Compensation Management

Dony Joseph C52

Garima Sharma C53
Gauri Singh C54
Harsha Tandure C55
Indira Tata C56
What
Employee compensation
refers to all forms of pay
going to employees and
arising from their
employment
Includes all the direct
and indirect financial
compensations
Benefits
Employees today are not
willing to work only for
the cash alone, they
expect 'extra'. This extra
is known as employee
benefits.
Employee benefits are
non-financial form of
compensation offered in
addition to cash salary
to enrich workers lives.
Why
Attract & retain talent in
firm
Job Satisfaction
Motivation
Low absenteeism
Low Turnover



Compensation
Total Compensation
Package
Financial
Direct
Fixed
Pay
Base
Pay
Differential
Pay
Overtime
On Call
Shift
differential
Pay
Variable
Pay
Annual
Incentive/
Bonus
Profit
sharing
Achieve
ment
Award
Indirect
Pay for
Time Work
Pay for Time
Not at work
Sick
Leave
Holiday
Annual
Leave
Income
Protection
program
Health
Insurance
Life
Insurance
Pension
Gratuity
Non -
Financial
Recognition
Work Life
Balance
Alternative
Work
On The Job
Training
Career
Development
opportunity



Components of Compensation



Typical Pay Slip



Theories of Compensation
Reinforcement
& Expectancy
Equity Agency
Reinforcement
& Expectancy
Equity Agency
Behavior
Rewarded
Positive
Experience
Behavior
repeated
Individual
Equity
External
Equity
Internal
Equity
Motivation
Commitment
Performance
Perception
Of
Fairness
Reinforcement
& Expectancy
Equity Agency
Reinforcement
& Expectancy
Equity Agency
Stakeholders
In the organizations employer and employees are two main stakeholders

Employer act as principals and employees assume the role of agent
Cost
The remuneration of employee is agency cost

Principal tries to decrease agency cost and agent expect to have more agency cost
Align
The principal should try to choose remunerating schemes that align its own interest with expectation of agents
Basis

Behavior oriented (merit based pay)

Outcome oriented (profit sharing, commission)

Employee sets
expectations & Goals
Performance is
rewarded
Employee considers
equity of rewards
Feedback to
employees
Rewards
Employees sets new
expectations



Motivation & Performance Model
Desire for more pay
Performance
Strikes
Grievances
Search for other job
Absenteeism
Turnover
Pay Dissatisfaction
Lower attractiveness
of job
Job Dissatisfaction
Psychological
Withdrawal
Visits to Doctor
Poor mental health Absenteeism



Consequences of Pay dissatisfaction
C
Remuneration
Cost of Living Labour Markets
L
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U
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E
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Society
Legislations
Business Strategy
Job Evaluation
E
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P
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A
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Factors influencing employee compensation
Business Strategy Market Position &
Maturity
Compensation Strategy Blend of Compensation
Invest to Grow Growing Rapidly Stimulate
Entrepreneurialism
Modest Benefits
High cash with above
average incentive
Manage Earnings Protect
Markets
Normal Growth to Maturity Reward Management Skills Standard benefits
Average cash with
moderate incentives
Harvest Earnings
Reinvest Elsewhere
No real growth / Decline Stress on Cost Control Standard benefits
Below average cash with
small incentive




Compensation Plans & Business Strategy
Job
description
Job
Evaluation
Job
Hierarchy
Pay
Survey
Pricing
Jobs
Pay
levels
Pay
Grades



Devising a compensation plan



Wage Trends
Compensation
Skill based
pay
Salary
reviews
Pay secrecy
Elitisms
Comparable
worth
Employee
Participation



Challenges of Compensation
Factors Job Based Skill Based
Pay Structure Based on job performance Based on ability to perform
Employers Focus Employee linked to job Employee linked to skills
Employee Focus Job promotion to earn greater pay Skill acquisition to earn greater pay
Procedures Required Assess job content Assess skills
Advantages Value of work performed Flexibility; Reduced workforce
Disadvantages

Inflexibility Cost controls



Skill Based pay & Job based pay
Wage Policy
Objectives
To set minimum wages
Abolish malpractices in wage
payments
Efficient allocation and
utilization of human resources


Acts
Payment of Wages Act, 1936
Industrial Disputes Act, 1947
Minimum Wages Act, 1948
Remuneration Act, 1976




