COMPENSATIONAtt ract

MotivateRetai

n

Retai

n

Compensation and benefits (abbreviated “C&B”) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making.

It is also known in the UK as “total reward” and as “remuneration” in Australia and New Zealand.

INTRODUCTION

INTRODUCTION

Compensation is “all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.”

The phrase “financial returns” refers to an individual's base salary, as well as short- and long-term incentives.

“Tangible services and benefits” are such things as insurance, paid vacation and sick days, pension plans, and employee discounts.

INTRODUCTION

Compensation Concern:

Determination of pay level. Rationality of pay.

Equity of pay.

How to plan compensation.

AIM

To Discuss all about compensation management in an organization

SCOPE

Compensation Structure.

Rationality in Compensation.

Equity in Compensation.

Compensation Plans.

Compensation in US/ Reward in UK/ Remuneration in Australia or Newzealand is “all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.” It is the mix of extrinsic and intrinsic rewards provided by the employer.

Intrinsic is those kinds of reward, where one receives from the job itself, such as pride in one’s work, a feeling of accomplishment, or being part of a team. etc

Extrinsic is those kinds of rewards, where one gets from the employer, usually money, a promotion, or benefits.

COMPENSATION STRUCTURE

Compensation

To attract capable employees to the organization

To motivate them toward superior performance and

To retain their services over an extended period of time

OBJECTIVES

COMPENSATION STRUCTURE

Compensation

Direct or Base Pay.

Performance or Variable Pay: Payment by Result (PBR). Performance Related Pay (PRP). Organization Performance Pay (ORP).

Indirect Pay or Benefit.

COMPONENTS

COMPENSATION STRUCTURE

Compensation

It’s a fixed salary or wage. Defined by market pricing and job evaluation. Paid in intervals, reflects hours of work. Easy to implement and administer. Generally felt to be fair. Helps to establish mutual commitment in

employee relation.

DIRECT OR BASE PAY

COMPENSATION STRUCTURE

Compensation

Three types, Pay by result, Performance pay and Org Performance pay.

Directly related to work related behavior. Should fulfill following criteria:

Target and Standard must be clear to all. Formula to calculate pay should be easily understood. Should be significant enough. Should not be lengthy lime lag between performance

and reward.

PERFORMANCE OR VARIABLE PAY

COMPENSATION STRUCTURE

Compensation

It’s non cash items or services. Normally supplementary to normal pay. Such as pension provision, sick pay, maternity pay etc. Discretionary benefits may include:

Extended Holyday entitlement. Company Cars. Employee assistance. Insurance Catering Service Recreational Facilities. Discount on own products. Educational Program.

INDIRECT PAY OR BENEFIT

COMPENSATION STRUCTURE

INTRINSIC

EXTRINSIC

CompensationTOTAL REWARD

Basic Pay

Performancebonus

OvertimePay

Profit Sharing

Share Ownership

Benefits

Quality of Working lifeCha

lleng

e in

the

Job

Work life B

alance

RecognitionFlexibility Empowerm

ent

Car

eer

Opp

ortu

nity

Skill Development

Factors of the determination of rational compensation

To negotiate a compensation, you need to compare to something. There are two principally different things people compare compensation to:

• Available Alternatives. – Employee: "I could get twice as much at Microsoft.“– Employer: "We can hire Bob for a half of your salary.“

• Peers' Compensation. – Employee: "Jeff gets twice as much and he's not better than me." – Employer: "John gets half your salary and you're not better than him."

RATIONAL COMPENSATION

Factors of the determination of rational compensation

Legal considerations. Supply and demand of labor. Labor unions. Ability to pay. Productivity. Cost of living. Government action.

RATIONAL COMPENSATION

FACTORS

Brown Capuchin Monkey

Two monkeys were trained to trade a granite token for a piece of cucumber.

When the reward was the same for both monkeys, they took the cucumber 95 percent of the time.

One monkey was given a grape. Then, the other monkey behaved wrong-- either throwing the token, refusing to eat the cucumber or giving it to the other monkey.

Because it felt, he/she was not compensated as his/her peer

If a person perceives an inequity, the person will be motivated to reduce or eliminate the tension and perceived inequity.

EQUITY THEORY OF MOTIVATION

EQUITY IN COMPENSATION

External equity. How a job’s pay rate in one company compares to the job’s pay rate in other companies.

Internal equity. How fair the job’s pay rate is, when compared to other jobs within the same company

FORMS OF EQUITY

EQUITY IN COMPENSATION

Individual Equity. How fair an individual’s pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company.

Procedural Equity. The perceived fairness of the process and procedures to make decisions regarding the allocation of pay.

FORMS OF EQUITY

EQUITY IN COMPENSATION

Compensation will be perceived by employees as fair if based on systematic components. The components of a compensation system include:

Job Description. Pay Structure. Salary Survey. Policies and Regulations.

EQUITY IN COMPENSATION

Effective employee compensation plans can set the stage for effective recruiting as well as employee retention.

