Compensation

Management
 Compensation

Management
Compensation is what employees receive in exchange
for their contribution to the organization.
 Nature of compensation:
1. Base pay: it is the basic compensation an employee
gets, usually as a wage or salary
2. Variable pay: it is the compensation that is linked
directly to performance accomplishments (bonuses,
incentives, stock options)
3. Benefits: these are indirect rewards given to an
employee or group of employees as a part of
organizational membership (health insurance, vacation
pay, retirement pension, etc)
A model of the consequences of pay
dissatisfaction
Performance

Strikes
Desire for more pay
Grievances

Search for a Absenteeism

higher paying
job Turnover

Lower Absenteeism
Pay dissatisfaction attractiveness
of job
Job dissatisfaction

Psychological withdrawal Dispensary visits Poor mental health

 Objectives of Compensation
Management
 Acquire qualified personnel
 Retain present employees
 Ensure equity
 Reward desired behavior
 Control costs
 Comply with legal regulations
 Facilitating understanding
 Further administration efficiency
 Compensation objectives are not rules, they are
guidelines
Major phases of Compensation Management
Phase 1 Job Analysis
Identify and study jobs

Job Evaluation

Phase 2
Internal equity
Job Ranking Job Grading Factor Comparison Point System

Wage and Salary

Phase 3
External equity
Department of Employer Professional Self-conducted
Labor associations association surveys

Pricing Jobs

Phase 4
Matching internal
And external worth Job evaluation Labor market
Match
worth worth

Rate range for

each job
Phase 1
 Job Analysis : Job analysis collects information

about jobs to produce job position descriptions.

Phase 2
 Job Evaluations: Job evaluations are systematic

procedures use to determine the relative worth of jobs.

 Job Ranking: method requires a committee typically

composed of both management and employee

representatives to arrange jobs in a simple rank order.
 Job Grading: In this method each job is assigned a

grade or class. These classifications are created by

identifying some common denominator skills, knowledge,
responsibilities – with the desired goal being the creation
of a number of distinct classes or grades of jobs.
 Factor comparison: It requires the job evaluation
committee to compare critical or compensable
job components. The compensable components
are those factors common to all the jobs being
evaluated – such as responsibility, skill, mental
effort, and working condition.
 Point system: It is used more than any other
method. This system evaluates the
compensable factors of each job. Instead of
using wage rates, as the factor comparison
method does, it uses points.
Phase 3
 Wage and Salary surveys: These surveys discover what

other employers in the same labor market are paying for

specific key jobs.
Source of compensation data
- Department of labor
- Employer associations
- Professional associations
- Self-conducted surveys
Phase 4
 Pricing jobs: In pricing jobs, the job evaluation

worth is matched with labor market worth. Two

activities are involved: establishing the
appropriate pay level for each job, and grouping
different pay levels into a structure that can be
managed effectively.
Reward System
An incentive or a reward scheme is a
plan or program to motivate
individual or group performance.
An incentive program is most
frequently built on monetary
rewards, but may also include a
variety of non-monetary rewards or
prizes.
Features of a reward
system
 An incentive plan may consist of both
'monetary' and 'non-monetary' elements.
 The timing, accuracy and frequency of
incentives are the very basis of a
successful incentive plan.
 The plan requires that it should be
properly communicated to the
employees to encourage individual
performances, provide feedback and
encourage redirection.
Principles of Reward
Strategy
 Pay for performance
 Links to other levers of organisational change
such as providing recognition when deserved
 Reward measurable competencies
 Match incentives to the company culture
 Keep incentives clear and simple
 Over-communicate the reward strategy for the
best results
 The greatest incentive is the work itself as
employees want to be recognised for the work
they do and the contributions they make