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LECTURE-28

Human Resource

Management

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Job Pricing

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Developing a Base Pay System

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 Job Analysis

 Job Evaluation  Pay Surveys

Pay Structure

Pay StructurePayPay

PoliciePolicie

ss

Individual Pay

Individual Pay

Implementation, Communication,

Monitorin

Performance

Appraisal

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Compensation system

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y Pay is a statement of an employee¶s worth by anemployer.

y Pay is a perception of worth by an employee.

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HR Management Strategy Model

Attract

Retain Engage

Select

Develop

RewardsHR

StrategyDesired

Results

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Employee Compensation

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y Employee compensation refers to all forms of pay orrewards going to employees and arising from their

employment.

y It consists of 2 parts

Direct financial payments

Indirect financial payments

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Direct or Indirect compensation is given basedon

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y Increments of time Hourly 

Salaried

y Performance Piecework 

Commission

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y

Piecework - Pay is tied directly to what the workerproduces

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 W ages versus Salaries

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Total

Compensation

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Compensation

of 

Employees

Extrinsic

Rewards

Hourly WagesSalary

Monetary BonusesRewards CommissionsPay Incentives

Insurance

RetirementPaid VacationsBenefits Food Services

Credit UnionRecreation

Recognition

Intrinsic Promotion Opportunities

Rewards Working Conditions

Interesting Work

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Consequences of Pay Dissatisfaction

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Desire for 

more Pay

Pay

Dissatisfaction

Performance

Strikes

Grievances

Search for job

Lower 

Attractivenessof job

Absenteeism

Turnover 

JobDissatisfaction

Absenteeism

Psychological

Withdrawal

Dispensary

Visits

Poor Mental

Health

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Compensation System

y  A total reward system includes both monetary andnonmonetary compensation.

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Phases of Compensation Management

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y Phase:-1. E valuate every job to ensure internal equity  based on each job¶s relative worth.

y Phase:-2. Conduct wage and salary surveys to find therates paid in the labour market.

y Phase:-3. Price each job to determine the rate of pay  based.

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O bjectives of Effective CompensationManagement

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y The ³Big Three´

y  Attract qualified employment applicants

y

Retain qualified employees, while discouragingretention of low performing

y Motivate employee behavior toward organizationobjectives

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y Ensure Equity 

y Reward Desired Behavior

y Control Costsy Comply  W ith Legal Regulations

y Facilitate Understanding

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y  Achieve external competitiveness

y Support organization priorities Strategy and goals

Culture and values

y Easy to administer

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Steps for Establishing Pay Rates

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y Conduct a salary survey of what other employers arepaying for comparable jobs

y Employee committee determines the worth of each jobin your organization through job evaluation

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y Group similar jobs into pay grades

y Price each pay grade by using wage curves

y Fine-tune pay rates

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Pay Grade Structure for Job-BasedSystem

Rs 10,000

Rs 30,000

Rs 50,000

Corporate Policy LineCorporate Policy Line

MidpointMidpoint

250 350 450 550 650

Job Evaluation Points

MaximumsMaximums

Pay Grade

Width

Pay Grade

Width

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 W hat Determines How Much You Pay?

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y Prevailing  W ages

y  Ability to Pay 

y Cost of Living

y Productivity 

y Bargaining Power

y Job Requirements

y Government Laws

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Equity factors

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Equity Perceptions

Inputs

Outcomes

 Inputs

Outcomes!

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Equity Theory 

DescriptionPay should be based upon

contributions made by theEmployees. Higher effort should berewarded with higher pay.

 Application toC

ompensationPay should be tied to the

performance level of individual

Employee

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Equity Theory Predictions

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Outputs

Inputs<

Outputs

Inputs

Outputs

Inputs=Outputs

Inputs

Outputs

Inputs >Outputs

Inputs

Under-reward

Equity

Over-reward

Person BPerson A

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Pay above Market Rate

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 Advantages Advantages Attracts better employees Attracts better employees

Minimizes voluntary turnoverMinimizes voluntary turnoverFosters strong culture and competitive superiority Fosters strong culture and competitive superiority 

DisadvantagesDisadvantages

 Additional compensation costs Additional compensation costsSense of entitlementSense of entitlement

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Pay at MarketRate

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 Advantages Advantages

Higher quality of human resources atHigher quality of human resources atmidrange of marketmidrange of market--drivendrivencompensation costscompensation costs

DisadvantagesDisadvantagesDoes not attract higher performersDoes not attract higher performers

Turnover will vary with laborTurnover will vary with labordemands of competing firmsdemands of competing firms

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Pay below Market Rate

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 Advantages Advantages Lower compensation costsLower compensation costs Useful in labor markets where unemployment is highUseful in labor markets where unemployment is high

DisadvantagesDisadvantages LowerLower--quality employeesquality employees Low morale/job satisfactionLow morale/job satisfaction Higher turnover; especially among high performersHigher turnover; especially among high performers

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Conditions Necessary for Perceptions of Pay Fairness

y

Internal consistency y External competitiveness

y Employee contributions

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y E valuate the worth of jobs.

y Negotiate starting salaries.

y

Recommend pay raises and promotions.y Notify HRM department of job changes.

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The HRM Department and Compensation

y Establish rates of pay

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y Establish rates of pay.

y O versee job evaluation process.

y Conduct salary surveys.

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