2/14/2017

9. Compensation
& Benefits
Management
Professor Debi S. Saini
(debissaini@gmail.com)

Issues Discussed in this Presentation are:

1.Concept of rewards management

2. Nature & objectives of Compensation & benefits

3. Determinants of wage/salary fixation

4. Role of Job evaluation: meaning, steps & guidelines

5. Designing compensation
6. Rewards trends in sunrise industries

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The Concept of
Total Reward System
in new Era

How to look at Rewards & Com. Issues in Different Orgs.?

1. A small engg. mfg. co. with 90 employees

2. A jute/textile mill with 1500 employees

3. Jet Airways with 10000 employees

4. A software company with 40 employees

5. An MNC IT co. like IBM/Google

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We do we need to see?
People Needs?

Align with business strategy

What works in your org.?

Reward Systems
Intrinsic Rewards (Intangible that gives personal satisfaction)
Status
Learning & Development
Work environment
Responsibility

Extrinsic Rewards (tangible recognition of ones efforts)

Non-financial (office, support staff, title, etc.)

Financial (direct and indirect compensation)

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Job Features Important to applicants?

For Males For Females
Interesting Work Interesting Work

Chance for promotion Good benefits

Good benefits Job security

Job security Chance for promotion

Opportunity to learn new skills Opportunity to learn new skills

High income Geographical location

Annual vacations Annual vacations

Geographical location High Income

Flexibility in work hours Flexibility in work hours

Able to work independently Able to work independently

Survey by Time: 11,666 people in all: 10,221 ages 18-28 (average age: 22) 1,046 ages 29-39; 310 ages
40-50; 89 ages 51-61 Of the 10,221 emerging adults: 3,120 males (30%), 7,122 females (70%)

Total Rewards Design Process:

Balance External & Internal Equity Needs

Business HRM Rewards Program Design Annual

strategy strategy Strategy & Administration Maintenance

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Nature & Objectives

of
Compensation Mgt.

Compensation: Definition

Compensation refers to

all forms of financial returns, & tangible benefits

that employees receive from the employer

as consideration for the employment relationship

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Components of a Compensation System

Compensation

Direct Indirect

Base Pay Benefits

Wages Health insurance
Salary Re-imbursements
Sick leave
Variable Pay (Incentives) Life/Disability insurance
Bonuses Paid Time-off
Piece rate-hourly rate Retirement Benefit
Gainsharing Educational Assistance
Commissions Awards
Stock Options Pensions

Variable Pay: Meaning

That part of compensation which is linked to

individual, team and/or orgl. performance
Piece-rate/ hourly-rate
Bonuses (short-term tied to performance)
Profit-sharing
Commissions
Stock options, etc.

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Benefits
Benefits:
Indirect compensation
paid to organizational members
[usually it is 30-40% of total payroll costs]
Health insurance
Re-imbursements
Sick leave
Life/Disability insurance
Paid Time-off
Retirement Benefit & Pensions
Educational Assistance
Awards

Forms of Incentives: Basis of Determination

Incentives: compensate efforts beyond normal performance expectations

Individual Incentives: Others cooperation not required

Group/Team Incentives:
--Require entire group to cooperate to attain reward
--May cause intra-group conflict as some dont strive for extra

Organizational Incentives: Whole org. is rewarded

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Objectives of Compensation System

Facilitates External/market Competitiveness

Internal Equity
Legal Compliance
Motivational Soundness
Linkages to Performance
Cost Effectiveness
Culture-creating

All orgs. face 3 Basic Compensation Decisions

A. Pay-Level Decision: (our pay compared to market)

Are we to lead, meet, or lag the market?

B. Pay-Structure Decision: (price of various levels in job structure as per JE)

Determine differences in pay for various jobs

C. Pay system: (Individual Pay Determination as per others in same job)

Comparing employees on same jobs within co.

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Determinants
of
Wage/Salary Fixation

Some Key Choices in Compensation Decisions

1. Internal v. External Validity

2. Fixed v. Variable Pay
3. Performance v. Membership
4. Job v. Individual Pay
5. Egalitarianism v. Elitism
6. Below-Market v. Above-Market Comp.

7. Monetary v. Non-monetary Rewards

8. Open v. Secret Pay
9. Centralization v. Decentralization of Pay Decisions

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How to Know Job Worth:

Job Evaluation:
Nature & Compensation
Factors

Meaning of Job Evaluation

The process of systematically determining

the relative worth of jobs

so as to create

a job structure for the organization

Done by identifying the Compensable Factors

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Compensable Factors: Definition

Compensable factors refer to: common features, or
requirements of different kinds of jobs

Address certain factors for the sake of equity/fairness

These factors usually are as follows:

Education/knowledge
Skill
Responsibility
Effort
Work Conditions

Point Method: JE Worksheet for Manager--Operations

Degree of Job Factor

Job Factor Weight 1 2 3 4 5

Education 35% 35 70 105 140 175

Job Knowledge 25% 25 50 75 100 125

Contacts 18% 18 42 66 90

Complexity of duties 17% 17 51 85

Initiative 5% 5 10 15 20 25

Total Job Value 249

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Point for Different Jobs

Job A = 100
Job B = 110 points
Job C = 160 points
Job D = 180 points
Job E = 249 points
Job F = 320 points

Job P = 430 points

Designing
Compensation

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Creating Alignment: Results & People

Organisation Employees
Heres what it needs Heres what they need
from its employees from the organisation

Performance Recognition
Results Reward
Engagement Involvement
Compliance with orgl. culture Learning atmosphere

Pay Structure Development

Market Data for Different Jobs Rs.

Pay Line

Salary Range Midpoints

100 200 300 400 500

Job Evaluation Points

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Guidelines for Designing an Effective Compensation System

1. Pay must be a major part of compensation package

2. Incentive plan be available to all employees
3. Administer the system in a transparent & fair manner
4. Link incentives to achievement of targets in strategic plan

5. Individual should be able to control target achievement

6. Make liberal use of non-monetary rewards
7. Check that non-performers are not rewarded

Most cos. still dont have

an articulate
compensation strategy!!

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Broadbanding

What is Broadbanding?

Banding is:
Reduced number of salary grades and ranges

Widened salary ranges

It reflects a dramatic change in salary mgt.

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Traditional Pay Structure vs. Broadbanding

Rs.
Rs. 56,000
56,000

Rs. 49,000

Rs.
43,000
Rs.
40,000

Rs.
35,000

Rs. Rs.
30,000 30,000

Reasons for Broad Banding

Enhanced flexibility; expedites restructuring

Less bureaucratic and more person-focused

Reduces emphasis on job hierarchy (class consolidation)

Supports effective team work

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HR Trends in Sunrise Industry

Enlightened orgs. not hiring people to fill positions

Hiring the best people & finding jobs for them

Provide entrepreneurial & growth environment

Discarding internal equity principle (through JE or otherwise)

Relying more on market-based pay (external equity)

Valuing total rewards

not just compensation mgt.

Key Points
to
Remember

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What can one learn from this Presentation

Leading orgs. build an integrated approach to Total Rewards

Compensation aims at the desired behavior of employees

3 key comp. decisions: pay-level (mkt.), pay structure (JE), pay system (people)

Internal & external equity are key issues in compensation

JE helps know relative job worth; but is now declining as a tool
Direct comp. includes base pay & variable pay; Benefits: indirect comp.

Sunrise cos. rely more on market-based pay (external equity)

Broad banding is being used for flexibility in setting pay levels

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