HRM Kashish

8/2/2019 HRM Kashish

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Establishing Strategic Pay

plans

By:Kashish Srivastava

Khushbu BhojwaniLovepreet AroraMalvika Goenka


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Basic Factors In DeterminingPay Rates


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Employee compensation All forms of pay or rewards going to

employees and arising from theiremployment.

Direct FinancialPayments

Indirect FinancialPayments

EmployeeCompensation

Direct FinancialPayments

Indirect FinancialPayments

EmployeeCompensation


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Direct financial paymentsPay in the form of wages, salaries,

incentives, commissions, and

bonuses.Indirect financial paymentsPay in the form of financial benefits

such as insurance


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Direct financial payments basedon two factors

Pay for time: Blue collar and clerical workers get hourly or

daily wages, And others, like managers paid by month or week. Time pay is still the foundation of most

employers pay plans. Pay for performance:

It ties compensation to the amount of productionthe worker turns out.For example:

Piecework


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The Compensation Scenario inIndia

Employee compensation systemaround the world operate within theframework of legislation. Fair

compensation for work is an integralcomponent of Decent Work asdefined by International Labor

Organization (ILO).For govt. employees, salaries arefixed acc. to the recommendations of

the pay commission.


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Important legislation affectingsalaries of top management

Companies Act of 1956

Employee Stock Option Scheme(ESOS) & Employee Stock PurchaseScheme (ESPS)

Minimum Wage in India


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Union Influences onCompensation Decisions

Unions and labor relations laws alsoinfluence the pay plan design.Formal collective bargainingagreement b/w trade unions andemployers form the foundation of payplans, however such agreements are

generally restricted to the public sectoror formal private sector employment ,leaving out the large group of informal

sector employees.


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Four new incentive and other

pay policiesPay to market: The company switched fromits pervious single salary structure to newdifferent salary structure and merit budget fordifferent job families.

Fewer broadband jobs: IBMs old system

slotted IBMs jobs into 24 narrow wagegrades.


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Lets Manager Manage: Manger rankemployees on a variety of factors (such ascritical skills and results).

o Manager decide which factors are used andweights they are given.

Incentivize employees:o Every non executive employees cash

compensation consisted of base salary.o There was no concept of pay forperformance.o A top-rated employee receives two-and-one-

half times the award of an employee withinthe lowest ranking.


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ExternalEquity

ProceduralEquity

InternalEquity

IndividualEquity

Forms of Equity

ExternalEquity

ProceduralEquity

InternalEquity

IndividualEquity

Forms of Equity

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 andperceived inequity.


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Establishing Pay Rates


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It is a 5 step process:-

Step 1: The Salary Survey

Step 2: Job Evaluation

Step 3: Group Similar Jobs Into PayGrades

Step 4: Price Each Pay Grade-WageCurves

Ste 5: Fine Tune Pa Rates


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1:The Salary Survey

What others are paying?There are 3 important uses of surveys:

Payment of Benchmark Jobs

Payment of Comparable JobsTo find information on employee benefitslike insurance , sick leave etc.


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Types of surveysCommercial , Professional ,andGovernment Salary Surveys

Data published by consulting firms ,professional associations or government

agencies.Using Internet to do compensationsurveys

Information published on differentwebsites like salary.Com , Wageweb.


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II:Job Evaluation

What is a jobs relative worth?

It is a formal and systematiccomparison of jobs to determine theworth of one job in relation to others.


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Job Evaluation Methods

Ranking:Jobs are ranked on some overallfactors like job difficulty. Steps: Obtain Job information Select and group jobs Select compensable factors Rank jobs Combine ratings


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Job Classification

Raters categorize jobs into groups; allthe jobs in each group are of roughly

the same value for pay purposes. Categorization can be done througha) job descriptions

b) rules based on compensable factors


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Point Method

It is a quantitative technique.It involves identifying 1)several compensable factors

2) The degree to which each of these factors arepresent in the job.

Assign the points to each factor andtotal it.


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Factor Comparison

It is an improvement over the rankingmethodHere jobs are ranked several times-once for each of several compensablefactors.Combine ranks into an overall ratingfor the job.


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III: Group Similar Jobs Into PayGrades

Companys group similar kind of jobsinto pay grades for simplification.Grouping can be done on the basis ofranking or number of points.A pay grade comprises of jobs ofapproximately equal difficulty or

importance as stated by jobevaluation.


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IV : Price Each Pay Grade-Wagecurves

Pay rates are assigned to pay gradesfor this purpose a wage curve can beused.

The wage curve shows the pay ratescurrently paid for jobs in each paygrade.

Heres how a wage curve appears:


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0

1

2

3

4

5

6

7

8

9

0 100 200 300 400 500 600 700

a v g .

p a y r a t e s

Points

Average pay rates

Average payrates


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V:Fine Tune Pay Rates

It involves :Developing Pay Ranges:

Employees dont pay same pay rate to alld employees of a similar grade insteadthey develop a vertical pay rate for everyhorizontal pay grade.

These are called pay ranges which showsthe minimum mid-point and maximumpayment made in one pay grade


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Correcting out of-line rates:o When the current job pay is either too high

or too low relative to other jobs on that firm.o If an employee belong to the underpaid

category , his salary can be upgraded to atleast the minimum level

o If the employee is overpaid thenEither his salary should be freeze to the

maximum levelOr a new pay grade should be developed inwhich they can legitimately be given theover-rated salary.


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Pricing

The acceptability of job evaluationhinges in large part on whether theresults are consistent with theranking of the same job in externallabor market


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Compensating checklist

A good compensating program iscomprehensive and flexible andensures optimum performance at all

levels. . The following checklist maybe used to evaluate a companysprogram. The more questions

answered yes, the more thoroughhas been the planning forcompensation administration.


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Pricing Managerial andProfessional Jobs

Compensating managers Base pay: fixed salary, guaranteed

bonuses.

Short-term incentives: cash or stockbonuses

Long-term incentives: stock options Executive benefits and perks: retirement

plans, life insurance, and health insurancewithout a deductible or coinsurance


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Pricing Managerial andProfessional Jobs

What Really Determines Executive Pay? CEO pay is set by the board of directors

taking into account factors such as the

business strategy, corporate trends, andwhere they want to be in a short and longterm.

Firms pay CEOs based on the complexity of

the jobs they filled. Boards are reducing the relative importance

of base salary while boosting the emphasison performance-based pay.


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Compensating ProfessionalEmployees

Employers can use job evaluation forprofessional jobs.

Compensable factors focus on problem

solving, creativity, job scope, andtechnical knowledge and expertise.

Firms use the point method and factorcomparison methods, although jobclassification seems most popular.Professional jobs are market-priced toestablish the values for benchmark jobs


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Competency Based Pay


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COMPETENCY BASED PAYCompetencies- A competency is an underlyingcharacteristic ( knowledge, skill , behaviour) of aperson/organization which enables to deliverperformance in a given job, role or a situation.

Competency Based PayIt means that the company pays for the employees

range, depth, and types of skills and knowledge,rather than the job title he or she holds.

Also known as Knowledge or Skill based pay.


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Why use Competency- BasePay?I. Firstly ,it enables companies to encourage

employees to develop the competencies thecompanies require to achieve their strategic aim.

II. Secondly ,it provides a focus for the employersperformance management process.


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Five main elements1) A system for defining required skills.2) A process for tying persons pay to his or her skill

level.3) A training system that let employees acquire the

skills.4) A formal skills testing system5) A work design that let employees move among

jobs to permit work assignment flexibility.


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Thank You!!

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HRM Kashish