HumanResourceManagement_5

8/13/2019 HumanResourceManagement_5

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Mohan Madgulkar-Compensation Management/2006

Compensation Management

Mohan Madgulkar


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Introduction to

Compensation and rewardsmanagement


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Compensation

Cash and non-cash rewards employees receive in

exchange for their work

Effective compensation management

Employees more likely to be satisfied and motivated

Compensation perceived to be inappropriate

Performance, motivation and satisfaction may decline

dramatically

Employee turnover may occur

Dissatisfaction with absolute or relative pay


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Total Reward

Financial

rewards

Basepay

Variablepay

Shareowner-

ship

Benefits

Totalremuneration

Non-

financial

rewards

Recognition

Skills

Development

Currentopportunities

Quality ofworking life

TotalReward


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Reward management defined

Reward management is concerned with the

formulation and implementation of strategies

and policies the purposes of which are to

reward people fairly, equitably and

consistently in accordance with their value to

the organisation and to help the organisation to

achieve its strategic goals


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Objectives of Compensation

Effective

Compensation

Legal

compliance

Administrative

efficiency

Control

costs

Retain

employees

Acquirepersonnel

Ensure

equity

Reward

behaviour


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Pay & Organizational Strategy

Areas that impact

pay systems

Attract &retain

Identifyingvalued rewards

Motivatingdevelopment

Relating toperformance

SettinggoalsConsequences

Motivatingperformance



The concept

Wages and salaries constitute the greatest single cost

of doing business.

Establishing equitable and competitive pay structure

is important from attracting point of view . theorganization can also hold out the possibility of

varying compensation, the payment of which is

dependant on specific behavior. Supplementary pay

plans ( fringe benefits ) can retain the employees inthe organization on a long term basis



The concept

Development, implementation, maintenance ,communication and evaluation of rewardprocesses

Assessment of relative job values, the designand management of pay structures,performance management, paying forperformance, competence or skills , theprovision of employee benefits and pensions,management of reward procedures



Aims of Compensation and reward

management Support the achievement of organizations strategic and shortterm objectives Support culture management and change

Drive and support desired behavior

Encourage value added performance Promote continuous development

Compete in employment market

Motivate all members of the organization

Promote teamwork

Promote flexibility

Provide value for money

Achieve fairness and equity



The Reward Management Context

The cultural environment Values ( what is believed to be important )

Norms ( accepted way of behavior )

Management style ( how managers manage their staff )

The organizational structure

Employee relations

Technology

Operational processes and working methods

Management practices as a function of business strategy,

culture, technology and operations Employment practices

External environment



Significant factors affecting

compensation policy Supply and demand Labor unions

Ability to pay Productivity

Cost of living

Government



Statutory minimum wageWage determined

in accordance with the provisions of the

Minimum Wages Act, 1948

Minimum Wage

Living Wage



Compensation issues

Wage and salary levels

Wage and salary structures

Individual wage determination Incentive payments

Fringe benefits

Compensation of mangers and professionals Control



Strategic compensation policies



Compensation strategy defined

The deliberate utilization of the pay system as an essentialintegrating mechanism through which the efforts of varioussub-units and individuals are directed towards the achievementof an organizations strategic objectives

The business strategy in particular, serve as a critical guide indesigning organizations systems, because it specifies what thecompany wants to achieve, how it wants to behave, and thekind of performance and performance levels it mustdemonstrate to be effective. The strategy should strongly

influence an organizations design and management style, bothof which should drive the design of reward system. Thesereward systems in turn, help to drive performance byinfluencing important individual and organizational behavior.



Compensation strategies &

corporate goals The compensation strategy will be mainlyconcerned with the direction the organization

should follow in developing the right mix and

levels of financial and non financial rewards inorder to support the business strategy

It should be backed up by a realistic action

plan .


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How reward strategy contributes to the

achievement of corporate goals? Provides for the integration of reward policies and processes with key

strategies for growth and improved performance

Underpins the organizations values, especially those concerned withinnovation, teamwork,flexibility , customer service and quality

Fits the culture and management style of the organization as it is or as it isplanned to be.

Drives and supports desired behaviors at all levels by indicating toemployees what type of behavior will be rewarded, how this will take placeand how their expectations will be satisfied.

Provides the competitive edge required to attract and retain the level ofskills the organization needs

Enables the organization to obtain value for money from its rewardpractices


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Characteristics of reward strategy

The demand of the business strategy including cost constraints

How performance can be driven by influencing important individual and organizationalbehaviors

Helping to achieve culture changes

Meeting objectives for ensuring the organization gets and keeps high quality employees

Aligning organizational core competence and individual competence

Underpinning organizational change Development of competitive pay structure

Ensuring that reward policies are used to convey messages about the expectations and valuesof the organization

Achieving the right balance between reward for individuals, team and organizationalperformance

Evolving total reward processes which incorporate the best mix of financial rewards andemployee benefits

Achieving the flexibility required when administering rewards processes within fast changingorganizations in highly competitive or turbulent environments

Fitting reward processes to the individuals needs and expectations of employees


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Pay and motivation

Maslow

Herzberg

Mclelland

Adams

Vroom

Pay is a flexible reward which can satisfy a number of needs

Primarily a hygiene factor

For high achieving individuals pay a form of feedback; for high

affiliation, group targets can motivate; high power, pay confirmsstatus

Pay is one of the most important yardsticks; based on individual

assessment, work effort may be altered accordingly

If individual believes that improved performance will lead to

more pay, higher levels of motivation will result; if extra effort

required to attract more pay (expectancy) individual can make a

decision whether or not to work harder.