Disparities
Disparity in remuneration of
government sector and private
sector
Disparity in remuneration of
organized sector and unorganized
sector
Disparity in remuneration as per
industry





Wage policy in India
Team Based
Pay
Remunerating
Professionals
Contract
Employees
Expatriates &
Executives
SPECIAL GROUPS



Compensating special groups





INCENTIVES
N
a
t
u
r
e

Incentives payments
are monetary benefits
paid in recognition of
outstanding
performance
Also called variation
rewards or payment
by results
Varies from to time to
time and from
individual to
individual
A
d
v
a
n
t
a
g
e
s

Inducement and
motivation of workers
Increase in
productivity
Reduced lost time
Reduced supervision
Reduced absenteeism
and turnover
D
i
s
a
d
v
a
n
t
a
g
e
s

Deterioration in
quality of products
Error in estimating
bonus rates
Disregarded safety
regulations
Jealousy amongst
workers




Nature, drawbacks, importance of
incentives
Employees cooperation and participation
Realistic standards and necessary tools and facilities
Easy to understand and calculate
Commitment of top management

Indirect workers should also be given benefit of incentive system

Setting and reviewing specific objectives and incentives of each employee periodically
Careful Planning (well prepared and implemented)
Clear link between output and reward



Pre-requisites for an effective incentive
system
Variation
Vary from industry to industry and also from one plant to another
Modification
Laws are modified to suit the local requirement
Coverage
Schemes in public sector have extremely varied coverage
From day rated workers to top level management
Inflation
Due to inflation, the incentives must be substantial to motivate employees to work



Incentive Schemes in Indian Industry
Incentive Scheme
Vary in same proportion
as Output
Straight piece work
Standard Hour
Vary less proportionately
than output
Halsey Plan
Rowan Plan
Barth Scheme
Bedaux Plan
Vary proportionately more
than output
High Piece Rate
High Standard Hour
Differ at different
levels
Taylors Differential
Piece Rate
Merrick Differential
Piece Rate
Gantt Task System
Emersons Efficiency Plan



Types of incentive schemes
Vary in same proportion
as Output
Rate per unit is fixed
Total earnings depend on
output of worker

Vary in less proportion
as Output
Barth variable sharing system
Workers pay is equal to square
root of time taken and standard
time


Vary in more proportion
as Output
High piece rate
Increment and earnings for
each unit of output above
standard is greater
Earnings differing in
differential level of
output
Merrick Differential piece
rate system
INCENTIVE SCHEMES



Types of Incentive Schemes





Employee Benefits & Services
Form of Indirect compensation
Tax Saving Instrument
Cost Saving
Enhances productivity
Mitigating Fatigue
Satisfy employee objectives
Reduced turnover
Minimized overtime costs



Nature of Benefits & Services
Cost effective
Benefit should satisfy real need
Bargaining power of union need to be
considered
Administration of benefits need to be
preceded by sound planning
Employees need to be educated to make use of
benefits
Legally
Required
Payments
Old age, Survivors,
Disability
Workers Compensation
Unemployment
Compensation
Contingent
& Deferred
benefits
Pension Plans, Life
Insurance, Guaranteed
annual wage
Leaves
Tuition aid, Service
awards
Payments
for time
not worked
Vacation
Holidays
Other
Benefits
Travel
allowances
Moving
expenses
Meal Expenses




Principle of fringes
T
r
e
a
t
s

K
n
i
c
k

K
n
a
c
k
s

A
w
a
r
d
s

T
o
k
e
n
s

O
n

T
h
e

J
o
b

O
f
f
i
c
e

E
n
v
i
r
o
n
m
e
n
t

Free
Lunch
Festival
Bash
Coffee
Breaks
Picnics

Desk
Accessories
Company
Watches
T Shirts
Wallets
Calendars

More
responsibility
Job Rotation
Special
Assignments
Training
Movie
Tickets
Vacation
Trips
Early time
offs
Trophies
Citations
Certificates
Letter of
Appreciation

Re
decoration
Office with
a window
Flexible
Hours




Non Monetary Rewards
Benefits Strategy
Establish Benefits
Objectives
Assess
Environmental
Factors
Assess
Competitiveness
Communicate
Business
Information
Control Benefits
Costs and
Evaluation



Administration of Benefits & Services



Bosch India Case







THANK YOU