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Foundation Certificate in HRM
Compensation & Benefits
Managements
Organizational Goals & Strategies
• All departmental goals and strategies
(ex: recruitment strategy &
compensation strategy ) should be
aligned with, supportive of, and
leading to the goals and objectives of
the organization.
Organizational Goals & Strategies
• Long term strategic objectives have short
term requirements.
• All executives , managers, HR, should
understand how all the short term and
departmental objectives and strategies are
integrated and interact towards achieving the
long term objectives of the organization.
Development of an Organization
• How does an organization develop?
Activities in the Development of an Organization
Grouping Tasks into Jobs
Defining Work Unit Activities
Determining Objectives & Goals
Formulating Organizational Strategy
Developing Policy
Identifying the mission
Establishing a Philosophy
Establishing a Philosophy
• The philosophy of an organization establishes general guidelines and provides standards for decisions and actions taken.
• Describes the values of top management.
• A positive relationship between the values of the members of an organization and the philosophy-based behaviours of leaders is an important factor of success.
Identifying the Mission
• The Mission Statement details the reason for the existence of the organization. It describes in broad and general terms what the organization wishes to accomplish: the product it intends to provide and how it intends to provide it.
• It identifies desired results that must be translated into actions.
Developing Policy• The policy must support the mission of
the organization.
• It must be broad enough to relate to different actions and behaviours required of the various work units.
• Must be understood by all members of the organization.
Formulating Organizational Strategy
• Responsibility of top management.
• Provides the foundation for future growth and development of organization.
• Must have a clear vision and be realistic.
• From OS, sub-strategies are developed.
• All action plans and departmental goals and tactics should promote the accomplishment of the organizational objectives.
Determining Objectives & Goals
• Translate mission statement into specific output requirements.
• Into more specific short-term goals for work units.
• Establish levels of performance needed.
• In making this transition from strategic to tactical operations, the most effective and efficient means of accomplishing the organization’s mission must be determined.
Defining Work Unit Activities• Each unit must develop its own function
statement.
• It identifies the principal activities of the work unit.
• It assists in integrating the top-down established organizational objectives and goals with the assignments of each working unit.
Grouping Tasks into Jobs
• From the activities assigned to each
work unit come the tasks assigned to
specific individuals in the unit. (tasks,
duties, and responsibilities of a job).
Employees- A critical resource
• Quality & quantity of organizational
output depend on the skill, interest,
and effort of employees.
Employees: A critical resource: Division of labor
The basis of employer – employee exchange process is the division of labor and performance.- Board of Directors- Senior Managers- Operating Managers- Sales people- Technicians- Skilled Workers- Semi skilled workers- White, blue, and pink collars
Employees- A critical resource
• It is important to understand the effect
of Pay Satisfaction, Job Satisfaction,
and Organizational Satisfaction on
individual behaviour of employees.
Pay Satisfaction• Employees compare their pay rate with: co-
workers and workers in other organizations with identical or similar assignments, and others performing different activities.
• Result of comparison influence the employee’s performance, or even his or her decision to stay or leave the company.
Job Satisfaction
• Recognition of a job well done, an
opportunity to advance in the current
job or current career ladder, taking a
bridging job to a new career path… all
enhance job satisfaction.
Job Satisfaction & Pay Satisfaction
Pay and job satisfaction are entirely
different but they interact and influence
each other. A positive view of one can
improve the other.
Organizational Satisfaction
• Includes, but not limited to, job satisfaction and pay satisfaction.
• Can be promoted by recognizing and understanding organizational philosophy and policies.
Organizational Satisfaction
• Security in employment can minimize frustration and stress arising from job and pay dissatisfaction.
• Recognizing fairness in all personnel decisions might limit frustration about a specific issue.
Satisfaction• Reward Systems should be designed,
developed, and implemented in a way leading to improved employee pay, job, and organizational satisfaction.
• Satisfaction is individually based and dynamic.
Satisfaction
• In an employment perspective: satisfaction means the fulfillment of an obligation (employee and employer).
1- What the organization expects from you2- These are the rewards we offer you in exchange for the availability of your skills and efforts (Compensation & Benefits)
Compensation
Cash, Bonuses, Insurance, Vacation, HolidaysPerks, Recognition
What is compensation
• Compensation & Benefits are also
known as Total Rewards
• An exchange of payment from an
employer for the services provided
by employees
Organization’s Strategic Focus
• C & B (Total Reward System) refers to all forms of financial and non-financial returns (cash & non-cash) employees receive from their employers.
• The concept behind C & B approach is to motivate employees to give more by fulfilling their needs.
26
What is Compensation?