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Pay has a strong impact on the employees standardof living, it is a status symbol and important incomparisons to others

Employer:

Critical in attaining strategic goals Impact on employee attitudes and behaviours

Significant organisational cost

Areas of compensation decisions

Pay Structure Pay Level

Job Structure

Pay policies


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Compensation Challenges

Compensation

Challenges

Prevailingwage rates

Unionpower

Productivity

Governmentconstraints

Wage & salarypolicies


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Changing Compensation Systems

Traditional Modern

Entitlement-baseincreases

Performance-drivengains

Pay = 100% basesalary

Variable componentadded

Few incentive/bonusplans, restricted toexecutives

Many kinds of plans,extended throughout

the organization


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Phase IJob Analysis Identify and study jobs

Position descriptions

Job descriptions

Job standards


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Determine relative worth orvalue of jobs

Provides for internal equity

Job evaluation methods: Job ranking

Job grading

Point system

Phase IJob Analysis

Phase II

Job Evaluation


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Discover what otheremployers are paying forspecific key jobs

Provides for external

equity

Sources of data:HRDC

Consultants

Canada HR Centres

Associations

Self-conducted surveys

Phase IJob Analysis

Phase II

Job Evaluation

Phase IIISalary Surveys


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Establishing the pay levelfor each job

Combines job evaluationranking, survey wage rates,

and other considerations e.g.organizations pay policy

Wage-trend line developed

Grouping the different pay

levels into a structure thatcan be managed

Job classes and rate ranges

Phase IJob Analysis

Phase II

Job Evaluation

Phase IIISalary Surveys

Phase IVPricing Jobs

Match


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Job Evaluation


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Some conceptual clarity

What is a job ? Collection of tasks, duties , responsibilities which are regarded as a

regular assignment of an employee

What is a job design ? It is the deliberate attempt to structure the technical and social aspects

of work. It comprises of both organizing the components of the tasks tobe done and the interaction patterns among the workgroup members inorder to get the job done.

What is a job description? Clear, concise and understandable description of each job. It describes

n sufficient details each of the main duties and responsibilities and

indicates the extent of directions received and supervision given What is job specification?

Statement of minimum acceptable human qualities necessary toperform a job properly


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Job analysis

The process of collecting, analyzing and setting out

information about jobs in order to provide the basis

for a job description or role definition and the data for

job evaluation , performance management and otherHR management purposes

Detailed and systematic study of information related

to the operations and responsibilities of a particular

job.

Anatomy of the job


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Points covered in Job analysis

What is the job title To whom is the position responsible to ?

Who is responsible to the position

What is the purpose of the job? What is the position expected to do?

To achieve the purpose, what are the main areas of responsibility?What you have todo and why.

Dimensions of job in terms of output Hoe does the job fit in with other jobs in the department or elsewhere in the

company

Flexibility requirements in terms of having to carry out a range of different tasks

How work is allocated and how it is reviewed and approved

Decision making authority

Contacts with others- inside or outside the company , equipment, tools used Other features like traveling, unsocial hours or unusual physical conditions

Knowledge and skills required to do the work


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Job Analysis in Practice

Job analysis gets the facts about a job from the job

holder, the job holders manager and the job holders

team mates. These facts can be obtained by

interviews or by asking the job holders and / or theirmanagers to write information about the jobs in a

structured format.It is essential to provide guidance

on how the analysis should be carried out and

expressed on paper. Alternatively questionnaires canalso be usedeither universal questionnaires or those

designed for job families


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Role analysis

Role analysis covers the collection of

information about the job contents and job

demands as in job analysis ,but goes beyond

these details to look at the part people play incarrying out their roles rather than the tasks

they carry out. It is concerned not only with

the job content, but also the broader aspects ofbehavior expected of role holders in achieving

the overall purpose of their roles


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What is job evaluation?

Job evaluation can be defined as a systematicprocedure designed to aid in establishing paydifferentials among jobs

Job Evaluation is a systematic process for rankingjobs logically and fairly by comparing job against jobor against a pre-determined scale to determine therelative size of jobs in an organisation.

A systematic process or set of techniques used toassess the relative worth of jobs within theorganisation (Wright, 2004:46)


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Job evaluation

The purpose of job evaluation is to

Provide a rational basis for the design and

maintenance of an equitable pay structure

Help in the management of existing relativities

Enable consistent decisions to be made on grading

and rates of pay

Establish the extent to which there is comparableworth between jobs


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Job evaluation

A comparative process

A judgmental process

An analytical process A structured process


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Job evaluation relearned

Job evaluation should reinforce critical

behaviors that the the organization needs to

demonstrate for overall effectiveness.

