compensation business law

8/13/2019 Compensation Business Law

1/29

Compensation

AGBS,Mohali


2/29

Compensation

"If you pick the right people andgive them the opportunity tospread their wings - and put

compensation and rewards as acarrier behind it - you almostdon't have to manage them."

-Jack Welch


3/29

Compensation

Compensation is a systematicapproach to providing monetaryvalue to employees in exchange for

work performed. Compensation mayachieve several purposes assisting inrecruitment, job performance, and

job satisfaction.


4/29

Compensation management

Compensation is what employeesreceive in exchange for theircontribution to the organisation.

Total compensation =

Direct + Indirect Compensation

Base Pay Incentives Benefits


5/29

How is compensation used?

Compensation can be used for :-

1. Recruit and retain qualified employees.2. Increase or maintain morale/satisfaction.3. Reward and encourage peak performance.4. Achieve internal and external equity.5. Reduce turnover and encourage company

loyalty.

6. Modify (through negotiations) practices ofunions.


6/29

What are the components of a

compensation system?

Job Descriptions A critical component ofboth compensation and selection systems,

job descriptions define in writing theresponsibilities, requirements, functions,

duties, location, environment, conditions,and other aspects of jobs. Descriptions maybe developed for jobs individually or forentire job families.

Job AnalysisThe process of analyzing jobs

from whichjob descriptionsare developed.Job analysis techniques include the use ofinterviews, questionnaires, and observation.


7/29

What are the components of a compensation

system?

Job EvaluationA system for comparing jobs forthe purpose of determining appropriatecompensation levels for individual jobs or jobelements. There are four main techniques:Ranking, Classification, Factor Comparison, andPoint Method.

Pay Structures Useful for standardizingcompensation practices. Most pay structuresinclude several grades with each grade containinga minimum salary/wage and either stepincrements or grade range. Step increments are

common with union positions where the pay foreach job is pre-determined through collectivebargaining.

Salary SurveysCollections of salary and marketdata. May include average salaries, inflationindicators, cost of living indicators, salary budgetaverages.


8/29

What are different types of

compensation? Different types of compensation include: Base Pay Commissions

Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance

Benefits including: dental, insurance,medical, vacation, leaves, retirement,taxes...


9/29

Components of a Total

Compensation

Financial 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


10/29

Components of a Total

Compensation Program

Non-Financial

The Job

interesting, challenging, responsible

opportunity for recognition, advancement

feeling of achievement

Job Environment

policies, supervision, co-workers, statussymbols, working conditions, flextime,compressed work week, job sharing,telecommuting, flexible benefits programs


11/29

Equity

The equity theory of motivation holdsthat workers assess their perceivedinputs to their work and their

outcomes to those of others


12/29

Equity Theory

Internal equity Comparison of my input / reward ratio with

that of similar others.

Employees may seek to address imbalance bychanging their inputs.

Fairness of pay differentials between differentjobs in the organization can be established by

job ranking, job classification, point systemsand factor comparisons.

External equity

Fairness of organizational compensation levels

relative to similar jobs in other organizations.


13/29

Monkeys Demand Equal PayA recent study shows brown capuchin monkeys

refused to play along when they saw another

monkey get a better payoff for performing the samework.

The monkeys were trained to trade a granite token fora piece of cumber. When the reward was the same

for both monkeys, they took the cucumber 95percent of the time.

But it was a different story when one monkey wasgiven something better -- namely, a grape. Then,

the other monkey often pitched a fit -- eitherthrowing the token, refusing to eat the cucumber orgiving it to the other monkey.

Associated Press 2003


14/29

Individual Equity

Fairness about pay differentials among individualswho hold the same job can be established byusing:

Seniority-based pay systems that rewardlongevity.

Merit-based pay systems that rewardemployee performance.

Incentive plans that allow employees toreceive part of their compensation based ontheir job performance.

Skills-based pay systems.

