Employee benefits and compensation

11/01/1411/01/14 octorber,2013octorber,2013 11

EMPLOYEE BENEFITS EMPLOYEE BENEFITS AND COMPENSATIONAND COMPENSATION

OVERVIEW OF EMPLOYEES’ OVERVIEW OF EMPLOYEES’ COMPENSATION PLANCOMPENSATION PLAN

Habibu Ayuba; B.Sc; PGDE; M.Sc; ACA in-viewHabibu Ayuba; B.Sc; PGDE; M.Sc; ACA in-view0803052713508030527135


Compensation in a competitive Compensation in a competitive environmentenvironment

A modern Mentality arguesA modern Mentality argues

A well motivated and A well motivated and compensated employee is a compensated employee is a

contributor. A contributor who contributor. A contributor who contribute not only to the contribute not only to the

growth and creation of wealth of growth and creation of wealth of organizational stakeholders but organizational stakeholders but

to the effective management to the effective management and control of resource to attain and control of resource to attain

the corporate goals.the corporate goals.


OBJECTIVES OF THE PRESENTATIONOBJECTIVES OF THE PRESENTATION

At the end of the session, the At the end of the session, the participants should be able to:participants should be able to:

Trace and identify origin of employee Trace and identify origin of employee compensationcompensation

Define relevant concepts in Define relevant concepts in employees’ benefits plan and employees’ benefits plan and compensationcompensation

State the aim and objectives of State the aim and objectives of effective compensation systemeffective compensation system

Mention elements of compensation Mention elements of compensation policiespolicies


OBJECTIVES…CONTI….OBJECTIVES…CONTI….

Have highlight on the guiding Have highlight on the guiding principles governing effective principles governing effective compensation systemcompensation system

Comment on the benefits of Comment on the benefits of total reward/compensation total reward/compensation systemsystem

Observe components of Observe components of employee compensation systememployee compensation system


COMPENSATION IN THE ANCIENT COMPENSATION IN THE ANCIENT WORLD/INDUSTRIAL REVOLUTION WORLD/INDUSTRIAL REVOLUTION

(Historical perspective)(Historical perspective) Noticed shortly after the advent of written history.Noticed shortly after the advent of written history. Dates back to approximately 2050BC, when the law Dates back to approximately 2050BC, when the law

of Ur- Nammu of Ancient Sumeria provided, in of Ur- Nammu of Ancient Sumeria provided, in history, Monetary compensation for specific injury to history, Monetary compensation for specific injury to workers’ body parts such as Fractions.workers’ body parts such as Fractions.

The code of Hammurabi from 1750BC also The code of Hammurabi from 1750BC also provided a similar set of reward.provided a similar set of reward.

Subsequently, ancient Greek, Roman, Arab and Subsequently, ancient Greek, Roman, Arab and Chinese Law provided some sets of compensation Chinese Law provided some sets of compensation schedules with precise payment for loss of body schedules with precise payment for loss of body parts.parts.

The work F.W.Taylor (1917) in twenty first (21The work F.W.Taylor (1917) in twenty first (21stst) ) century, ushered in the relevance of pay to enhance century, ushered in the relevance of pay to enhance the employees’ productivity.the employees’ productivity.

But, it is not until 1925, the work of Henry Fayol But, it is not until 1925, the work of Henry Fayol places compensation (Remuneration) as parts of places compensation (Remuneration) as parts of the principles of Management in managing the principles of Management in managing organization.organization.


Relevant concepts in the compensation Relevant concepts in the compensation systemsystem

Reward/compensationReward/compensation Compensation systemCompensation system Total compensationTotal compensation Total rewardTotal reward Total remunerationTotal remuneration EmployeeEmployee Employee benefitsEmployee benefits Financial rewardFinancial reward Non- financial rewardNon- financial reward Intrinsic rewardIntrinsic reward Extrinsic rewardExtrinsic reward Job evaluationJob evaluation


REWARD/COMPENSATIONREWARD/COMPENSATIONDEFINEDDEFINED

A reward for services rendered by A reward for services rendered by people at work place, Dunn and people at work place, Dunn and Rachel (1971).Rachel (1971).

A monetary payments of wages, A monetary payments of wages, salaries, emoluments and bonus salaries, emoluments and bonus (current/deferred) used to reward (current/deferred) used to reward employees, Stahd (1995).employees, Stahd (1995).

Dessler, (2005) defines Dessler, (2005) defines compensation as all forms of compensation as all forms of payments or rewards given to payments or rewards given to employees which arise from their employees which arise from their employment.employment.


compensationcompensation

Non-performanceBased pay

(Old Mentality)

Monthly salary Weekly wages

Performance Based pay

(Modern Mentality)

Fixed pay1.Base pay2.Promotion

3.Cost of living rise4.Marit pay

Flexible pay1.Variable

a. Commissionb. Bonuses

c. Gain sharing2. Differed incomea. Stock ownership

b. Profit sharing

Benefits1.Vacation

2.Sick leave3.Company car

4.Company house


Compensation systemCompensation system

A well interrelated and A well interrelated and integrated processes and integrated processes and activities capable of combining activities capable of combining issues aim at ensuring that the issues aim at ensuring that the employee pay is carried out to employee pay is carried out to the benefits of organizations the benefits of organizations and employees.and employees.


