Compensation Concepts

8/6/2019 Compensation Concepts

1/17


2/17

What is Compensation ?

Compensation is the process of directly and indirectly

rewarding employees on a current or deferred basis, for

their performance of assigned tasks.


3/17

Human Resource SystemsComponents Of Compensation:

y Basic Salary/Wage

y Dearness Allowancey Bonus

y Commissions

y Mixed Plan

y Sign On Bonus

3


4/17

Objectives of Compensation

y Legal Compliance with all appropriate laws andregulations

y Cost effectiveness for the organization

y Internal, External and Individual equity for employees

y Performance enhancement for the organization


5/17

Compensation Types

DIRECT INDIRECT

Base Pay

Wage Salarie

Variable Pay

Bonu e

In en i e

Sto Option

Benefits

Medi al In uran e Paid timeo

Retirement Pen ion

Wor er Compen ation


6/17

Division of Compensation -Responsibility

HR Ma ager L e Ma ager

Deve ops and

Adm n sters

Compensat onsystem

Conducts job eva uat on

andwagesurveys

Deve ops wage / sa ary

structuresandpo c es

Attempt to march

performanceandrewards

Recommend pay rates

and increment based on

guide inesfrom HRunit

Eva uate emp oyee

performance based

compensationpurposes


7/17

COMPENSATIONSTRATEGIES

y CompensationPhilosophies

y Strate c Compensat on Des n

y Compensat on and Or an zat ona Cu ture

y Cost Effect veness and abor Market Pos t on n

y CompetencyBasedPay

yBroadbandingandCareer Development


8/17

Compensation Philosophy

ENTIT EMENT ERF RMANCE

Seni rity ased Noraises forlength ofservice

Across the boardraises No raises for longer service poor

performers

G aranteedmovement ofscales Market adjusted paystructure

Industrycomparisonsonly Br oader Industrycomparisons

Santa ClausBonuses Bonuses tied to performanceresults


9/17

Changing Compensation Strategies

Yesterd Tod To orrow

Fix s l ry V ri l a as add-on

to salary

Low fix d salar , mor

variabl pay

onus s/ erks for

executives only

Variable a emer in

t roughout organization

Variable a common

throughoutthe organization

Fixed benefits,

reward long tenure

Flexible benefits ortable benefits

ompany-based

careermoving up

Industry-based career,

moving around

kill-based, interim

employment

Hierarchicalorganizations

Flatter team-basedorganizations

Network virtualorganizations

ookie cutter pay

plans

Total compensation

(Look at benefits,too)

Customized, integrated pay

s stems; a , benefits,

intangibles


10/17

Quartile Strategy

Th rd Quart e

Above-Market Strategy Max mum(25% of f rms pay above and 75% pay be o )

Second Quart e

Middle-Market Strategy Med um

(50% of f rms pay above and 50% pay be o )

F rst Quart e

Below-Market Strategy M n mum(75% of f rms pay above and 25% pay be o )


11/17

Outcomes from Competency Based Systems

Or anization-Related

Outcomes

Employee-Related

Outcomes

Greaterworkforce flexibility Enhancedemployeeunderstandingof Organisationalbigpicture

IncreasedeffectivenessofworkTeam

Greateremployeeself-management capabilities

Fewbottlenecksinwork flow Improvedemployeesatisfaction

Increasedworkeroutput Greateremployeecommitment


12/17

DESIGNINGEFFECTIVE COMPENSATIONPROGRAM

JobAnalysis

(Job Descriptions,JobSpecifications)

JobEvaluation

PayPolicies PayStructures

Performance

AppraisalIndividualPay

Implementation,

Communication,Monitoring

PaySurveys


13/17

Salary

Structure

JobEvaluationResults PaySurvey Data

DevelopMarketLine

Identify Different

PayStructures

EstablishPayGrades

ComputePayRanges

RevisePayGradesandRangesasNeeded

CompareCurrent

Pay toPayRanges


14/17

COMPENSATIONPOLICIESANDPROCEDURES

y Know what the competition is doing and benchmark yourstructure to reflect competitive practices for retention andrecruitment purposes.

y Salaries should reflect level of responsibility employeesmay have in the organization.

y Form a compensation committee (preferably represented

by management and employees).

Contd...


15/17

COMPENSATIONPOLICIESANDPROCEDURES

y Create a structure where salaries and any increases

reflect company performance as espoused by the

compensation committee.

y Develop and document a general company policy andstrategy for pay increases.

y Liaison with the compensation committee for review,adjustments and approval.


16/17

Team Based Compensation

TypesofTeamIncentives

Same size reward for each team member

Different size rewards for each team member

CriteriaforBestTeamWorkSignificant interdependence exists among the work of

several individuals, and team work and co-operation isabsolutely essential.

Contd..


17/17

Team Based Compensation

Difficulties exist in identifying exactly who is

responsible for different levels of performance.

Management wants to create or reinforce teamwork and co-operation among employees

Rewards are seen as being allocated in a fair and

equitable manner.

Documents

Compensation Concepts