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Unit 4 - Sustaining Employee Interest

Unit 4 - Sustaining Employee Interest

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Unit 4 Sustaining Employee Interest
 
Compensation Management
 
Compensation Management
 
It can be defined as the financial and non financial rewards provided by an employerfor the time, skills and the effort made available by the employee in fulfilling
 job
requirements aimed at achieving organizational objectives.
 
It is an activity by which organizations evaluate the contributions of employees inorder to distribute fairly, direct and indirect monetary and non monetary rewards
within the organizations
ability and legal regulations.
 
Wage vs. Salary
 
Wage
 
refers to hourly rate or daily rate of pay It is the most frequently used pay basisfor production and maintenance employees (blue collar workers )
Salary
 
refers to a weekly, monthly or yearly rate of pay . It is used for clerical,professional, sales and management employees.
 
Forms of compensation
 
Pay
: It is the basic compensation an employee receives usually as a wage or salary
 
Incentive
: it is the compensation that rewards an employee for efforts bey
ond normal
performance expectations. Bonus, commission, and profit sharing plans are
incentives
 
Benefit
: It is additional compensation to an employee as part of organizationalmembership. Health insurance, pension, vacation pay are benefits.
 
Purpose of an
 
effective compensation system
 
Attract potential job applicants
 
Retain present employees
 
Ensure equity
 
Reward desired behaviour
 
Maintain cost effectiveness
 
Comply with legal regulations, provide flexibility and administrative efficiency
 
Reinforce and define structure
 
Criteria for effectiveness of compensation
 
Adequate
 
Equitable
 
Balanced
 
Cost effective
 
Secure
 
Incentive providing
 
Acceptable to the employee
 
Factors influencing compensation
 
External factors
: Government legislation, economy, labor market,
 
trade unions.
 
Internal factors
: organizations ability to pay, employee needs, job requirements,
organization culture, organizational strategy, cultural diversity.
 
 
Phases of compensation management
 
Job analysis
 
Job evaluation
 
Wage and salary surveys
 P
ay structuring
 
Job evaluation
 
It is a systematic process of determining the relative worth of jobs within an organization.The purpose is to rank jobs within a hierarchy that reflects the relative importance or worth of
each job in an organization. Since
it is subjective it is conducted by specialists called a jobevaluation committee.
 
Objectives of job evaluation
 
To establish a systematic and formal structure of jobs based on their worth to the
organization
 
To justify an existing pay structure or to develop one that provides for internal equity
 
To provide a basis for negotiating pay rates when a firm bargains collectively with
union
 
To develop a basis for merit pay programs
 
To comply with equal pay programs
 
Job evaluation methods
 
1.
 
Job ranking or ordering method
 
2.
 
Job grading or classification
 
3.
 
P
oint rating
method
 
4.
 
Factor comparison
 
1. Job ranking
 I
t is inexpensive, simple, fast and used in small organizations. It involves ranking the jobs inthe order of their importance from lowest to highest. The job is judged as a whole and itsplace is determined in the job hierarchy by comparing it with other jobs and arranging themin order of importance. The job analyst
 
ranks the whole job on the basis of just one factorlike difficulty or value than considering other critical factors in the job. The methods used areCard sorting and paired comparison method. It is highly subjective, unreliable, and can be
easily manipulated.
 
a.
 
Card sorting
 
It uses job descriptions written on small cards. The job evaluator places the cards inorder from jobs of least value to jobs of most value.
 
b.
 
Paired comparison
 
Each job is compared with all other jobs. The job valued more than all other jobs beingconsidered will receive the highest score and rank
 
2. Job grading
 
It is
more sophisticated than job ranking. It is a non quantitative job evaluation technique thatcompares the whole job with a predetermined standard. It can be applied to wide variety of jobs it is commonly used in managerial and scientific or engineering jobs. It is simple &inexpensive to implement. It consists of three steps: establishment of job classes, definitionof each grade,
and classification
 
of individual jobs. But
it
is very subjective & rigid.
 
3. Point rating method
 
It is most widely and frequently used method. It consists of assigning point values forpreviously determined compensable factors and adding them to arrive at the overall worth of
 
the job. It is a quantitative method for establishing pay relationships and developing a wage
struct
ure.
 
The following
steps
 
are followed in applying the point method:
 
Select compe
nsable job factors: C
ompensable factors are those job dimensions orrequirements that will be the basis for paying the employee
.
The
 
factors which arecommon to all jobs are selected and defined like skill, effort, experience etc.Divide factors into degrees
:
The chosen factors are divided into degrees thatdescribe the extent to which the factor exist in the given job
.
Allot weights (points) to factors and degrees
 
Rate jobs
on each factor and tota
l
ling point
 
4.Factor comparison method
I
t is a quantitative ranking method. It is used for evaluating white collar professional andmanagerial positions. point method uses degrees or points for each factor to measure jobswhereas factor comparison uses bench mark jobs and money values on factors
 
Steps:
 
Select key jobs or benchmark jobs.
-
benchmark jobs are those that are found inmany organizations and have relatively stable job content They also have to be jobsfor which the prevailing wage rates are known
 
Rank benchmark jobs
 
Allocate monetary values to the compensable factors
 
Set up the factor comparison scale
 
Evaluate non key jobs
 
It is the step by step formal evaluation method. It is very cumbersome, lacksflexibility, difficult to explain to employees.
 
Wage & salary surveys
 
A pay survey is a collection of data on compensation rates for workers performing similar jobs in organizations. It provides information on how employers compensate similar jobs and
skills in an organiz
ation's labor market. It enables an organization to maintain externalequity. Thus job evaluation helps maintain internal equity and pay surveys provideinformation to help ensure external equity.
Pay structuring
 
It is the process whereby the information obtained from the job evaluation is combined withthe information obtained from pay surveys to establish a pay structure. It is also known aspricing jobs. It includes two activities:
1.
E
stablishing appropriate pay
level for each job.
 
2.
E
stablishing pay grades (grouping different pay levels into a structure)
 
Wage curves
 
The pay level for any job reflects its relative or absolute worth. The job evaluationinformation and pay survey information are combined through the use of a graph called awage curve or scatter gram. Wage structure is a pay scale showing ranges of pay within
each grade.
 
Broad banding
 
It is the process of collapsing multiple salary grades and ranges into a few wide levels knownas bands. Using this approach entry level employees with minimum qualification start at theminimum range
, i
nstead of annual increase, the movement
 
through these ranges depends
on performance.

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