79742343 Compensation and Benefits

7/29/2019 79742343 Compensation and Benefits

1/19

PGDM Retail Management

Session 15

Vidhya Sethi

Compensation andBenefits


2/19

The Elements of Compensation

Total

Compensation

Pay

Incentives

Indirect

Compensation/Benefits

Base

Compensation


3/19

Needs and Motivation

Maslows (1954)hierarchy ofneeds proposesthat we have a setof built-in needs

Basic needs areaddressed first,then moreadvanced ones


4/19

Needs and Motivation (contd)

Herzbergs HygieneMotivator theory Hygienes (extrinsic job factors)

Inadequate working conditions, salary, and incentive pay

can cause dissatisfaction and prevent satisfaction.

Motivators (intrinsic job factors)

Job enrichment (challenging job, feedback and

recognition) addresses higher-level (achievement, self-

actualization) needs.

The best way to motivate someone is to organize

the job so that doing it helps satisfy the persons

higher-level needs


5/19

Instrumentality and Rewards

Vrooms Expectancy Theory A persons motivation to exert some level of effort is a

function of three things:

Expectancy: that effort will lead to performance

Instrumentality: the connection between performance andthe appropriate reward

Valence: the value the person places on the reward

Motivation = E x I x V

If any factor (E, I, or V) is zero, then there is no motivation to

work toward the reward Employee confidence building and training, accurate

appraisals, and knowledge of workers desired rewards canincrease employee motivation


6/19

Equity and Its Impact on PayRates

The equity theory of motivation

States that if a person perceives an inequity, the

person will be motivated to reduce or eliminate the

tension and perceived inequity


7/19

Forms of Equity

External equity How a jobs pay rate in one company compares to

the jobs pay rate in other companies

Internal equity How fair the jobs pay rate is, when compared to

other jobs within the same company

Procedural equity The perceived fairness of the process and

procedures to make decisions regarding theallocation of pay


8/19

Pay-for-Performance Programs

Microlevel

Merit pay

Bonuses

Awards

Piece rate

Individual Team

Macrolevel

Business Unit/Plant Organization

Bonuses

Awards

Gainsharing

Bonuses

Awards

Profit sharing

Stock plans

Unit of Analysis


9/19

Pay for Performance Systems

Rationale

Individual employees and work teams differ in how

much they contribute to the firmnot only in what they

do, but also in how well they do it

The firms overall performance depends to a large

degree on the performance of individuals and groups

within the firm

To attract, retain, and motivate high performers and to

be fair to all employees, a company needs to reward

employees on the basis of their relative performance


10/19

Pay for Performance: The Challenges

The Do Only What You Get Paid For Syndrome The closer pay is tied to particular performance indicators,

the more employees tend to focus on those indicators andneglect other important job components

Negative Effects on the Spirit of Cooperation Employees may withhold information from a colleague if they

believe that it will help the other person get ahead

Lack of Control Employees often cannot control all of the factors affecting

performance

Difficulties in Measuring Performance Assessing employee performance is one of the thorniest

tasks a manager faces, particularly when the assessmentsare used to dispense rewards


11/19

Pay for Performance: The Challenges

The Credibility Gap

Employees often do not believe that pay-for-performance

programs are fair or that they truly reward performance

Job Dissatisfaction and Stress Pay-for-performance systems may lead to greater

productivity but lower job satisfaction

Potential Reduction of Intrinsic Drives

Pay-for-performance systems may push employees to thepoint of doing whatever it takes to get the promised

monetary reward and in the process stifle their talents and

creativity


12/19

Meeting the Challenges of Pay forPerformance Systems

Use Motivation and Non financial Incentives

Some people are more interested in the non financial aspects of theirwork

Use Multiple Layers of Rewards

Providing different types of pay incentives for different work situationsis likely to produce better results than relying on a single type of payincentive

Build Employee Trust

Even the best conceived pay-for-performance program can fail ifmanagers have a poor history of labor relations

Increase Employee Involvement

When employees do not view a compensation program as legitimate,they will usually do whatever they can to subvert the system

Link Pay and Performance Appropriately


13/19

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


14/19

COMPENSATION PLAN


15/19

Criteria for Developing a CompensationPlan

1. Internal versus External Equity Will the compensation plan

be perceived as fair within the company, or will it be

perceived as fair relative to what other employers are paying

for the same type of labor?2. Fixed versus Variable Pay Will compensation be paid

monthly on a fixed basis through base salaries or will it

fluctuate depending on such preestablished criteria as

performance and company profits?

3. Performance versus Membership Will compensationemphasize performance and tie pay to individual or group

contributions, or will it emphasize membership in the

organization logging in a prescribed number of hours

each week and progressing up the organizational ladder?


16/19

Criteria for Developing a CompensationPlan (cont.)

4. Job versus Individual Pay Will compensation be based on

how the company values a particular job, or will it be based

on how much skill and knowledge an employee brings to

that job?5. Egalitarianism versus Elitism Will the compensation plan

place most employees under the same compensation

system (egalitarianism), or will it establish different plans by

organizational level and/or employee group (elitism)?

6. Below-Market versus Above-Market Compensation Willemployees be compensated at below-market levels, at

market levels, or at above-market levels?


17/19

Why Incentive Plans Fail

Performance pay cant replace good

management

You get what you pay for

Pay is not a motivator

Rewards can have unintended consequences

Rewards undermine intrinsic motivation


18/19

Implementing Effective IncentivePlans

Ask: Is effort clearly instrumental in obtaining the

reward?

Link the incentive with your strategy

Make sure effort and rewards are directly related Make the plan easy for employees to understand

Set effective standards

Get employees support for the plan

Use good measurement systems


19/19

Documents

79742343 Compensation and Benefits