Team-based pay plans that encouragecooperation and flexibility in employees.


15/29

Types of Base Pay Systems

Job-based

Pay the job (not the person)

Market-based (external equity focus)

Point factor-based (internal equity focus) Skills / knowledge-based

Pay the person (not the job)

62% of F1000 firms used some type of skill

based pay in 1999


16/29

Job Based Pay

Attraction Depends on marketpricing

Motivation No performance impact

SkillDevelopment

Learn job-related andupward mobility skills

Culture Bureaucratic,

hierarchicalStructure Hierarchical, individual

jobs and differentiationCost Good control of

individual pay


17/29

Individual Skill/Knowledge Based Pay

Attraction Attracts learning-oriented individuals,high skills individuals

Motivation Little performance

impactSkillDevelopment

Motivates needed skilldevelopment

Culture Learning, self-managing

Structure Flat or team-based

Cost Higher individual pay


18/29

Individual Merit

Attraction Good for high

performers

Motivation Good line of sight

SkillDevelopment

Learn skills that lead torewarded performance

Culture Performance oriented, jobfocused

Structure Individual and independentjobs

Cost Depends on the size of theawards


19/29

Team Incentives

Attraction Good if team performs

well

Motivation Moderate line of sight

SkillDevelopment

Encourages team skills

Culture Team focused

Structure Team-based and integrated

Cost High if significant awardsgiven


20/29

Organizational Plans

Attraction Good if organization

performs well

Motivation Weak line of sight

SkillDevelopment

Encourages broadunderstanding of business

Culture Business involvement

Structure Organization wide

integration

Cost Possible self-funding if basedon performanceimprovement

EMPLOYEE


21/29

EMPLOYEE

COMPENSATION Compensation of employees (CE) is measured by the

value of the remuneration in cash or in kind which an

employee becomes entitled to receive from an

employer in respect of work done, during the

relevant accounting period - whether paid in advance,

simultaneously, or in arrears of the work itself.


22/29

EXECUTIVE COMPENSATION

Executive Compensationis howtop executives of businesscorporations are paid. This

includes a basic salary,bonuses, shares, options andother company benefits.

It has become integral part

of management.


23/29


24/29

The Importance of

Compensation

Impacts an employers ability to attract and retain

employees.

Ensure optimal levels of employee performance in meetingthe organizations strategic objectives.


25/29

When to Use a Job-based Pay

Policy

A job-based pay work best in situations where:

Job duties are stable.

Skills are generic.

Employees move up through the ranks over time. Jobs are fairly standardized within the industry.

Drawbacks of a job-based pay system

Discounts individual ability.

Discourages lateral movement.

Tends to be bureaucratic, mechanistic, and inflexible.

Employees perceptions of equity are more important thanmarket or point data.


26/29

Individual-based Compensation

Individual-based compensation works when:

The firm has a relatively educated workforce.

Employees often do different jobs Technology changes frequently.

Employee participation and teamwork areencouraged.

Opportunities for upward mobility are limited. Opportunities to learn new skills are present.

The costs of employee turnover andabsenteeism in terms of lost production are

high.


27/29

Key Strategic Issues in Compensation

Determining compensation relative to themarket.

Striking a balance between fixed and variable

compensation. Deciding whether or not to utilize team-based

versus individual pay.

Creating the appropriate mix of financial and

non-financial compensation.

Developing a cost-effective compensationprogram that results in high performance.


28/29

New Thinking for the New

Millennium

Strategic approaches to may compensation (pay) systemsmore responsive:

Pay the personfor individual worth (knowledge, skillsand competencies) rather than for the value of a jobthey perform.

Reward excellencethrough a pay for performancecompensation that establishes a clear relationshipbetween a significant amount of pay and attainment oforganizational objectives.

Individualize the pay systemto give employees choicesin how they are rewarded and what reward they receive.


29/29

compensation business law

Documents