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Components of Remuneration Salary
determined by job evaluation Bonus
based on performance Commission
based on its profits Long-term incentives
stock options Perquisites
Club memberships, medical expense reimbursement
Extent of Pay It depends on employer’s ability &
employee’s bargaining strength Salaries are subject to annual reviews &
hikes Salaries are linked to performance Secrecy is maintained in respect of
executive remuneration.
Justification for paying more They matter much in organizations They are in short supply Retaining them is difficult They need to be motivated If executives elsewhere are paid more,
why not Indian executives.
Remedial Income beyond a certain limit must be
subject to higher taxation Executives, on their own, must take up
more socially responsive actions Conscious efforts must be made to
increase the supply of managers & technicians
Participative management needs to be encouraged.
A Definition . . .
All forms of financial return, tangible services and benefits
that employees receive as part of their employment relationship
Components of a Total Compensation Program - 1
FinancialFinancial Direct
wages, salaries, commissions, bonuses Indirect
insurance plans life, health, dental, disability
social assistance benefits retirement plans, social security, workers’ comp
paid absences vacations, holidays, sick leave
Components of a Total Compensation Program - 2
Non-FinancialNon-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
Factors that Influence Wage Levels
WAGEMIX
Conditions ofLabor Market
Area WageRates
Cost ofLiving
CollectiveBargaining
LegalRequirements
CompensationPolicy of
Organization
Worth ofJob
Employee’sRelative Worth
Employer’sAbility to Pay
Step 1 - Establish General Wage Level for Organization Factors to consider:Factors to consider: Other firm’s rates Union demands Cost-of-living changes Firm’s ability to pay
Step 2 - Establish Wage Structure (The Pay for Each Job) Employ a job evaluation systemEmploy a job evaluation system
Ranking Job Classification Point System Factor Comparison
Results:Results: pay grades rate ranges
Step 3 - Establish Pay for Each Individual on Each Job Inputs:Inputs: Performance appraisal information Seniority system
A Pay Model -- 3 Basic Components I. Compensation Objectives II. Foundation Concepts III. Techniques for Management
A Pay Model I. Compensation Objectives - 1 Organization Performance Labor Costs Attitudes and Behaviors Laws and Regulations
A Pay Model I. Compensation Objectives - 2 Influence forms & procedures For example:
if objective is pay for performance, emphasize incentives, merit pay plans
if objective is stable, experienced workforce, emphasize seniority-based pay
A Pay Model II. Foundation Concepts EquityEquity External EquityExternal Equity Comparison: outside organization Internal EquityInternal Equity Comparison: inside organization, among
jobs Employee EquityEmployee Equity Comparison: individuals doing same job
for same organization
Equity Theory
I = InputsI = Inputseffort, ability, experienceeffort, ability, experience
O = OutcomesO = Outcomespay, benefits, perkspay, benefits, perks
EquityEquityOOpp/I/Ipp = O = Ooo/I/Ioo
Under-reward InequityUnder-reward InequityOOpp/I/Ipp < O < Ooo/I/Ioo
Over-reward InequityOver-reward InequityOOpp/I/Ipp > O > Ooo/I/Ioo
pp = personal, = personal, oo = comparison other= comparison other
A Pay ModelIII. Techniques for ManagementA. Pay Level Defined: average rates paid by
employer Applicable concept: External Equity 3 Pure Alternatives
lead competition match competition lag competition
Mechanism used: Market Wage Survey
Market Wage and Salary Surveys Select key jobs. Determine relevant labor market. Select organizations. Decide on information to collect:
wages/benefits/pay policies. Compile data received. Determine wages and benefits to pay.
Market Wage Levels
Company A’s Wage Level
Company A’s Wage Level
Company B’s Wage Level
Company B’s Wage Level
Market Wage Level
Market Wage Level
•Which company is leading the market?Which company is leading the market?•Which company is lagging the market?Which company is lagging the market?•What would the wage level line look like for a company What would the wage level line look like for a company that was meeting/matching the market?that was meeting/matching the market?
A Pay ModelIII. Techniques for ManagementB. Pay Structure
Defined: pay rates for different jobs within a single organization
Applicable concept: Internal Equity Pay more for jobs with
greater qualifications less desirable working conditions more valuable output
Mechanism used: Job Analysis & Job Evaluation
Job Evaluation
defined: the systematic evaluation of job descriptions
outcome: a hierarchy of organizational jobs according to their content and value to the organization
Methods: ranking classification factor comparison point method
Job Ranking System
Simplest and oldest system of job
evaluation by which jobs are arrayed
on the basis of their relative worth
Job Classification System
System of job evaluation by which jobs
are classified and grouped according
to a series of predetermined wage grades
Point System
Quantitative job evaluation procedure
that determines the relative value of a job
by the total points assigned to it
Factor Comparison System
Job evaluation system that permits the
evaluation process to be accomplished
on a factor-by-factor basis by developing
a factor comparison scale
Hay Profile Method
Job evaluation technique using three
factors – knowledge, mental activity,
and accountability – to evaluate
executive and managerial positions
A Pay ModelIII. Techniques for ManagementC. Individual Pay Rates
Defined: pay rates for different individuals doing the same job within an organization
Applicable concept: Employee Equity 2 Techniques
Flat Rate Pay Ranges
Mechanisms used: Performance or Seniority
Wage Curve
Curve in a scatter-gram representing
the relationship between relative worth
of jobs and wage rates
Grade Structure Grade structures are the basic underlying
element of most compensation schemes. They are simple, easy to understand and
use, and effective.
Grade Structure The salary range is
typically +/- 15 to 25% percent of the midpoint.
The salary midpoint of a grade is typically 20-30% higher than the preceding grades salary midpoint.
The maximum of a grade may be higher than the minimum of the next higher grade (but doesn't need to be).
Grade Salary Minimum
Salary Midpoint
Salary Maximum
1 7,500 10,000 12,500
2 9,500 12,000 14,500
3 11,500 14,000 16,500
4 14,000 17,000 20,000
To avoid problems with grades Being thoughtful when you assign jobs to grades Following the same process for everyone Making the process as open and transparent as is practical Having respected people assign jobs to grades Having some kind of appeal process (this can be informal) When there is a dispute look for the underlying business
issue (i.e. this key employee is going to quit) rather than focusing on the mechanics of the system (i.e. they are at the pay maximum of the grade)
Pick the most appropriate one1. Methods of Job
Evaluation
a) factor comparison
b) ranking
c) Both the above
2. Component of remuneration
a) Supervision
b) Bonus pay
c) Co-workers
Match the term with its definition
1. Wage Curve
2. Compensation
3. Job Evaluation
A. The systematic evaluation of job descriptions
B. Curve in a scatter-gram representing the relationship between relative worth of jobs and wage rates
C. All forms of financial return, tangible services and benefits that employees receive as part of their employment relationship
Activity Develop a pay-for-performance plan for
each of the following cases: Staff of customer service executives in a
service business Automobile mechanics of a large car dealership
company listed in BSE
Make suitable assumptions.