Traditional job evaluation systems howeverfocus on characteristics representative of

organizations of the past


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A new paradigm

Todays businessenvironment

Traditional JE JE requirements fortodays organizations

Role based. Employees

required to do what is

needed rather that what is

prescribed and to managethemselves

Flatter organizational

structures , little vertical

advancements, need for

employees to gain broader

perspective

Self managed teams

More knowledge workers

Job based. Work is valued based on

narrow job descriptions which are

defined and strict boundaries of

authority and accountability are

delineatedCommunicate values of hierarchy

and bureaucracy by driving empire

building behavior , rewarding

vertical , rather than horizontal

growth. Employees may be

reluctant to accept new positions

when the new job has fewer points

Focus on individual contribution

Measure task size

Flexible enough to evaluate job

contents and or role content.

The system should

communicate and encourage

required new behaviors

Encourage employees to gain

broader organizational

perspective through lateral

moves

Ability to rank teams

Measure intangible processes


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JEbasic methodology

Benchmark jobs

For internal assessment and external matching

Job evaluation factors

Characteristics common to the range of jobs

Job and role analysis

Job evaluation process Develop a pay structure


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Meeting the Needs

Non-

Analytical

Analytical

Basis of

Comparison

Job-job Simple rankingInternal benchmarking

Paired comparison

Market pricing

Factorcomparison

Job-scale Classification PointFactor

Rating


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Non-analytical job evaluationjob

ranking Steps

Analyse and describe jobs

Identify key or benchmark jobs

Rank all other jobs around these

Divide ranked jobs into grades

Advantages Quick and cheap

Disadvantages Does not measure differences between jobs, not acceptable

in determining equal worth in an equal value case


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Job classification

Steps

Decide on number and characteristics of grades

Compare whole job with grade definition and allot

jobs to grades

Advantages

Easy, cheap, easily understood

Disadvantages

Cannot cope with complex jobs or borderline cases

Not acceptable in equal value cases


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Analytical JEpoint factor schemes

Break down jobs into factors such as knowledge, skill,responsibility, dealing with people, working conditions

Give each factor a range of points or percentage weighting

Maximum points for each factor are divided between levels ordegrees for that factor

Select and analyse benchmark jobs

Allocate points to each job under each factor

Add together points to give a total score which represents jobsize

Design grade structure Analyse, evaluate and grade non-benchmark jobs

Price job grades


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Point-Factor Plans

The most commonly used type of job

evaluation method

Make the criteria for comparisons explicit,

unlike ranking and classification

The criteria for classification (the compensable

factors) are related to the strategy of the

business; they are the factors valued by or ofhigh worth to the firm


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Point-Factor Plans

Point factor plans all include three elements: Compensable factors are defined

Degrees or level of each factor are given numerical rankings

Factors weighted as to their relative value to the organization

Job worth is measured by the total number of points The steps to follow:

Job analysis

Determine compensable factors

Scale the factors

Weight the factors

Communications and documentation

Apply the plan

Compensable Factors

Characteristics in the

work that the organization

values, that help it pursueits strategy and achieve

its objectives


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Selecting and Weighting

Compensable Factors These should be:

Based on the work performed

Based on the strategy and values of the organization

Acceptable and considered to be fair by all concerned parties

As a result, compensable factors should be developed by eachorganization, rather than using an off-the-shelf plan

Basic group of compensable factors: Skill

Effort

Responsibility

Working conditions

Weighting compensable factors


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Point-Factor: Pro and Con

Point-factor systems orderly, rational, and

make criteria for evaluating jobs explicit

Time consuming to set up (and they do need to

be periodically updated), but very simple to

add new jobs

Job evaluations may still be affected by what

the evaluator already knows or believes themarket value of the job to be


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Example factor plan

Levels/

factors

1 2 3 4 5 6

Knowledge

and skills

50 100 150 200 250 300

Responsibility 50 100 150 200 250 300

Decision

making

40 80 120 140 180 220

Complexity 25 50 75 100 125 150

Contacts 25 50 75 100 125 150


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Issues in the selection of factors

Factors express the values of the organisation

Factors influence the extent to which the

scheme constitutes a fair basis for assessing

relative values

Consider the whole range of jobs in choosing

factors

Avoid double counting


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Hay Guide Chart-Profile Method

Officially known as the Hay Guide Chart-ProfileMethod of Job Evaluation, this system utilizes threefactors to arrive at a jobs evaluation. The jobscontent is the sole basis for the job evaluation.

The Hay method of job evaluation is generallyunderstood to be a point plan, although Hay itselfdoes not define the guide chart-profile method as avariation of the point method.

The Hay guide charts have been in existence since1951 and have been used in over 5,000 differentorganizations worldwide.


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How are jobs evaluated using the

Hay System? Job description questionnaires are completed and

signed by the jobholder, the supervisor, and othermanagerial staff who have responsibility for the

position.

The job description questionnaire is given to eachmember of the job evaluation committee for his/herinitial evaluation.

The committee meets with the jobholder andsupervisor to explore questions and clarify content.

The committee members then compare theirindividual evaluations and resolve differences thatmight exist.


