is present in the job
Factor Comparison Method
Ú According to this method variet
of skills
&difficult
factors, then adding up these
ranking to arrive at an overall numerical
rating for each given job.

Ú It is widel
used method.

3. Groups similar jobs into pa
grades
Ú It is comprised of jobs of approximatel

equal difficult
.

Ú It usuall
want to first group jobs into pa

grades.
4. Price each pa
grade b
using wage curves
Ú Shows the relationship between the value of the
job and the average wage paid for this job.
Ú Wage curve.
5.Fine
Fine±±tune pa
rates
Ú It involves 2 thing-Developing pa
ranges &
Correcting out of lines rates.

Ú Pa
ranges depends upon
ears of service.

Ú Correcting out of lines rates-means correcting

average pa
for that job fall well off the wage
line or well outside the rate range for its grade.
EXAMPLE
Ú Now a da
s various websites like salar
.com,
wageweb.com, jobsmart.com provides detail
about average salar
of various professionals.

Ú In these sites classification of salaries could be

done on the basis of salaries in the government
job at the same level, profession specific
salaries, salaries according to cit
etc.
"$ * * 
Competencies are the knowledge-skills and
the attitude needed b
an
individual
emplo
ee to carr
out their job effectivel
,
and emplo
ees are paid on such attributes.

]he main such competencies are -

l Decision making skills.

l ]echnical skills
Uses of Competenc
±Based pa

Ú Support High Performance Work s
stem.

Ú Support Strategic Aims.

Ú Support Performance Management.

Ú ]o have Fair Emplo
ee Policies.

GENERAL MILLS
General Mills manufacturing plant pa
s emplo
ees on attained skill
levels, management created four clusters of job in four areas ,these
are ± mixing, filling , packaging and materials, each cluster is
having three levels.

l First Level - indicates workers with limited knowledge of da
to

da
work.

l Second Level- having some technical knowledge.

l ]hird Level- full
competent emplo
ees who can anal
ze the

problem , and do not need supervision as well.
Support High Performance S
stem
Ú Competenc
- based pa
s
stem is to encourage
the emplo
ees to work for self motivated wa
s.

Ú Emplo
ees are more enthusiastic about learning

and moving among other jobs.

Ú Organizations have high financial performance due

to more efficient workforce.
Support Strategic Aims
Ú Pa
ing for skills , knowledge and
competencies is more strategic.

Ú Aligning emplo
ee goals to organizational

goals.

Ú Application of strategies and managerial

policies becomes easier.
Support Performance Management
Ú Performance management means aligning
emplo
ees goals, training, appraisal to strategic
goals.

Ú Salar
is based on emplo
ees skills not on the job

duties assigned, that gives emplo
er more control.

Ú Development of skills ensures high performance.

Compensation ]rends
Ú Broadbanding
Ú Comparable worth
Ú Variable Performance Linked Pa
(VPLP)
Ú Skilled based pa

Ú Different t
pes of bonus
Ú Fringe benefits
Ú ESOP¶S
1. Broadbanding
Ú Dela
ering of pa
structure.
Ú Attached to grades are pa
range-minimum to
maximum.
Ú ]o reduce the number of distinction made
based on job value.
Ú Strong motivation.
Ú Flexibilit

Ú Greater scope for pa
growth.
2. Comparable worth
Ú ]o pa
men and women equal wages for
jobs that are comparable value to the
emplo
er.

Ú ]he concept b
which women who are

usuall
paid less than men can claim that
men in comparable rather than in strictl

equal jobs are paid more.
3. Variable Performance Linked Pa
(VPLP)
Ú A simple concept based on rewarding who
increase in sales and efficienc
.

Ú Variable pa
is an innovative wa
to bring

wages and salaries in line with companies
market performance.

Ú In India more than 85%of companies having

VPLP.
4. Skilled Based Pa

Ú Emplo
ee are paid according to their no. of
skilled .

Ú Skills blocks

-breadth skill
-depth skill
-vertical skill
5.]
pes of bonus
Ú Referral Bonus

Ú Lo
alt
bonus

Ú Performance bonus
6. Fringe benefits-
benefits-WIPRO
Ú Cash compensation.
Ú Social securit
.
Ú Development and education.
Ú Leave of absence programs
Ú Relocation program.
Ú Railwa
half-fare season ticket.
Ú Famil
Service Support in the areas of Childcare
Ú Homecare and Eldercare.
Ú Bonus for recommending new emplo
ees.
Ú Special conditions for insurance
Ú Sickness and accident income plan.
ESOP¶S
Ú Emplo
ee stock ownership plan allow user to become
owners of stock in the compan
the
work.

Ú Feeling of ownership.

Ú Supplement retirement/social securit
benefits.

Ú Infos
s,WIPRO,Maruti ud
og ,Godrej have introduced

ESOP¶S.