• Compensation represents both the
intrinsic and extrinsic rewards
employees receive for performing
their jobs.
27
Extrinsic vs. Intrinsic Compensation
Core compensation
• Hourly wage
· Annual / monthly salary
Core compensation
• Hourly wage
· Annual / monthly salary
Adjustments to core
compensation• Cost-of
living· Seniority
· Merit· Incentive· Person-
focused
Adjustments to core
compensation• Cost-of
living· Seniority
· Merit· Incentive· Person-
focused
Total Compensation
Total Compensation
Extrinsic Compensation
Extrinsic Compensation
Intrinsic Compensation
Intrinsic Compensation
Legally Required Employee Benefits• Social
Security Act • Workers compensatio
n laws · Family &
Medical leave Act
Legally Required Employee Benefits• Social
Security Act • Workers compensatio
n laws · Family &
Medical leave Act
Discretionary Employee Benefits Health insurance
Disability insurance
· life insurance · retirement
plans · paid time-off
· Accommodation and
enhancement
Discretionary Employee Benefits Health insurance
Disability insurance
· life insurance · retirement
plans · paid time-off
· Accommodation and
enhancement
Job characteristics• Skill variety• Task identity
· Task significance· Autonomy· Feedback
Job characteristics• Skill variety• Task identity
· Task significance· Autonomy· Feedback
Extrinsic vs. Intrinsic Compensation
29
Extrinsic Compensation.
• Core Compensation1) Salaries (Monthly).2) Wages (Hourly, Daily, or Weekly).
• Cost-of-Leaving Adjustment (COLAs).1) Consumer Price Index (CPI).2) Seniority Pay.3) Merit Pay.4) Incentive Pay.5) Person-focused Pay (Pay-for-Knowledge and
Skill-Based Pay).
30
Extrinsic Compensation• Employee Benefits:
Legally Required Benefits1) Social Insurance2) Sick leave.
Discretionary Benefits (not legally obligatory):1) Health Insurance2) Life Insurance.3) Retirement Plans.4) Paid time-off.
31
Compensation
• In many organizations,
Compensation & Benefits costs are
the single largest operating
component.
Compensation: A Definition . . .
• All forms of –financial return, –tangible services –benefits
that employees receive as part of their employment relationship
Definitions
Compensation:A money value is presented in return of an employee efforts doing certain tasks or jobs for definite or indefinite time frame . It varies in terms of formation and type presenting based on the nature of job. It is an obligatory right forced by law.
DefinitionsBenefits: A certain type of financial or non financial rewards are presented for the purpose of rewarding & recognition, to the employee in returns of his efforts doing a job. Some benefits are obligatory and some are not forced by Law.
DefinitionsSalary:A money value is presented in return of an employee efforts doing certain tasks or jobs, on monthly or annually basis. Manly are given to white collars.
Wage:A money value is presented in return of an employee efforts doing certain tasks or jobs, on hourly or daily basis. Manly are given to Blue collars.
Compensation systems
• Should reflect the idea that employees are valued contributors in the success of the organization.
• Should promote fair treatment.
Some Compensation Strategies promoting fair treatment• Relating job worth to differences in job
requirements.• Recognizing the worth and value of skills
and knowledge.• Rewarding employee contributions and
results achieved.• Promoting continued employee
acquisition and upgrading of knowledge and skills.
Some Compensation Strategies promoting fair treatment• Supporting team and work unit
cooperative efforts.• Designing compensation plans that
compete within labor markets.• Aligning compensation of all employees
with objectives & goals of organization.• Providing a compensation package that
enhances current lifestyles and provides long-term protection for employees.
Compensation Policy Objectives
• To Reward Past Performance• To Remain Competitive in Marketplace• To Maintain Equity Among Employees• To Motivate Future Performance• To Maintain a Realistic Budget• To Attract New Employees• To Reduce Turnover
compensation & benefits
• A competitive compensation & benefits
program:
- Attracts
- Retains
- Motivates
Compensation
• Used to Serve Organizations Goals• Enhance Employee Needs but Create Profits• Relative Worth of Job• Significant Part of HRM• Formal Policy Essential
Corporate Policies, Competitive Strategy and Compensation• The compensation plan should support and be
aligned with the firm's strategic aims.
• HR compensation manager will write the policies in coordination with top management, in a manner that is consistent with the firm's strategic aims.
Compensation Policy Issues• Pay for performance• Pay for seniority• The pay cycle• Salary increases and promotions• Overtime and shift pay• Probationary pay• Paid and unpaid leaves• Paid holidays• Salary compression• Geographic costs of living differences
Compensation Policy Issues
• Whether to emphasize seniority or performance is a compensation policy issue.