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The Hay Methodology Background

Most widely used method for total job populations Adopted by a large number and range of

organisations

Manageable and coherent number of factors used

Successfully used for a huge range of jobs Relies on simple job descriptions and contextual information

Methodology combined with process aids equal value

Manageable process in relation to resources required

Facilitates: external pay comparison

pay structure development

analysis of organizational and career structures


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Jobs Exist to

achieve an end

result

Accountability Accountability Accountability

Problem Solving

Therefore, the job holder

requires a level of knowledge

and experience commensurate

with the scale and complexityof the deliverable

Know-How

Problem Solving

To achieve this end

result, job holders must

address problems, create,

analyse and apply

judgement

1 32

The Underlying Principle of the Hay

Methodology


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Elements of Job Size

TechnicalKnow-How

Planning andOrganising

Communicating andInfluencing

Freedomto Act

Area ofImpact

Nature ofImpact

ThinkingEnvironment

ThinkingChallenge

PROBLEMSOLVINGKNOW-HOW ACCOUNTABILITY

}


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Hay System Factors

KNOW-HOW The sum total of every kind of skill, however acquired,

needed for acceptable job performance.

This sum total which comprises the overall fund of

knowledge has three dimensions the requirements for: Practical procedures, specialized techniques, and learned

disciplines.

Active, practicing skills in the area of human relationships.

Know-how of integrating and harmonizing the diversified functions

involved in managerial situations (operating, supporting, andadministrative). This know-how may be exercised consultativelyas well as executively and involves in some combination the areasof organizing, planning, executing, controlling, and evaluating.


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Hay System Factors

PROBLEM SOLVING

The original self starting thinking required by the job for

analyzing, evaluating, creating, reasoning, arriving at and

making conclusions. To the extent that thinking is

circumscribed by standards, covered by precedents, or

referred to others, problem solving is diminished and the

emphasis correspondingly is on know-how.

Problem solving has two dimensions:

The environment in which the thinking takes place.

The challenge presented by the thinking to be done.


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Hay System Factors

ACCOUNTABILITY The answerability for an action and for the

consequences thereof. It is the measured effect of thejob on end results. It has three dimensions in the

following order of importance: Freedom to Actthe degree of personal or procedural

control and guidance the jobholder has.

Job Impact on End Resultsranges from direct to indirectimpact on end results by auxiliary, contributory, shared, or

primary effects. Magnitudeindicated by the general dynamic dollar size

or accountability area(s) most clearly affected by the job.


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A guide chart is used for each of the threefactors containing descriptive scales for eachelement and a numbering pattern based on a 15

% step difference , which is an importantbuilding block in making comparisonsbetween jobs. Job size is the sum of the resultsfrom the three factors. In addition , an explicit

judgment is made about the balance betweenthe factors in each jobthe profilewhichprovides a valuable consistency check.

Th H M h d l


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The Hay Methodology

Checks and Balances

Profileshow do the elements fit together

Step differencesinternal relativities

Sorethumbing common sense

Panel processchallenge perceptions

Focus on jobsnot people or performance


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Compensation structure


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A pay structure provides framework within

which an organization defines the different

levels of pay for jobs or groups of jobs on the

basis of their relative internal value and ofexternal relatives.

C i i f


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Criteria for pay structures

Be appropriate to the characteristics and need of theorganization

Flexible in response to market rates and skill shortages

Facilitate operational and role flexibility

Scope for rewarding performance Ensure that consistent decisions are made on pay in relation to

job size, contribution, skill and competence

Clarify career ladders

Logically and clearly constructed Enable the organizations to exercise control over the

implementation of p[ay policies and budgets

P i i l f d i


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Principles of pay structure design

Is in accordance with the organization's philosophy and policies concerningdifferentials, relationships with market rates, and the scope for and methodsof progressing the pay in jobs.

Designed on a logical basis and helps in the application of equitable andconsistent reward management process.

Assist the management and maintenance of appropriate internal and

external relativities Flexible enough to enable the organization to respond to change

Reward competence and performance

Can be implemented with minimum amount of efforts and cost.

Is likely to be acceptable to management and every other member of theorganization

M th d l f d l i


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Methodology of developing pay

structures Analyze present arrangement Set objectives and timetable

Decide who is going to conduct the review

Estimate the likely cost of conducting and implementing the review

Decide the extent of employee involvement

Brief employees

Make preliminary decision about the type of structure required Analyze and evaluate jobs

Make a final decision on the type of structure (s) required and the main design andoperational features

Prepare a detailed design for the structure and how it will be managed andmaintained.

Communicate with the staff the details of the structure and how it will affect them Train managers on hoe to operate the structure

Monitor the implementation of the structure

Evaluate the application and impact of the structure.

Th i t t t f


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Three important types of pay

structures Graded

Job family

Broad banded

G d d t t


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Graded pay structure

A graded pay structure consists of a sequence of job grades toeach of which is attached a pay range.

A pay grade is a grouping of different jobs that are consideredsubstantially equal for pay purposes. Grades enhance the

organizations ability to move people among jobs that arewithin a pay grade without changing their pay.

Jobs are allotted to grades on the basis of their relative size.

A pay range is attached to each grade. This defines theminimum and maximum rate payable to any job in a grade and

indicates the scope provided for job holders to progressthrough the range

J b f il t t


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Job family structures

Market rate pressures operate differently onparticular occupations or categories of employees

There are significant variations in the type of workcarried out and the competencies required by different

occupational groups , which can not be easilycentered for in a single pay structure A job family structure consists of separate graded pay

structures for each of the job families which have beenidentified for this purpose. These structures are aligned

individually to market rates and contain a number of payranges which reflect the particular levels of work within thejob family.


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B db di


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Broadbanding

Collapse narrow salary grades into wide bands.

20 grades reduced to 4 to 5 bands.

40-60% ranges increased to 100-250%

Increased emphasis on market pricing jobs

Decreased emphasis on job evaluation

B db di


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Broadbanding

Compressing a hierarchy of pay grades or

salary ranges into a number of wider bands

Typically no more than five or six bands

Wide pay spans

Market pricing used to define reference points

Focus on lateral career development andcompetence growth

B db di


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Broadbanding

What are the advantages and disadvantages of

broadbanding?

Technical BandBroadbanding


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160%

Broadbanding

Salary grades

for Engineers

I

II

III

IV

$35K

$85K

40%

40%

40%

40%

Ad antages of Broadbanding


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Advantages of Broadbanding

Facilitate Lateral career moves

Enhanced flexibility for transfers

Cross-functional teams with fluid duties

More flexible pay decisions

Few control points such as midpoints or salary

caps.

More pay opportunities based on skills


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Salary Surveys

Why Conduct Salary Surveys?


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Why Conduct Salary Surveys?

To create and adjust pay structure

Adjust actual pay in response to the market

Monitor other forms of pay, such as shift

differentials, bonuses, incentives, overtime

practices

What Is The Market?


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What Is The Market?

Who?

Employers who compete for the same occupations and skills

Employers who compete for employees in the same geographic area

Employers who compete with the same products

How to determine this?

Who are our competitors?

Where do we recruit?

Where are employees going?

Interaction of skill/place/product

If labor market is rich in a particular skill, may recruit/price locally

If labor market does not include skills, recruiting and pricing are on a wider

scale

Commuting time within a market may also be a factor

Guidelines for Salary Surveys


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Guidelines for Salary Surveys

Make or buy?

How many firms to include

Price fixing issues

What jobs to survey

What data to collect

How to survey

Putting it Together: The Pay


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Putting it Together: The Pay

Regression Line Job evaluation (internal equity) gives us

relative value of jobs within the organization

Salary surveys (external equity) gives us value

of selected jobs outside the organization


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Contingent Pay


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Contingent pay covers the various methods ofproviding additional rewards for individuals or

teams

Types of contingent pay


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Types of contingent pay

Contingent pay for individuals Service related pay: provides fixed increments which

are usually paid annually to people on the basis ofcontinued service either in a job or in a grade

Competence related pay: Links pay to an assessmentof competence achieved

Contribution related pay: Links pay both toperformance as measured by results and competence

Skill based pay: Which provides additional paymentsthat reflect the level of skill attained

Types of contingent pay contd


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Types of contingent pay contd.

Contingent pay for teams Payments to members of a formally established team or the provision

of other forms of non-financial reward which are linked to theperformance of that team. The rewards are shared by the team membersin accordance with a published formula.

Contingent pay based on organizational performance: Profits sharing: Provides a cash payment related to the level of profits

Profit related pay:Provides for a proportion of pay to go up or down inline with profits

Gain sharing :Shares gains in terms of added value or some other

measure between the company and its employees , and includes variousforms of its involvement

Performance related pay


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Performance related pay

Provides individuals with financial rewards inthe form of increases to basic pay or cash

bonuses which are linked to an assessment of

performance , usually in relation to agreedobjectives.

Reasons for introducing performance


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Reasons for introducing performance

related pay

To attract the right type of applicant and to sendstrong messages to those employees the organization

wanted to loose as well as those they wanted to retain

To achieve organizational transformation bypromoting values suggesting that the company was

performance-driven , cost conscious and flexible ,

and by encouraging commitment- locking individuals

in through objectives cascading from the companysbusiness plan.

Stages in development of PRP


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Stages in development of PRP

program Define the objectives Analyze the existing situation

Decide on the involvement of line managers, team leaders,employees , trade unions.

Consider alternative designs Consider process elements

Produce overall design

Prepare implementation program

Implement communication and training programs Implement the plan

Evaluate the impact of the plan

Advantages and disadvantages of


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PRPAdvantages Disadvantages

Motivates

Is a lever of change

Links rewards to results

Delivers message that performance is important

Helps to attract and retain staffMeets basic human need-to be rewarded for achievement

Is not the only motivator

Is not an effective motivator

Can demotivate

May deliver the wrong message

Problems of measuring performanceRelies on managerial judgment which may be partial

Emphasizes quantity at the expense of quality

Is prejudicial to teamwork

May be discriminatory

May not deliver value for money

May not be appropriateIs too often taken on trust

May be right in principle but is hard to make work in

practice



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Competence related payAdvantages Disadvantages

Encourages competence development

Fits de-layered organizations by

facilitating lateral career moves

Helps to integrate role andorganizational core competence

Forms part of an integrated,

competence based approach to people

management

Delivers message that competence isimportant

Relies on appropriate relevant and

agreed competence profile

Assessment of competence levels may

be difficultMight pay for irrelevant competencies

Link to pay may be arbitrary

Costs may escalate if inappropriate or

unused competencies are rewarded

Competence related pay


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Competence related pay

Method of rewarding people wholly or partly

by reference to the level of competence they

demonstrate in carrying out their roles. It is amethod of paying people for the ability to

perform.