Total compensation (TC)Total compensation (TC)

A sum of intrinsic and extrinsic A sum of intrinsic and extrinsic rewards which involve an rewards which involve an assessment of employees’ assessment of employees’ contribution to the organization in contribution to the organization in order to distribute fairly and order to distribute fairly and equitably, direct and indirect rewards equitably, direct and indirect rewards in exchange for their performance.in exchange for their performance.

TC= value + process + security + TC= value + process + security + effort/activities + results.effort/activities + results.


Total rewards/Total Total rewards/Total remunerationremuneration

Total rewards are the Total rewards are the sum total of both sum total of both financial and non-financial and non-financial compensation financial compensation available to an available to an employee. It is all type employee. It is all type of pay which include: of pay which include: direct, indirect, intrinsic direct, indirect, intrinsic and extrinsic rewards and extrinsic rewards in forms of base pay, in forms of base pay, contingent pay, contingent pay, employee benefits and employee benefits and non-financial reward non-financial reward stipulated in stipulated in compensation system.compensation system.

Total remuneration is Total remuneration is the value of all cash the value of all cash payment (total payment (total earnings) and benefits earnings) and benefits received by an received by an employee. The total employee. The total remuneration paid remuneration paid differs among differs among employees of an employees of an organization. It organization. It depends on the worth depends on the worth of an employee of an employee (skilled, unskilled and (skilled, unskilled and semi-skilled)semi-skilled)


Employee in the Modern WorldEmployee in the Modern World

He is a worker who works for fixed He is a worker who works for fixed compensation in a business enterprise or compensation in a business enterprise or government institution and serves as a government institution and serves as a subordinate to the authority of employer.subordinate to the authority of employer.

He discharges any activity assigned to him He discharges any activity assigned to him to produce goods and services for owner’s to produce goods and services for owner’s profit.profit.

He is a person who works under the He is a person who works under the contract of service/employment in return for contract of service/employment in return for remuneration under the direction and remuneration under the direction and control of another person that may be an control of another person that may be an individual, a private or public institution.individual, a private or public institution.


Employee BenefitsEmployee Benefits

Are elements of remuneration Are elements of remuneration additional to the various forms additional to the various forms of cash pay which include:of cash pay which include:

PensionPension Sick paySick pay Insurance coverInsurance cover Company car Company car Perks and so onPerks and so on


Financial/Non-financial RewardFinancial/Non-financial Reward

Financial rewards Financial rewards are rewards made are rewards made to maintain to maintain employee hygienic employee hygienic needs to needs to experience job no experience job no satisfaction such satisfaction such as base pay of as base pay of salary and wages.salary and wages.

Non-financial rewards Non-financial rewards are rewards made to are rewards made to enhance employee enhance employee achievement, achievement, autonomy, recognition, autonomy, recognition, scope to use and scope to use and develop skills, training, develop skills, training, career development career development opportunities and high opportunities and high quality leadership so quality leadership so as to experience job as to experience job satisfaction.satisfaction.


Intrinsic pay/extrinsic pay

Intrinsic pay is a non-Intrinsic pay is a non-monetary reward monetary reward targeted to enhance targeted to enhance job related satisfaction job related satisfaction which include:which include:

Job securityJob security Job symbolJob symbol Social rewardSocial reward Task/self rewardTask/self reward

Extrinsic pay is a Extrinsic pay is a monetary reward monetary reward targeted to enhance targeted to enhance job no satisfaction job no satisfaction which include:which include:

Direct pay such as Direct pay such as base pay (salary and base pay (salary and wages), merit pay, wages), merit pay, incentive pay and incentive pay and deferred paydeferred pay

Indirect pay such as Indirect pay such as protection programs protection programs (pension), pay for time (pension), pay for time not work (sick leave) not work (sick leave) and perquisite (free and perquisite (free meal)meal)


Job EvaluationJob Evaluation A systematic process for A systematic process for

defining the relative worth of or defining the relative worth of or size of the job within the size of the job within the organization so as to establish organization so as to establish internal relativities and bases for internal relativities and bases for designing an equitable grade designing an equitable grade structure of the job. It can be structure of the job. It can be analytical and non- analytical.analytical and non- analytical.


