Compensation Management System in Nepal

Facilitated By

Pratap Kumar Pathak

Welcome

Conceptualizing Compensation Management

What is Compensation Management

• General policy to address human resource and implemented in conjunction with systems and methods designed to provide financial benefit to employees in return to using human talent.

• The ultimate goal is to reward the right people to the greatest extent for the most relevant reasons.

Compensation includes direct cash payments and indirect payments in the form of benefits, incentives

and rewards to motivate employees to strive for higher

levels of performance and productivity.

Compensation

Tool to foster values and

culture

System of rewards for motivating performing employees

Instrument to increase

performance and productivity

Instrument to enable

organization achieving objectives

Wage and salaryIncentives and

rewards

Social Security and Fringe

benefitsPerquisites

Different Components of Compensation

Objectives of Compensation

• Survival and subsistence

• Competitive performance

• Executive development

• Motivation and morale

• Productivity, economy and efficiency

• Attraction and retention of competent personnel

• Organizational development

• Effective delivery of goods and services

• Positive group dynamics

• Organizational culture

Characteristics of Compensation System

• Flexible and rigid

• Fixed and differentiated

• Position or Rank-based and Performance-based

• Regulated and Autonomous

• Organizational and Programme-based

• Institutional and Outsourced

• Treasury funded and revenue funded

Types of Compensation

Compensation

Pay-related compensation: Pay,

allowance

Performance-related: Incentives,

performance pay

Career Opportunity: Promotion, Job

enrichment, Responsibility

Ownership: Profit sharing, share participation

Social Security: Pension, insurance,

provident fund, gratuity

Employee Compensation

Financial

Pay, Salary, Wages Incentives Social Security

Non-financial

Job and Career-related

benefits

Principles and Theories of Compensation Management

Basic Principles of Employee Compensation

• Principle of survival and subsistence

• Principle of performance and productivity

• Principle of equity

• Principle of motivation and morale

• Principle of attraction

• Principle of profitability

• Principle of participation and ownership

• Principle of organization development

• Principle of sustainability

Theories of Compensation

Compensation

BehaviouralTheories

Economic Theories

Organization and Management Development

Theories

Equity and Justice Theories

•Subsistence

•Marginal Productivity

•Productivity

•Profitability

•Surplus value

•Residual claimant

Economic Theories

•Performance and Outputs

•Skill and competency

•Collective bargaining

Orgnanizationand Management

Development Theories

•Motivation and morale

•Reinforcement

•Expectancy

•Group dynamics

•Equity and justice

•Quality of work life

BehaviouralTheories

Process and Methods of Compensation Management

Instrument of Compensation Determination

• Job analysis and job evaluation

• Performance management

• Market research and analysis

• Permanent institution for determining compensation

• Expert team mobilization

• Profitability and productivity analysis

• Sector analysis and harmonization

• Economic sustainability analysis

• Behavioural analysis

Components of a Compensation System

Job Analysis

Pay Structures

Salary Surveys

Process of Compensation Management

HR Policy and Strategy

Compensation Policy

Job Analysis and Evaluation

Analysis of Contingent

Factors

Design and Implementation of Compensation Plan

Evaluation and Review

Critical Issues in Compensation Management

Changing Dimensions of Compensation Management

• Extensive application of Information and Communication Technologies

• Modernization of Production technology

• Knowledge management

• Changed dynamics of market

• Outsourcing and contracting out

• Virtual organizations

• Social inclusion

Factors of Determination

of Compensation

LabourMarket

Employee and Unions

Legal Environment

Economy

Performance and

Productivity

Requisites of a Sound Compensation System

External competitiven

ess

Performance and Productivity

Internal Equity

Compensation and Performance

• Performance and outputs

• Productivity

• Efficiency and economy

• Profitability

Compensation and Economy

• Efficiency and productivity

• Macroeconomic stability

• Budgetary control

• Efficient allocation of labour

• Labour market dynamics

Compensation and Motivation

• David McClleland’s Achievement motivation

• Abrahm Maslow and need-based motivation

• Herzberg’s Dual Factor Theory of motivation

– Performance pay

• Victor Vroom’s Expectancy Theory

• Skinner’s Reinforcement Theory

• Equity theory

Compensation and Industrial Relations

• Career and compensation

• Social dialogue and collective bargaining

• Economic advancement in employment

• Employee-management relations

Compensation Management System and Practices in Nepal

Foundations for Compensation Management in Nepal

• Constitutional provision

• Civil service law

• Budgetary policy

• Personnel Management Laws of enterprises

• Employees Provident Fund and Citizen Trust Fund

• Social security provisions

• Labour law and labour standards

Human Resource Policy and Strategy

• Long-term vision for human resource management

• Strategic plan for human resource management

• Human resource information system

• Human resource development and mobilization plan

• Compensation plan

• Integration of compensation system into Human Resource Policy and Strategy

Inferences Drawn from Nepalese Experiences

• HR Policy analysis for compensation management

• Strategic Planning and Strategic Management: Weak strategic orientation

• Weak integration

• Harmonizing compensation with organization’s long term plan and policy: Low level of readiness

• Human resource information system is almost non-existent

• Compensation is driven by ability to pay rather than standards

Job Analysis and Job Evaluation

• Organization and management survey: Weak research orientation

• Analyzing job for preparing job descriptions, job specifications and job standards

• Job evaluation and ranking of job• Position classification and grading of

positions• Matching job with compensation• Practice of job analysis and job evaluation is

almost non-existent in public enterprises• Job and position are based on rank rather

than performance grades

Compensation Determination

• Pay Commission/Wage Board recommendations

• Collective bargaining and negotiation method

• Market survey and adjustment system

• Court decisions

• Comparison method

• Budgetary declaration

• Performance contracts

• Incremental changes

• Adhoc procedures

• Weak participation of employees

Performance-based Compensation• Performance management system has been

applied in business entities

• Difficult and complex in public enterprises

• Performance-based pay is almost non-existent in public organizations

• Performance-based incentives system in a team approach has been applied in adhocbasis in civil service and public enterprises

• Bonus system applied on the basis of immediate profit rather than profitability and sustainability

Executive Compensation

• Compensation based on performance contracts

• Performance contracts with Chief Executive

• Performance contracts between Chief Executive and the Department/Project Chiefs

Social Dialogue and Collective Bargaining

• Instrument for professional trade unions in collectively determining compensation

• Differentiated interests of management and employee unions

• Political interest vs organizational interest

• Sensitivity towards productivity

Social Security

• Lack of “Comprehensive Social Security System”

• Differentiated system based on organizational capacity

• Social insurance and public assistance

• Operationalization of “Social Security Fund”

Effective System for Compensation Management

Requirements for a Sound Compensation System

• Strategic Framework

• Structural Capacity

• Effective Systems and Methods

• Integration with organizational development and management effectiveness

• Harmonization with performance behaviour

• Sustainability

Requirements for an Effective Compensation System in Nepal

• Human resource strategy and policy

• Human resource information system

• Harmonized compensation plan

• Comprehensive social security system

• Performance-based compensation system

• Research and survey on job engineering, productivity and performance improvements

• Participatory and transparent process of determining compensation

Any queries…..PLEASE

Thank you all for your kind attention