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Appropriateness


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Appropriateness

Well researched competency framework exists

Criteria are available for the

measurement/assessment of competencies

The organization is concerned with the

development of competence levels

Managers and staff are properly briefed and

trained on the assessment of competence

Performance Management


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Performance Management

A business process intended to ensurealignment of group and individual efforts for

achievement of continuous business

improvement How much and how??

Critical success factors


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Critical success factors

Ongoing tracking Direct linking to companys mission

Timely communication and skills training

Connection between reward and performance Objective feedback and review

Employee ownershipI own the direction in

which I go Senior leadership involvement

Mission Why does the company


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Mission Why does the company

Exist ?

Vision of future Where is it going?

Strategic organizational

goals

How will it

Get done? Esp.

Focusing on

Values.Core

Organizational

Capabilities

Performance

Development

& planning

Four stages of performance


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Four stages of performance

Contribute by following direction

Contribute demonstrating individual competency

Contribute through people

Contribute by shaping the organization

Performance management at a


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Performance management at a

glance

Business strategy & goals

Unit performance

Goal setting

Individual / team goal setting

And planning

Write performance goals/ plans

Write development plan for current

Performance goal and future interestSelect coaches

Ongoing progress review

And coaching

Formal assessment

And pay link

1

2

3

Performance management &


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Performance management &

rewards Not purely for what you DO but also HOW

you do it.

Integration of demonstrated development ,

performance , results and competitive marketto determine total compensation

Performance and incentive compensation

linked to business results


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Productivity linked incentive

schemes


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Types


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Types

Individual based

Profit sharing

Gain sharing

Employee share ownership

Elements


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Elements

Adequate criteria to measure performance which isunderstood communicated and accepted

Appropriate performance appraisal system

Regular feedback of performance Appropriate quantum of pay which is subjected to

performance criteria

Periodic evaluation

Recognition to factors outside the control of

employees

Benefits of productivity linked


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Benefits of productivity linked

incentive The benefits to management and employees are: where performance/profits increase, higher pay is an incentive

to employees

where profits reduce, the reduction in the performance-related

pay can cushion employees against redundancies employee identification with the success of the business is

enhanced

variations in pay lead to employees becoming more familiarwith the fortunes (or misfortunes) of the business. This would

depend on the information-sharing practices of themanagement.

Guidelines


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Gu de es

A performance pay system should be designed to promote thekind of performance an organization needs. In order to do so

an analysis should first be made of the objectives and resultssought

the principles/policies and practices needed to obtain theresults (e.g. team work) should be established

these policies and practices should form part of an overallhuman resource management strategy.

Employees should be consulted in the formulation of the plan

(to ascertain the type of rewards most likely to havemotivational effect), in regard to its operation and distributionof rewards, and in monitoring the scheme.

Guidelines ( contd.)


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( )

The criteria for the determination of performance pay should be objective

measurable and measure only what is important

that it is operated along with an appraisal system which measuresperformance appropriately

designed to feed back information to employees, and not only to

management easily understood

related to what is controllable, so as to exclude what is beyond the controlof employees.

The intrinsic reward system should be strengthened if need be, e.g. through

consultation, communication, participatory systems training

job satisfaction and responsibility

reorganization of work processes

Guidelines ( Contd.)


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( )

How the performance pay is shared is as important as the quantum, becausethe manner of sharing affects employees' perceptions as to whether thescheme is equitable.

The impact of the scheme also depends on the frequency of the payment.Therefore the reward should follow the performance as soon as possible.

The scheme should be given wide publicity within the enterprise.

The performance level should be achievable or else the scheme will haveno motivational impact.

The quantum of pay on account of performance which is placed at risk (i.e.the amount that can be lost due to poor performance) should be carefullydetermined. At the same time the scheme should be sufficiently flexible toabsorb downturns and adequately reward when performance is good.


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Paying for Contribution

Rewarding Contribution


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g

What do we really mean by Contributionrelated pay and how is it different from PRP?

What are the key building blocks?

What do you have to do to get this right?

What Do We Mean By


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y

Contribution Related Pay? a new concept in contingent pay design which

links pay both to performance, as measured by

results, and competence

How Much Of It Is There About?


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(2)Paying for contribution will be the most popular method of

rewarding managers and staff. Such an approach reflects a

general dissatisfaction with flat rate market rises . but it

also reflects problems experienced with pay progression linked

solely to individual performance (outputs) with noappreciation of how they are achieved, and with progression

exclusively linked to skills or competencies (inputs) with no

recognition of results.

CIPD Reward Management Survey 2004

A New Direction?


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People as costs

Tends to focus on individual

One Dimensional results focus

Rewards immediate past performance

Little recognition of motivationresearch

Or the key role of line managers

Simplistic

Tends to be controlled by HR Pay links usually a fixed formula

Discretionary effort-people as assets

Focus on team and individual

Investment in skills/behaviours for

the future

Results matter toobut look at

interdependencies

Draws on commitment/

engagement/motivation research

Capability is crucial Tends to be owned by users

Variety of reward methods

FROM

Pay for performance

TO

Pay for Contribution

Key Elements


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y

Constructive focus Clear rules of the game on personal and pay progression

Based on: an agreement on deliverables/results

and acquisition and use of competences required for current role e.g. ITskills

behaviours acknowledged as key to success (e.g. customer orientation,respect for others, partnership working, developing others)

base pay progression and variable paybest fit for level/role

Performance management as the key vehicle for continuingdialogue on delivery and development

A Reminder About Performance


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Establishing individual/team objectives Describing job expectations

Describing competencies and planning

improvements

Describing tasks

Training and development planning

Agreeing performance standards

Coaching Counselling

Feedback and day-to-day planning

meetings

Self monitoring

Monitoring training & development

activities

Formal review of performance

Performance measurement Formal team feedback sessions

Individual self-review

Peer group and upwards appraisal

360 degree

Praise

Promotion/Job enrichment

Links to individual and/or team pay

Prizes

Special Awards

Other forms of recognition

ManagingPerformance

Reviewing

Performance

PlanningPerformance

Rewarding

Performance

AVirtuous Cycle

Management

The Impact of Performance Management


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High

High

Impact on the

Organisation

Low

An ongoing

Management Process(2)

Competency Based

(Mixed Model)(3)

Organisation/Culture

Change Process(5)

Level of Intervention

Degree of integration with other

HR and related processes/

Management Capability

A once a Year

Event(1)

Holistic

Process(4)

AIMS

Featureof PMProcess

We want toimprove our skillsin objectivesetting/appraising

Once a year event

Not integrated

Little managingof performance

We want toimprove ourappraisal scheme

We want tointegratecompetencies and/orskills in our appraisalprocess

We want to ink up ourPM process to otherinitiatives/ processese.g. Investors in People,Business Process Re-design, BusinessPlanning, EFQM

We want to transformhow we operate

Business Process Re-engineering

An integratedmanagement processcovering four phasesPlanning, Managing,Reviewing andRewarding

A competency-basedintegrated PMprocess

A holistic process withexplicit links to otherinitiatives/ processes

360feedback usually

involved

PM process part of anintegrated HR projectPay, Work Definition,Organisation Change,Benefits Management

And The Impact On Pay .


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p y

NotRelevant

ManageExceptionsOnly

Decisionson Rating

Ratingand Pay

TotalOwnership

FixedIncrements

FlexibleIncrements

Paymatrix

FlexibleGuidelines

Line Managementheld Budget

Strengthof Message

ManagementCapability

HIGH

HIGH Pay Progression Mechanism

LOW

Making Contribution related pay


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g p y

work requires: Clarity about organisational strategy and plans andrequirements they will make on:

Departments, teams and individuals

Values that recognise that how can be as or more importantas what

Skill/competence frameworks that support delivery and arewell understood

Learning and development resources

Sound performance management processes

Clear pay progression rules linked to roles/levels (often in job

families) Capable managers who praise achievement and confront

contribution shortfalls

Getting The Detail Right (1)


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g g ( )

Are your skill/competence/competency frameworksgood enough? i.e.

specific to role/job or career family

linked to skills/behaviours associated with high quality

delivery

designed and used to support learning and development,

recruitment AND assessment of contribution

supportive of your organisations change and

transformation agenda

Clearly communicated and understood

Competencies A Reminder


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Competencies A Reminder

Social RoleHow I see my job

Self Image

What I value in myself

My Traits

My non-conscious patterns ofbehaviourMy Motives

Where my excitement comes from

Expert

Best in field

Aloof

Achievement

Helps people get better

Healer

Sitting by bed

Power

OutcomesMore re-admissions Earlier discharge

Dr Sharpe Dr Hart

2.2/8

SameSame

Skills

What I can do

Knowledge

What I know

Social RoleHow I see my job

Self Image

What I value in myself

My Traits

My non-conscious patterns ofbehaviourMy Motives

Where my excitement comes from

Expert

Best in field

Aloof

Achievement

Helps people get better

Healer

Caring

Power

OutcomesMore re-admissionsMore re-admissions Earlier dischargeEarlier discharge

Dr Sharpe Dr HartDr Sharpe Dr HartSameSame

Skills

What I can do

Knowledge

What I know

Getting The Detail Right (2)


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Performance Management Just in time Training/Communication, Competence ConfidenceTrustEngagement.

Focus on coaching/regular feedback.

Appreciative enquirywhat would be happening if this area ofcontribution was going wellwhat would you/others be doing to create

success? Focus on raising rather than rating contribution (a besetting sin of PRP).

Recognition that managers and their people raise contribution levelspaysystems and performance management forms/systems cannot do this.

It is the quality of dialogue not the elegance of the paperwork that matters.

Reward should support this.

Contribution Rating


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Contribution Rating Rating is only important where contribution level is directly linked to pay decisions.