Aim and Objectives of Effective Aim and Objectives of Effective Compensation SystemCompensation System

Serve as a system that guarantees fairness, equity, Serve as a system that guarantees fairness, equity, consistency and transparency in employee pay as consistency and transparency in employee pay as

specifically designed to achieve the following:specifically designed to achieve the following: To pay employee what the organization value and To pay employee what the organization value and

wants to paywants to pay To reward people for the value they created in To reward people for the value they created in

organizationorganization To develop an effective performance culture in the To develop an effective performance culture in the

organizationorganization To motivate employees by winning their To motivate employees by winning their

commitment and engagement with jobcommitment and engagement with job To attract and retain high quality people the To attract and retain high quality people the

organization really needsorganization really needs To align reward practices with both business goals To align reward practices with both business goals

and employees’ valuesand employees’ values


Objectives…cont….Objectives…cont….

To apply equity in rewarding people appropriately To apply equity in rewarding people appropriately especially in relation to one another within the especially in relation to one another within the organizationorganization

To develop positive employment relationship which To develop positive employment relationship which enhances psychological contract of employees enhances psychological contract of employees

To make the system functions consistently devoid of To make the system functions consistently devoid of arbitrary pay which varies without due cause between arbitrary pay which varies without due cause between different employees or differences in timedifferent employees or differences in time

To operate transparently by ensuring that the employees To operate transparently by ensuring that the employees have understood how the system works and how it affects have understood how the system works and how it affects everyoneeveryone

To reward right things so as to convey the right message To reward right things so as to convey the right message about what is importance in term of behaviors and about what is importance in term of behaviors and outcomesoutcomes

To operate fairly by making employees felt fair as their To operate fairly by making employees felt fair as their payment is justly in accordance with what is due to thempayment is justly in accordance with what is due to them


Elements of compensation policiesElements of compensation policies

Policy is an instrument through which an Policy is an instrument through which an organization carries out its day to day activities. organization carries out its day to day activities. The elements that are universally employed by The elements that are universally employed by organizations when compensating their staff organizations when compensating their staff

are: are: Market stance comparison and market rate analysis Market stance comparison and market rate analysis

( firm A VS firm B pay)( firm A VS firm B pay) Equity and equality of payEquity and equality of pay External competitiveness VS internal equity of payExternal competitiveness VS internal equity of pay Total reward approach VS total remuneration policyTotal reward approach VS total remuneration policy Scope for use of contingent reward VS staff Scope for use of contingent reward VS staff

performance, skill and competencesperformance, skill and competences Maintenance of transparency in the compensation Maintenance of transparency in the compensation

processes and structureprocesses and structure Role of line manager in the compensation Role of line manager in the compensation

processes processes


Principles guiding an effective Principles guiding an effective compensation systemcompensation system

Development of reward policies and practices that Development of reward policies and practices that support attainment of business goalssupport attainment of business goals

Provision of compensation that can attract, retain Provision of compensation that can attract, retain and motivate staff with high performance cultureand motivate staff with high performance culture

Rewarding of employees according to their Rewarding of employees according to their contribution to the companycontribution to the company

Maintenance of competitive rate of pay in the Maintenance of competitive rate of pay in the industryindustry

Devolving of reward decision as more of Devolving of reward decision as more of responsibilities of the line managersresponsibilities of the line managers

Recognition of employees’ values as he effectively Recognition of employees’ values as he effectively contribute to the achievements of company’s goal contribute to the achievements of company’s goal not just as he performed exceptionallynot just as he performed exceptionally

Entrenchment of reasonable degree of flexibility in Entrenchment of reasonable degree of flexibility in the reward processes and in the choice of benefits the reward processes and in the choice of benefits by the employeesby the employees


Benefits of Benefits of total rewards/total total rewards/total

compensationcompensation It employs flexibility in meeting diverse It employs flexibility in meeting diverse

needs of employeesneeds of employees It enhances talent management which It enhances talent management which

enable the employers’ to attract and retain enable the employers’ to attract and retain talented people of their choice and needstalented people of their choice and needs

It builds an effective employment It builds an effective employment relationship which makes relational and relationship which makes relational and transactional rewards to appeal to transactional rewards to appeal to employees’ needsemployees’ needs

It provides long lasting impact on It provides long lasting impact on employees’ motivation and commitment in employees’ motivation and commitment in organizational activitiesorganizational activities

It reduces employees’ turnover which It reduces employees’ turnover which unnecessarily add cost to the organizationunnecessarily add cost to the organization


Components of employees’ Components of employees’ compensationcompensation

Total compensation’components

Intrinsic reward

Extrinsic reward

Job security

Indirect payStatus symbol

Socialreward

Task/selfreward

Direct pay

Protection program

Base pay

Pay for time not worked

Services And

perquisite

Merit pay

Incentivepay

Deferred pay

salary

wages


conclusion

The success of any organization in this turbulent and competitive environment is to develop a sound compensation package that can enable it to win, maintain and retain talent and competent workforce who are capable of helping it to achieve its objectives.


THANKS FOR THANKS FOR LISTINING/ATTENDENCELISTINING/ATTENDENCE

Leadership & Management

Employee benefits and compensation