Compensation Issues and management

What is Compensation

• Compensation is the process of directly and indirectly rewarding employees on a current or deferred basis, for their performance of assigned tasks.

• Compensation is a systematic approach to providing monetary value to employees in exchange for their work performed.

Compensation Types

• Direct Compensation• Indirect Compensation

• Direct Compensation

• Wages and Salary

• Incentives or payments by results-Individuals incentives schemes group incentives schemes

• Fringe benefits – provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform , recreation etc.,

• Perquisites – allowed to executives and company car, club membership, paid holidays, furnished house, stock option schemes etc.

• Indirect Compensation

It refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

Goals of Compensation

• Acquire qualified personnel

• Retain current employees

• Ensure equity

• Reward desired behaviour

• Control costs

• Facilitate understanding

How is Compensation used?

• Recruit and retain qualified employees. • Increase or maintain morale/satisfaction. • Reward and encourage peak

performance. • Achieve internal and external equity. • Reduce turnover and encourage

company loyalty. • Modify (through negotiations) practices

of unions.

Compensation Administration

Main Issues In Compensation• How much should companies pay to attract,

retain, and motivate employees?

• Should they pay salaries or variable rewards?

• Should they provide benefits, and if so, to what extent?

• What's an appropriate discrepancy between the pay for high and low performers?

External Equity

Procedural Equity

Internal Equity

Individual Equity

Forms of Equity

Salary Surveys

Job Analysis and Job Evaluation

Performance Appraisal and Incentive Pay

Communications, Grievance Mechanisms, and Employees’

Participation

Methods to Address Equity

Issues

Methods to solve Equity Issues

Pay-Structures• Once job analysis has been done

organizations need to decide upon the pay structures.

• Pay structure refers to the process of setting up the pay for a job in an organization.

• The process deals with internal and external analysis to estimate the compensation package for a job profile.

Salary-Surveys• Organizations have to bridge the gap

between the industry standards and their salary packages. They cannot provide compensation packages that are either less than the industry standards or are very higher then the market rates.

•

• For the purpose they undertake the salary survey. The Salary survey is the research done to analyze the industry standards to set up the compensation strategy for the organization.

Objectives of Salary Survey

•To gather information regarding the industry standards•To know more about the market rate i.e. compensation offered by the competitors•To design a fair compensation system•To design and implement most competitive reward strategies•To benchmark the compensation strategies

Job Analysis

• Job analysis is a systematic approach to defining the job role, description, requirements, responsibilities, evaluation, etc.

• This is necessary to set a rationale pay structure for specific position.

Job Evaluation

• The process of determining how much a job should be paid, balancing two goals– Internal Equity: Paying different jobs

differently, based on what the job entails– External Competitiveness: Paying

satisfactory performers what the market is paying

Factor Comparison

Job Classification

Methods for Evaluating Jobs

Point Method

Ranking

Recent Trends

• Broad banding

– Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels.

– Pro and Cons

• More flexibility in assigning workers to different job grades.Provides support for flatter hierarchies and teams.

• Promotes skills learning and mobility.

• Lack of permanence in job responsibilities can be unsettling to new employees

• Employee Stock Ownership Plans (ESOP)

•   Employee Stock Ownership Plan (ESOP) is an employee benefit plan. The scheme provides employees the ownership of stocks in the company.

• It is one of the profit sharing plans. Employers have the benefit to use the