The approach to rating depends on the purpose and emphasis of the performance management

process:-

Organisational

Contribution

Individual Development

Quantitative Judgments

Qualitative Indicators

Individual Remuneration

A 1 + 2 Outstanding Exceptional contribution

B 2 + 1 Superior Consistently high level of contribution

C 3 0 Fully Acceptable A good years workD 4 - 1 Incomplete Acceptable contribution, some shortcomings

E 5 - 2 Marginal/Not Proven Contribution less than acceptable/learner/ achiever

Where rating is judged essential, a 5-point scale is often used. This may be expressed in

numbers, letters and descriptors e.g.

Words and psychology matter a lot!

Pulling It All Together


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Capability building will be key especially for linemanagers.

Decide how this approach fits with the currentculture, strategy and existing processes.

Start paying for personal contribution as soon as thismakes sense.

Consult, involve and put L plates on what you do everyone stands to learn.

Communicate early and often.

Top team clarity & commitment is crucial.


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Team Based Pay

Team-based Pay


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Team Definition (Katzenbach & Smith, 1993)

Group of employees whose members are

mutually accountable to each other for

common goals. Team members interact on a regular basis.

There is the possibility of synergy between

team members.

Size of team is between 2 and 25 members.

Types of Teams


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(Cohen & Bailey, 1997) Work Team

Controls a business process such as customer service or

manufacturing. Product or service quality is a key criteria.

Permanent work assignment and full-time commitment.

Project Team

Project is limited by completion time such as new product

design or construction project. Delivery time, budget

variance and design quality are some criteria.

Full-time commitment; after project team members are

reassigned to different projects.

Types of Teams (Contd)


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Parallel TeamsUsed to solve specific problems such as quality,

safety, employee grievances or impact of

technology change.Used in parallel to functional units where

employees spend most of their work time.

Requires only a part-time commitment as team

member.

Why Use Team Pay?


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To Encourage Behaviors such as

Peer Cooperation

Information Sharing

Unselfish behavior supportive of team

Sacrifice personal interest for good of team such as

giving up leisure time on weekend to work for an

important team goal.

Mutual Monitoring

Provide performance feedback to team members.

Monetary Team Rewards


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(Gomez-Mejia & Balkin, 1992) Team Bonus - Cash payment to tied to achieving major team

performance outcome and allocated on non-recurring basis.

Team Merit Pay - Cash adjustment to salary tied to achieving

team behavioral and performance outcomes.

Skill-based Pay - Adjustment to base pay rate of teammembers tied to team competence level.

Gainsharing - Share gains of unit/department with

interdependent teams.

Spot Cash Rewards - Discretionary basis.

Non-monetary Team Rewards


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Team Recognition Reward - Public ceremony orannouncement in company newsletter.

Team Celebration - Celebrate team win; includes

special dinner, ticket to sports event,etc.

Merchandise - Team jacket, pin, emblem to build

team identity and espirit de corps.

Travel - Team members (and possibly spouses) travel

to resort for relaxation and fun - often used for salesteams after successful marketing push.


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Team Pay: Controversies


128/137


Dealing with Free Riders Inhibiting High Individual Performers

Interdependent Teams may Compete rather

than Cooperate with each other.


129/137


Benefits and perquisites

Meaning of fringe benefits


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Those benefits which are supplied by an employer toor for the benefits of an employee and which are notin the form of wages, salaries and time rates payment

Any wage cost not directly connected with theemployees productive effort, performance orsacrifice.

Benefit is primarily a means in the direction ofensuring, maintaining and increasing the income ofthe employee. It is a benefit which supplements

ordinary wages and which is of value to them andtheir families in so far as it materially increases theirretirement.

Meaning of perquisites


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An element of compensation provided inaddition to cash which can directly facilitate

more effective performance for the job, as well

as augmenting the total value of compensation The term perquisites should be reserved for

those benefits which are not fundamentally

catering personal security and personal needs.

Objectives of benefits


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To increase the commitment of the employees to theorganization

To provide for the actual or perceived needs ofemployees

To demonstrate that the company cares for itsemployees

To ensure that an attractive remuneration package isprovided which attracts and retains high quality staff

To provide tax-efficient method of remunerationwhich reduces tax liabilities with those related toequivalent cash payments

Goals of fringe benefits


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Social goal Human relations goals

Macro economic goals

Benefits policies


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Range of benefits to be provided Scale of benefits provided

Proportion of benefits to total remuneration

Allowing choice

Allocation of benefits

Harmonization

Market considerations

Government policy Trade unions

Major categories


135/137


Payment for time not worked Hazard protection

Employee services

Legally required payment

Cost to the company


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Cost to the company includes the value of allthe perks and benefits one gets from the

company in addition to ones salary. All the

components of the salary may not be alwaysapparent. In order to arrive at a comprehensive

figure one has to carefully add the value of all

components or their cash equivalent.

Tax considerations


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A tax efficient remuneration package can benefit bothemployers and employees. From the employees perspective itcan enhance the benefits of working for that employer, fromthe employers point of view, it can mean reduced costs.

In the past , tax efficiency was one of the main reasons for the

proliferation of benefits, but it has become progressively lessimportant as governments have tightened up the fiscal rulesrelating to employee benefits.

Because fiscal regulations are constantly changing, it isessential to update the information related to tax law forsalaried persons.

Documents

HumanResourceManagement_5