SCM Lecture 1

8/3/2019 SCM Lecture 1

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Strategic Compensation Management

Week 1


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Todays Plan !!

1) Introductions

2) Self assessment

3) Course outline

4) Administrative points

5) Introductory lecture

6) Exercise and discussion


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Introductions !!

Your name

City and educational background

Your goals and ambitions


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Self Assessment


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Course Objectives

The theoretical approach to strategic compensationmanagement

The various internal and external factors influencingcompensation strategy

The impact compensation systems have on employees

and organizations performance

Impact of legislation and unions on salary administration The strategic compensation management on

international level


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Course Outline


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Course Outline

Week 1: Introduction

Week 2: The strategic and tactical compensation issues

Week 3 & 4: The internal alignment

Week 5: The external competitiveness

Week 6: Designing pay structures


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Course Outline

Week 7: Case study presentations

Week 8: Mid Term Exams

Week 9 &10: Pay for performance

Week 11: Guest Speaker

Week 12: Pay as an incentive


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Course Outline

Week 13: Extending the system

Week 14: International pay systems

Week 15 & 16: Project presentations


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Teaching Methods

Lectures and class discussions

Simulation and exercises

Case studies and real life examples


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Assessment

Class Participation and Group discussion 5%

Surprise Quizzes (2 in semester) 5%

Assignments (2 in semester) 10% Case study and presentation(2 in semester) 15%

Mid Terms 25%

Final Paper 40%


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Administrative Points


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Lecture:

Tuesday 10:30 pm 1:30 pm

Course Instructor:

Miss. Sana Ahmed Email: [email protected]
mailto:[email protected]:[email protected]


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Class attendance - Late comers/ absence lectures,presentations, guest lecture(s)

Class participation and discussions

Text Book

Written work submission (Questions, due date, format,plagiarism)


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Assessment

Use of mobile phones

General conduct


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Introductory Lecture


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Without work all life goes rotten. Butwhen work is soulless life stifles and

dies

Albert Camus

(French Philosopher)


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What is Compensation?


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Compensation?

Represents the both intrinsic and extrinsic rewards

employees receive for performing their jobs

Does not operate in isolation

Component of companys human resources system

Compensation professionals


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Compensation?

Allocation, conversion and transfer of portionof orgs income to its employees

Individual perception (demographics)


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Historical Perspective

Turn of 20th century industrial revolution

Large scale manufacturing and HR systems

Factory system division of labor Scientific management practices labor cost control by

promoting efficiency

Piecework plans - individual incentive system

Welfare practices

Birth of relevant laws


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Wage and Salary

Important components of compensation and rewardprocess

Aimed at reimbursing employees for their work andmotivating them to perform to the best of theirabilities


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Wage and Salary

Wage

Hourly rate of pay frequently used for production andmaintenance employees (blue collar workers)

Paid for actual hours worked

Salary

Weekly, monthly or yearly rate of pay. Clerical, professional,

sales and management employees (white collar workers)

Paid same amount regardless of increase or decrease innumber of working hours


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The New Perspective

HR as an administrative system

Competitive advantage maintain market share and

profitability over period of time

Changing business environment technology,competition (internal, external) response to

change

Employees key resource


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Changes in work place

Greater autonomy process control, broader

responsibilities

Acquisition and application of higher level skills

Well compensated employees more likely tocontribute to organizations success

Operation in cost effective manner- labor costs


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Compensation and other HRfunctions


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Compensation and other HRfunctions

Human resources practices do not operate inisolation!!


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The Microsoft View

Weve said this for years, and its still as true as it ever

was: our employees are our greatest assets. And as

such, we believe in making long term investment inyou. That includes your financial well being and your

progress within our company


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Compensation and

Recruitment and Selection

Sparking candidates interests

Performance Appraisal

Performance management/ merit pay

Training

Acquisition of skills


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Compensation and

Career development

Incentive for progression

Labor- management relations

Negotiations

Employee Termination

Severance pay , golden shake hand , pension plans


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The Rewards System


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Reward System

Organizations are formed to accomplish specific

mission

It must attract and hire appropriate workforce

Retain precious employees


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Reward System

To focus employee attention on specific behaviordeemed necessary to achieve orgs goals

They must meet demand of employees

Motivating employees and modifying behaviors

What employees value and what org can provide


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Being strategic !!


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Being strategic !!

Internal consistency

Equity theory

Job analysis and job evaluation

Market Competitiveness

Strategic Analysis external market and internal

factors Market surveys


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Being strategic !!

Recognizing individual Contributions

Pay structures and recognizing employeedifferences

Pay grades and pay ranges


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Being strategic !!

Must support orgs strategic plans andactions

How??

Work to be performed

Level of knowledge and skills required Quality of people needed to promote success

The rewards org can offer org culture


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Back to compensation !!


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Elements

Intrinsic

Extrinsic


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Intrinsic Compensation

Reflects employees psychological mind sets that

result from performing their jobs

The role of OD professionals effective job design

Example..


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Intrinsic Compensation

Job Characteristics Theory (JCT)

Employees experience enhanced psychological states

when their jobs rate high on five core job dimensions:

Skill Variety

Task identity

Task significance Autonomy

Feedback


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Intrinsic CompensationJob Characteristics Theory (JCT)

Skill Variety the degree to which the job requires theperson to perform different tasks using various skills,abilities and talents.

Task identity- the degree to which job enables a person tocomplete the entire job, from start to finish

Task significance the degree to which the job has animpact on the lives or work of others

Autonomy freedom, independence and discretion

Feedback information about job outcomes and

performance


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Skill Variety Autonomy Feedback

Task Identity

Task Significance

Meaningfulness Experienced Gained

of work Responsibility Experience


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Outcomes :

Lower turnover

Lower absenteeism

Enhanced job performance

Greater job satisfaction


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Extrinsic Compensation

Monetary

Non-monetary (fringe benefits like paidvacation , facilities etc)


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Monetary Compensation


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The Base Pay (basic pay)

Money for performing their jobs

Continue to receive as long as they remain on jobs

Set according to the level of effort and responsibilityrequired to perform job, skills of employee and

severity of working conditions (compensable factors)


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Compensable factors(as discussed earlier)

Legal requirements to establish pay equality

Internal consistency

Market competitiveness

Recognition of individual contributions


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Core elements of Base Pay :

Hourly

Daily

Weekly Monthly

Yearly


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Adjustments of base pay

Costof- living adjustments

Seniority pay

Merit pay

Incentive pay

Pay for knowledge and skill based pay


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Costof- living adjustments (COLAs)

Periodic base pay increases that are based on changed in

the prices as indexed by the consumer price index (CPI)

Enable workers to maintain their purchasing power andstandard of living

Unions

Newly hired, CPI and base pay adjustment


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Seniority Pay

Periodic additions to base pay according to length of

service

Way of making employees feel valuable and fosterloyalty

Based on human capital theory


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Merit Pay

Permanent increases in base pay according toperformance

Rewards excellent efforts or results

Motivates future performance

Helps in retaining employees


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Incentive Pay

Rewards employees for partially or completely

attaining a predetermined job objective

Fluctuates according to employees attainment ofsome standard based on pre-established formula,

individual or group goals or company earnings


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Pay for knowledge and Skill-based pay

Rewards managerial, service or professionalworkers for successfully learning specific curricula

Skill based pay mastering new skills, mostly forphysical work

Reward employees for the range, depth and typesof skills or knowledge they are capable of applyingproductively to their jobs


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Non-monetary Benefits


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Fringe benefits

Paid time-off

Employee services

Protections programs

Two types legally required benefits anddiscretionary


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Legally required benefits

Protection of employees against disability andunemployment

Safety and health

Assistance in crisis


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Discretionary Benefits

Protection programs

Paid- time off

Services


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Eight Dimensions


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Dimension 1:

Pay for work and performance

Money provided in the short term (bonuses, cash

rewards)

Amount of money depends on the specified job

requirements, output, quality, innovations etc


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Dimension 2:

Pay for time not worked

Increase in number of paid vacations in past 40

years

Increase labor costs

Quality of work life

Example (rigs)


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Dimension 3:

Loss of job Income Continuation

Loss of Job security and retirement

Accidents, sickness

Layoffs and terminations

Economic conditions and technology factor

Examples:severance pay, unemployment insurance,supplemental unemployment benefits


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Dimension 4:

Disability Income Continuation

Inability to perform routine work due to sickness or

accidents

Sick leave, long/short tem disability plans, insurance


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Dimension 5:

Deferred Income

Employer provided programs for income

continuation after retirement

Example: pension, annuities, gratuity fund, stock

purchase plans etc


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Dimension 6:

Spouse/ family income continuation

Death of employee

Total or permanent disability

Allows family to receive employees salary (often forlimited time period)


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Dimension 7:

Health, Accident and Liability protection

Expenses and Insurance (medical, hospital surgical,

dental)

Liability related insurance plans (automobile, legal

etc)


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Dimension 8:

Income equivalent Payments

Perks (company car, credit card, payment forprofessional meetings, food, child care, traveling,

laptop, mobiles)


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The Motivation Factor!!


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Motivation Factor

Components of Work situation

Physical and psychological well being

The behavioral scientists

Seven interrelated elements of motivation


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Factor 1:

Enhanced dignity and satisfaction from workperformed

Recognizing employees as valuable contributor-powerful reward

Enhanced feelings of self worth and pride

Expectancy theory


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Factor 2:

Enhanced physiological health, Intellectual growth, andEmotional maturity

Physical risk

Psychological stress

Efforts taken by the org (gym, pool, suana, rest rooms, games

area)

Counseling services

Development opportunities


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Factor 3:

Promoting social relationships with coworkers

Opportunity to interact in a socially constructive manner

(social events)

Role of reward system (revisiting equity theory)


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Factor 4:

Job Design

Scientific management (boredom and

dissatisfaction)

Behavioral scientists new approaches to improvethe quality of work life

As jobs became enriched , reward structure becamemore sophisticated


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Factor 5:

Resources to perform assignments

Reason for employee failure

Challenging work and sense of accomplishment

Performance management


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Factor 6:

Enhanced control over job

Employee participation choosing location of

assignments

Flexible working hours

Part- time/ contractual workers and their

compensation package


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Factor 7:

Leadership and Management

Mentoring and coaching

Faith, trust and respect

The process of making future leaders by investing inpeople


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Designing and redesigning pay structure

What else ??

Merging jobs

Incompetent, obsolete or unneeded employees

Outsourcing

Unneeded jobs


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Sum- up

Concept of compensation management

Intrinsic and extrinsic

Monetary and non- monetary Monetary definition, types of adjustments

Non-monetary definition, types



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Sum- up

An adequate and fair pay system in motivating andsatisfying workers, retaining valuable employees andremaining competitive with other organizations thatprovide similar goods and services

Pay increases can reward merit (quality of performance,length of service or both

The basis for increase should be standardized for allemployees doing similar jobs in particular organization


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A job is a job; if you dont pay enoughits a lousy job


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Discussion Questions


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Discussion Questions

Q1: What is the greatest force for continuation of povertyin our society?

Q2: Why should managers be concerned with setting upa reward system?

Q3: What are the changes occurring in the workforce

relative of the kinds of work they do?


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Next Week !!

Organizational structures

Compensations decisions

The pay model

Documents

SCM Lecture 1