Introduction to Compensation Benefits

Content
Introduction Objectives Principles Essential components of salary system Factors affecting Methods of wage system Challenges Phases of Comp. system Process of plan Evolution of pay systems Benefits Summary reference

Define Compensation
is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

Compensation Facts
Cash and non-cash rewards employees receive in exchange for their work Effective compensation management
Employees more likely to be satisfied and motivated to contribute

Compensation perceived to be inappropriate

Performance, motivation and satisfaction may decline dramatically Employee turnover may occur Dissatisfaction with absolute or relative pay

Objectives of Comp.Management
establish objective and equitable pay systems design cost-effective benefits packages that help attract and retain high-quality employees. help employees to effectively utilize their benefits, such as by providing information on retirement planning.

Objectives of Compensation
Administrative efficiency
Acquire personnel

Retain employees

Legal compliance

Effective Compensation

Ensure equity

Control costs

Reward behaviour

Principles of wage & salary administration

1. Based on the interests of employee, employer, consumer & community 2. To be in writing for uniform & consistency 3. Wage system fits with companys congruency ( and integral part of financial planning) 4. Flexible / changeable for internal / external demands 5. Ensure employee must know about the system 6. Set against the standards before drafting wage policy 7. Simple & expedite to admin process 8. Compensation determination & administration through apt database 9. Periodical review when, how & why to needs.

Essentials of sound wage & salary

Internal equity External competitiveness Built in incentive Link with productivity Maintain real wages Increments (to build up behavioral input)

Factors affecting wage & salary

Demand for & supply of labour Ability to pay Labour unions Cost of living Prevailing wage rates Job requirements productivity

 General Factors 1. Demand for and Supply of labour 2. Ability to pay of the Organization 3. Labour Unions 4. Cost of Living 5. Prevailing wage rates 6. Job Requirements 7. Productivity 8. State Regulation

General and Individual Factors affecting Wages

Individual Factors 1. Employees Age and work Experience 2. Educational Qualification 3. Promotion possibilities 4.Hazards involved in the job 5. Stability of Employment 6.Demand for the product 7.Industrys role in the economy 8.Potentials of an employee

Methods of Wage Payment 1. Time Wage system 2. Piece Wage system 3.Balance or Dent wage system

Compensation Challenges
Prevailing wage rates

Government constraints

Compensation Challenges

Union power

Wage & salary policies

Productivity

Organizational Strategy for Pay

Motivating performance Attract & retain Identifying valued rewards

Motivating development

Areas that impact pay systems

Consequences

Relating to performance

Setting goals

Achievement of the objectives are determined by :

Labour markets forces Collective bargaining Government legislation Top managements philosophy regarding pay Top managements willingness to recognise ability and effort

How is compensation used?

Compensation may be used to:
recruit and retain qualified employees. increase or maintain morale/satisfaction. reward and encourage peak performance. achieve internal and external equity. reduce turnover and encourage company loyalty. modify (through negotiations) practices of unions.

Formulating Components of a compensation system

Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families. Job analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Job evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method.

Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining. Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Policies and Regulations

Different types of compensation include..

Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

Phases of C.M
Phase I Job Analysis

Phase II Job Evaluation

Phase III Salary Surveys Phase IV Pricing Jobs Match

Establishing appropriate pay level for each job

Combines job evaluation rankings, survey wage rates, and other considerations e.g. organizations pay policy Wage-trend line developed

Creating the compensation structure

Job classes and rate ranges

Process of Compensation Plan:

Develop a program outline. Designate an individual to oversee designing the compensation program. Develop a compensation philosophy. Conduct a job analysis of all positions. Evaluate jobs. Determine grades. Establish grade pricing and salary range. Monitor the program. Develop a salary administration policy. Obtain top executives' approval of the basic salary program. Communicate the final program to employees and managers. Determine an appropriate salary structure.

Model for compensation system

Analyse present compensation structure Formulate salary policies

Select compensation system

Develop implementation plan Evaluate and monitor

Establishing Pay Plans

The salary survey Job evaluation

The 5 step process:

Pay grade grouping

Price pay gradewage curves

Fine tune pay rates

Traditional Pay Systems

Traditionally people were paid primarily through base salaries determined by specific job, the need to maintain a certain level of internal pay equity an the need to pay externally competitive salaries. Employees were not encouraged to develop skills. This had to change

Emerging Pay Systems

Pay for knowledge and skills Pay for competencies Performance based pay Incentive pay systems Broadbanding = rather than climb up through a series of grades, employees might spend most of their careers in a single band moving laterally and acquiring new knowledge and competence. Useful in boundaryless organisation.

Reference
Human resource management K.Aswattppa, 5th edition, McGraw hill company, pages 285-309. Job satisfaction, www.owlnet.rice.edu/.../psyc_231_ch09_job%20satisfaction.ppt Job evaluation,www.businessfaculty.utoledo.edu/ddwyer/HURM4650/.../jobeval.ppt Total compensation management, training costs and rewarding employees, Aberdeen group, April 2008. http://www.scribd.com/doc/3820720/WAGE-AND-SALARYADMINISTRATION-IN-INDIA http://www.hr-guide.com/data/G400.htm http://www.hr-guide.com/compensation.htm

Thank You