• seniority-based pay may be of advantage to the extent that employees seek seniority as an objective standard yet a disadvantage is that top performers may get the same raises as poor ones.
Compensation Policy Issues
• Salary Compression is a salary inequity problem generally caused by inflation resulting in longer-term employees in a position earning less than workers entering the firm today.
• Prices go up faster than company's salaries and firms need a policy to handle it, One policy is to install a more aggressive merit pay program, Others authorize supervisors to recommend equity adjustments for selected employees who are both highly valued and victims of pay compression..
Compensation Policy Issues
• Geography : cost of living differences between
cities can be considerable; employers handle cost
of living differences to give the transferred person
a nonrecurring payment, others pay a differential
ongoing cost in addition to one time allocation,
while others simply raise the employee's base
salary.
Compensation Policy Issues
• Compensating Expatriates employees:
multinational companies compensate expatriate
employees those who are sent overseas using
two basic international compensation policies;
home-based and host-based plans.
Components of a Total Compensation
• Financial• Direct– wages, salaries, commissions, bonuses
• Indirect– insurance plans• life, health, dental, staff meals, laptops & mobiles
– social assistance benefits• retirement plans, social security
– paid absences• vacations, holidays, sick leave
Components of a Total Compensation
• Non-Financial• The Job– interesting, challenging, responsible– opportunity for recognition, advancement– feeling of achievement
• Job Environment– policies, supervision, co-workers, status
symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs
Components of a Total Compensation
• There are two ways to make direct financial
payments to employees:
• you can base them on time or on performance.
• Time-based pay is still the foundation of most
employers' pay plans.
Pay-for-Performance Standard
Standard by which managers tie
compensation to employee effort and
performance.
Pay-for-Performance Standard
• Merit Pay• Cash Bonuses• Incentive Pay
Components of a Total Compensation• It is common for Blue-collar workers to get
hourly or daily wages while others like managers or white collar employees are paid by month .
• The second direct payment option is to pay for performance, piecework is a good example, it ties compensation to the amount of production or number of pieces the worker turns out while sales commission is another example.
Components of a Total Compensation
• Employers often create pay plans in which
employees receive some combination of time-
based pay plus incentives.
• Several factors influence the design of pay plans:
legal, union, company policy and equity.
Compensation & Benefits
Basic Factors in determining pay rate in any organization:
Legal Consideration
Compensation policies
Union influences
Cost of living & Inflation rates
Markets Demand & Supply
Financial positioning ( Ability to pay)
Internal & External Equity
Factors that Influence Wage Levels External Factors Internal Factors
WAGEMIX
Conditions ofLabor Market
Area WageRates
Cost ofLiving
CollectiveBargaining
LegalRequirements
CompensationPolicy of
Organization
Worth ofJob
Employee’sRelative Worth
Employer’sAbility to Pay
Pay EquityAn employee’s perception
that compensation received is equal to the
value of the work performed.
Equity
Equity is an employee’s perception
that compensation received is equal
to the value of the work performed
Equity and Its Impact on Pay Rates
External equity
Proceduralequity
Internal equity
Individualequity
Forms of Compensation Equity
Equity
• The equity theory of motivation assumes that people have a need for, values and seek fairness at work . There are four forms of equity:
• External Equity: how a job's pay rate in one company compares to the job's pay rate in other companies.
• Internal Equity: how fair the job's rate is when compared to other jobs within the same company.
Equity• Individual Equity: the fairness of an
individual's pay compared with his/her co-workers earnings for the same or similar jobs within the company based on each individual performance.
• Procedural Equity: the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.
Methods to address equity issues
• Salary surveys to monitor and maintain external equity.
• Job Analysis and Job Evaluation to maintain internal equity.
Methods to address equity issues• Performance Appraisal and various types of
incentive pay to maintain individual equity.
• Communications, grievance mechanisms and employees' participation in developing the company's pay plan help employees view the pay process as transparent and fair.
• Some firms administer surveys to monitor employees' attitudes regarding the pay plan, but others maintain strict secrecy over pay matters.
Compensation & Benefits System
1- Direct Compensation (Pay System)
2- Indirect Compensation (Benefits)(some are legally mandate and some aren’t)
Direct Compensatio
nIndirect Compensation
Total Compensation
Base Pay
• Wages
• Salary
Incentives
• Commissions
• Piece rate
• Bonuses
• Stock Options
• Profit Sharing
• Gains Sharing
Pay for Time Not Worked• Vacations• Breaks• Holidays• Sick Days• Jury Duty
Insurance Plans• Medical• Dental• Life
Security Plans
• Pension
• Social Security
• Disability Insurance
Employee Services
• Educational Assistance
• Recreational Programs
• Food Services
Compensation & Benefits
Com & Ben – Methods of payment:
A) Direct Payment ( Financial) : Position ( title) Basic Salary / Wage Bonus Commission Profit Share Incentives Cash Allowances Overtime.
Compensation & Benefits
Com & Ben – Methods of payment:
B) Indirect Payment ( Benefits) : life insurance Social Insurance Medical Insurance Staff Meals Housing options Transportation tools lap tops Clubs memberships
Compensation & Benefits
Com & Ben – Methods of payment:
B) Indirect Payment ( Benefits) : Staff loans Uniforms Staff sales Mobiles phones Public Holidays Paid Vacations Training & Development plans
Bonus
• Incentive payment that is supplemented to the base wage.
Profit Sharing
Any procedure by which an employer pays, or makes
available to all regular employees, in addition to
base pay, special current or deferred sums based upon
the profits of the enterprise.
Gain sharing Plans
Programs under which both employees and the organization share the
financial gains according to a predetermined formula that reflects
improved productivity and profitability.
Piecework
Work paid according to the number of units
produced.
Straight Piecework
• Incentive plan under which employees receive a certain rate for each unit produced.
Classification
• Exempt
• Non-Exempt
Exempt Employee
Employees not covered by the overtime
“Management”
Nonexempt Employees
Employees covered by the overtime“Labor”
Consumer Price Index (CPI)
• Measure of the average change in prices over time in a fixed “market basket” of goods and services.
“Inflation Influence”
Escalator Clauses
• Clauses in labor agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments upon changes in the consumer price index.
Real Wages
• Wage increases larger than rises in the consumer price index; that is, the real earning power of wages.
Relationship of CompensationManagement to Other HRM Functions
81
How the Compensation Function fits into HR Department:
Compensation, Recruitment, and Selection.Compensation and Performance Appraisal.Compensation and Training.Compensation and Employee Termination.Compensation and Employee Relations.
Legislation &
Compensation
Key Compensation Legislation- Minimum wages- Periodic annual increment (7% الثابت علي
) التأميني- Deductions( تأمينات و (ضرائب- Social security and public health insuranceصحي ) تأمين و اجتماعي (تأمين- Overtime- Profit Sharing- Leaves- Unemployment insurance- Income tax exemption
Minimum Wages• National Council for Wages established under
the chairmanship of the Ministry of Planning.التخطيط لوزارة التابعة لألجور العامة الهيئة
• Wage is to be determined by individual contract, if not the worker shall be entitled to a wage of equivalent position.
• Wages (even based on production or commission) cannot be less than the minimum wages stated by the council.
Annual Increment
Minimum periodic annual increments:Employees are entitled to a periodical annual increment of not less than 7% of the basic salary on which the social insurance subscriptions are calculated insured
التأميني 7% ) الثابت الجزء (من
Deductions• Employer cannot deduct more than 10%
from worker wage for payment of money employer had loaned to him/her.• Under certain conditions 25% can be
deducted for settlement of debt (by court order)• Increased to 50% for alimentary debt.
(النفقة)
Social Security and Public Health Insurance• Employers and employees must pay social
insurance contribution.• Monthly basic salary up to 987.5 L.E (26% by
employer & 14% by employee)في عليه التأمين يمكن الذي األقصي الحد
هو التأميني الثابت كلما 987.5الجزء و جنيهالمعاش يزيد الجزء هذا زاد
• Variable up to 1590 L.E (24% by employer and 11% by employee)
في عليه التأمين يمكن الذي األقصي الحدهو المتغيرالتأمين زاد 1590الجزء كلما و جنيهالمكافأة تزيد الجزء هذا
Overtime Pay• 35% of normal pay for overtime work
during day light on a working day.
• 70% for overtime worked at night on a working day.
• 100% on rest day
• 200% on official holidays
Profit sharing• Employees of a Joint Stock Company, limited
Liability Company ( with a capital equal or more than L.E 250,000), or foreign branch are entitled to a share in the distributable profits
• The share is fixed at an amount not less than 10% of the distributable profits and not more than the total annual salaries of the employees.
Leaves
• Annual Leaves
• Public Holidays
• Maternity Leave
• Pilgrimage
• Sick Leaves
Unemployment Insurance• A law that establishes a fund to compensate
workers/employees whose wages are suspended due to firm closure or downsizing.
• The fund’s resources come from 1% deduction from the base salaries of the employees in firms with over 30 workers, and government contribution.
المرتبات 1% إجمالي علي شهريا ) طوارئ) لصندوق التأميني األساسي
العاملين
TAXATION LAWS
Tax Law 91 year 2005 Tax Law 111 year 2013