This plan should articulate a distinctive value proposition that will inspire and guide the team in the right direction.

It should also provide a framework of principles from which to design the pay program.

COMPENSATION PLAN

Develop a Program Outline

Set an objective for the program. Establish target dates for implementation and

completion. Determine a budget.

COMPENSATION PLAN

Designate an Individual to Oversee Designing the Compensation Program.

Determine whether this position will be permanent or temporary.

Determine who will oversee the program once it is established.

Determine the cost of going outside versus looking inside.

Determine the cost of a consultant's review.

COMPENSATION PLAN

Develop a compensation philosophy.

Form a compensation committee (presumably consisting of officers or at least including one officer of the company).

Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus non-contingent pay).

COMPENSATION PLAN

Develop a compensation philosophy.

Determine whether the company should set salaries at, above, or below market.

Decide the extent to which employee benefits should replace or supplement cash compensation.

COMPENSATION PLAN

Conduct a Job Analysis of all Positions.

Conduct a general task analysis by major departments. What tasks must be accomplished by whom?

Get input from senior vice presidents of marketing,

finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each.

COMPENSATION PLAN

Conduct a Job Analysis of all Positions. Interview department managers and key employees, as

necessary, to determine their specific job functions. Decide which job classifications should be exempt and

which should be nonexempt.

COMPENSATION PLAN

Conduct a Job Analysis of all Positions. Develop model job descriptions for exempt and

nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary.

Develop a final draft of job descriptions.

Meet with department managers, as necessary, to review job descriptions.

Finalize and document all job descriptions.

COMPENSATION PLAN

Evaluate Jobs

Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments.

Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary.

Prepare a matrix organizational review.

COMPENSATION PLAN

Evaluate Jobs

Compare the matrix with data from both the company structure and the industry wide market.

Prepare flow charts of all ranks for each department

for ease of interpretation and assessment.

Present data and charts to the compensation committee for review and adjustment.

COMPENSATION PLAN

Determine Grades

Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level.

Determine the number of pay grades, or monetary range of a position at a particular level, within each department.

COMPENSATION PLAN

Establish Grade Pricing And Salary Range

Establish benchmark (key) jobs.

Review the market price of benchmark jobs within the industry.

Establish a trend line in accordance with company

philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).

COMPENSATION PLAN

Determine an appropriate salary structure

Determine the difference between each salary step. Determine a minimum and a maximum percent

spread.

Slot the remaining jobs. Review job descriptions.

COMPENSATION PLAN

Determine an Appropriate Salary Structure.

Verify the purpose, necessity, or other reasons for maintaining a position.

Meet with the compensation committee for review, adjustments, and approval.

COMPENSATION PLAN

Develop a Salary Administration Policy.

Develop and document the general company policy. Develop and document specific policies for selected

groups.

Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, etc.

Develop and document procedures to justify the

policy (e.g., performance appraisal forms, a merit raise schedule).

COMPENSATION PLAN

Obtain Top Executives' Approval of the Basic Salary Program

Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.

Present data to the compensation committee for review, adjustment, and approval.

Present data to the executive operating committee (senior managers and officers) for review and approval.

COMPENSATION PLAN

Communicate the final program to employees and managers

Develop a plan for communicating the new program to

employees, using slide shows or movies, literature, handouts, etc.

COMPENSATION PLAN

Monitor the Program

Monitor feedback from managers.

Make changes where necessary.

Find flaws or problems in the program and adjust or modify where necessary

COMPENSATION PLAN

COMPENSATION PLAN FAIL A successful incentive plan must focus on achieving

company goals by driving the right behaviors in employees. Sometime it fails.

The reasons incentives plans fail are common among companies and include the following:

Poor Communication With Employees.

The Strategy for the Company is Not Developed

Best Practices Do Not Exist

The Plan is Ineffective at Driving the Right Behaviors

COMPENSATION PLAN FAIL

The Company Has a Poor Employee Performance-Evaluation Process

Performance is Measured by Profitability Alone

The Best People May Work on the Worst Jobs

The Plan Promotes Divisional vs. Corporate Behavior

Costs are Miscoded and Resources are Hoarded

The Incentive Plan Itself Causes Division

RECAPITULATION

Compensation Structure. Definition Intrinsic and Extrinsic Objectives Components

Base Pay Performance Pay Indirect Pay

RECAPITULATION

Compensation Rational. Legal considerations. Supply and demand of labor. Labor unions. Ability to pay. Productivity. Cost of living. Government action.

RECAPITULATION

Compensation Equity. Forms of Equity.

External Internal Individual Procedural

Components of Equity. Job Description Pay Structure Salary Survey Regulations and Policy

RECAPITULATION

Compensation Plan. Program outline. Individual to over see Develop philosophy Job Analysis Job Evaluation Define Grades Grade Pricing Salary Structure

RECAPITULATION

Compensation Plan. Salary Administration Policy Get Approval Communicate to all Monitor

Why Compensation Plan Fails: