COMPENSATION AND REWARD MANAGEMENT

EMPLOYEE COMPENSATION
it refers to all forms of pay or

rewards going to employees and arising from their employment . It has two components: DIRECT FINANCIAL PAYMENTS in form of salaries,incentive, commissions, and bonuses. INDIRECT PAYMENTS in form of insurance ,employer paid vacations.

DETERMINING FACTORS

1. LEGAL LAWS specify things like minimum

wages, overtime rates, and so on . Some of them are DAVIS BACON ACT : it sets wages rates for laborers employed by contracter working for government. WALSH HEALEY PUBLIC CONTRACT ACT: it talks about the minimum labour standards in terms of wages and working condition for employees working under government contract. 1964 CIVIL RIGHTS ACT: it makes it unlawful for employer to discriminate employee w.r.t race, color , sex, religion, nationality, hiring terms and condition.

 EQUAL PAY ACT : this act is designed to provide equal pay to a women doing same work as men. EMPLOYEMEE RETIREMENT INCOME SECURITY ACT(ERISA) : it provides government protection for all employees with company pension plan. And

gives right to employee who leaves before retirement to claim compensation from pension plan.

2. LABOUR UNIONS
many countries including India legitimizes labour movement and and grants employees rights to engage in activities for bargaining ,mutual aid, protection. Historically union has played sumptuous influence on determining pay plan design. unions also negotiate other pay related issues like time off with pay, health care , and others.

3.CORPORATE POLICIES
Companys policy is always to produce a compensation plan aligned with firms strategy. So before developing a compensation plan firm must ask these questions: what are our companys key success factor?and

what must our company do to achieve its desired objectives?

What are the employee behaviour necessary to implement the above mentioned competitive strategy?

 what compensation program should we use to reinforce those behaviour ? how should each compensation program be quantified to be deemed successful in fulfilling its

purpose?
How well our current compensation program

match our requirements?

4. EQUITY THEORY

postulated by starry adams ,states that employees are motivated to

maintain a balance between what they perceive as their contribution and their compensation. Any kind of perceived disequilibrium hampers overall employee performance.
Managers must address four equity forms before postulating employee compensation. They are:

EXTERNAL EQUITY: which compares job pay rate between companies for same job profile.
INTERNAL EQUITY : which compares the job pay rate inside the same company like pay of sales head , production head. INDIVISUAL EQUITY : comparing fairness of pay between two co workers for the same or very similar job PROCEDURAL EQUITY : perceived fairness of procedures for making pay related decisions.

ESTABLISHING PAY RATE

STEP 1: SALARY SURVEY aimed at determining prevailing pay rates . These

surveys could be formal(questionnare) or informal (internet/telephonic ) Used in three ways: benchmark job is used to anchor employers' pay scale & other jobs are arranged in order of their worth around it.

 upgraded salary employers typically price 20% or more of their salary in market place to what

comparable firms are paying for same job profile.

data collection : survey also collects data on benefits like insurance, sick leave, vacations to decide employee benefit program.

STEP 2 JOB EVALUATION : it means assessing the relative importance of job within an organization. It has these approaches :
Job ranking involves ranking each job relative to all the job in a company based on its importance in company and its difficulty level. job classification is simple & widely used methods of categorizing jobs into classes( containing similar jobs), grades ( similar in difficulty but otherwise different).

Point method :in which each compensable factors (skills, efforts, working conditions) are identified & the degree of their presence in job is determined.

STEP 3 FORMING PAY GRADES : forming clusters comprising of jobs of approximately equal difficulty/importance.
STEP 4 PRICE EACH PAY GRADE : assigns pay rate to each pay grade. This is achieved by the help of wage curve which shows current pay rate for jobs in each pay grade relative to points or rankings

given to each job during job evaluation. STEP 5 FINE TUNING : it is done by developing pay ranges having minimum , midpoint ,maximum pay rate for that pay grade. So differentiate employees on basis of their experience, performance, & so on.

REWARDS as explained by diagram

 FINANCIAL REWARDS comprises of these elements :

base pay is fixed pay for doing the job.

Variable pay are like bonuses being paid for that extra result being delieverd by emlpoyee. Like 5% of salary for selling 100 units extra over standard.
Share ownership also called stock option is given to those employees whom the firm thinks is

commendable contributor to companys value chain.

Benefits insurance ,company - paid vacation

NON FINANCIAL REWARD

it comprises of all non monetary elements of job recognition for performance during a job. It may include felicitation like employee of the month honour/title, best dressed emlpoyee of the month. opportunities for developing skills it means honing up your talent for personal and professional enhancement.

 QUALITY OF WORKING LIFE is also one of facets of

rewards in which a good performer of a company may be given more professional ambience, and better environment to work. Star salesperson being given blackberry phones to enhance its performance.
Career opportunities in terms of future prospect of employee in the company as per its growth and career options available.

Competency based pay

what is competency? these are demonstrable

traits of a person including his behaviour, skills , indepth knowledge of job that enables him/her to perform
So competency based payrefers to a condition

where company pays for employers range , types of skills, knowledge, rather than job title he/she holds.

Why to use this pay?

traditional pay system may back fire if high

performance work is the goal. We would expect

employees to be self motivated , enthusiastic so we need to develop these consipicous or sometimes latent trait in an employee.
it is the building block of performance management

process which necessitates that employer must recognize and nurture those competencies which could prove to be critical success factor for the company.

Major trends in compensations

BROADBANDING : it refers to consolidating salary ranges into just few wide level bands each of

which contains wide range of jobs/salary level. May do it for specific jobs like manager or technically professionals software engineers.
Comparable worth : is a concept requires paying men and women equal wages for jobs that are of comparable worth to employer. One way to handle this issue is to eliminating genderspecific jobs