1

Compensation: An Overview

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Compensation
Deals

with every type of reward individuals receive in exchange for performing organizational tasks Major cost of doing business Chief reason why most individuals seek employment An exchange relationship

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Financial Compensation
Direct Financial Compensation
Consists

Indirect Financial Compensation

Consists

of the pay an employee receives in the form of: wages salaries bonuses commissions

of all financial rewards not included in direct financial compensation i.e., benefits: pensions insurance paid time off

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Objective of Compensation
To

create a system of rewards that is equitable to the employer and employee alike desired outcome is an employee who is:

The

Attracted

to the work Motivated to do a good job for the employer

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Adequate*

Equitable*

A Compensation system should be:

Acceptable to the employee

Incentiveproviding* Cost-effective

Secure Balanced

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

External Influences on Compensation

Labor Market

Economy

Government

Unions

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Compensation and an International Labor Force

Issues

that affect the compensation strategies of organizations competing in a global market:

Global

wage differentials verging on the extreme Indian employees to foreign locations local (foreign) managers and workers

Moving

Employing Moving

foreign workers to the India for training or work assignments

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Comparable Worth Attempts to prove that employers systematically discriminate by paying women less than their work is intrinsically worth, versus what they pay men who work in comparable (equally valuable) positions and to remedy this situation.

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Internal Influences on Compensation

Organization Size

Organization Age Who Makes Compensation Decisions

Labour Budget

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

10

Pay and Motivation

Motivation

set of attitudes and values that predisposes a person to act in a specific, goal-directed manner:
the the

direction of behavior (working to reach a goal)

strength of behavior (how hard or strongly the individual will work)

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

11

Pay and Employees Satisfaction

Pay

Satisfaction refers to an employees liking for or dislike of the employers compensation package (including pay and benefits) Model the distinction between the amount employees receive and the amount they think others are receiving is the immediate cause of pay satisfaction or dissatisfaction

Lawlers

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

Pay dissatisfaction is a function of six important judgments:

1. A discrepancy between what 2. 3. 4. 5. 6.

12

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

employees want and what they receive A discrepancy between a comparison outcome and what they get Past expectations of receiving more rewards Low expectations for the future A feeling of deserving or being entitled to more than they are getting A feeling that they are not personally responsible for poor results

13

Pay and Employees Productivity

Studies

indicate that if pay is tied to performance, the employee produces a higher quality and quantity of work key to making compensation systems more effective is to be sure that they are directly connected to expected behaviors

The

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

14

Compensation Decisions (1 of 3)
Pay-Level
Examines

Decision

pay relative to employees working on similar jobs in other organizations Objective is to keep the organization competitive in the labour market Pay survey is the major tool used in this decision

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

15

Compensation Decisions (2 of 3)
Pay-Structure
Examines

Decision

pay relative to employees working on different jobs within the organization Involves setting a value on each job within the organization relative to all other jobs Job evaluation is the approach used

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

16

Compensation Decisions (3 of 3)
Individual
Examines

Pay Determination

pay relative to employees working on the same job within the organization

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

17

Pay-Level Strategies
High-Pay Strategy

Low-Pay Strategy

Comparable-Pay Strategy
Session#8 HRM PGDM2 PT (2007-2010 BATCH)

18

Factors Affecting the Choice of Pay Strategy

The

motivation and attitudes held by management The ethical and moral attitude of management The degree to which an organization can attract and retain personnel The organizations ability to pay

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

19

Pay Surveys
Techniques
a

and instruments used to collect data about compensation paid to employees in:
geographic area an industry an occupational group

Obtaining

valid, reliable information about pay is critical to creating a compensation system that supports corporate goals

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

20

Sources of Pay Surveys

Government Sources Surveys Conducted by Other Organizations

Professional and Trade Organizations Surveys by Journals

Session#8 HRM PGDM2 PT (2007-2010 BATCH)

21

Summary (1 of 2)
The

objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike Compensation should be adequate, equitable, cost-effective, secure, incentive-providing, and acceptable to the employee The pay-structure decision involves comparing jobs within the organization to determine their relative worth
Session#8 HRM PGDM2 PT (2007-2010 BATCH)

22

Summary (2 of 2)
Determining

the worth of a job is difficult because it involves measurement and subjective decisions Using systematic job evaluation procedures is one way to determine net worth

Session#8 HRM PGDM2 PT (2007-2010 BATCH)