Compensation Management


Payroll involves large sums of money Pays systems are therefore an intergral part of the business strategy The pay debate as to whether the best way of rewarding service is through pay is far from settled.

Objectives of compensation system   

A large sum of money is invested in people Design rests on what must the company achieve. System therefore needs to attract good employees by structuring packages that tempt people to do the job

Achievement of the objectives are determined by : 

Labour markets forces Collective bargaining Government legislation Top managements philosophy regarding pay Top managements willingness to recognise ability and effort

Designing a compensation system  


Traditional way of paying was done by ignoring the interaction of organizational members and buying employees time by the hour. NO Incentives, rewards etc Today we value employees. In a rewarding environment , people work hard.

The rewarding environment includes 

How does this benefit practice benefit the organization ? Does the benefit offset the administrative costs? If we discontinued this practice, would that adversely affect the organization¶s performance? 

This gives off a holistic picture of the org.

11.3.1 Elements of total compensation  

Direct compensation is the fixed pay an employee receives on a regular basis, either in the form of a salary or as an hourly wage. It includes cash incentives and various share offers from employers. The defining factor is that it has a cash value.

Elements of total compensation 

Designed to reward employees for good performance. Can be monetary or non-monetary. Can also include medial aid, pension, providen fund,UIF, etc. Perquisites or perks are a special category of behefits and are only available only to employees with some special status, such as upper ± level managers.

Principles of value ±chain compensation 

Companies need to look at compensation as a value-creating function. It creates value for the organisation and employees. Balances the four major compensation objectives which include:
Sustaining management Motivating performance Building employee commitment Encouraging growth in employee¶s skills

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

Model for compensation system
Analyse present compensation structure Formulate salary policies Select compensation system Develop implementation plan Evaluate and monitor

Job- Based compensation plan route
Conduct job analysis Identify compensable factors Develop a job hierarchy Construct job grades Carry out compensation survey Establish final pay policy

Traditional Pay Systems  

Traditionally people were paid primarily through base salaries determined by specific job, the need to maintain a certain level of internal pay equity an the need to pay externally competitive salaries. Employees were not encouraged to develop skills. This had to change

Emerging Pay Systems 

Pay for knowledge and skills Pay for competencies Performance based pay Incentive pay systems Broadbanding = rather than climb up through a series of grades, employees might spend most of their careers in a single band moving laterally and acquiring new knowledge and competence. Useful in µboundaryless¶ organisation.

Employee Benefits 

Items in the total package offered to employees over and above salary which increase their wealth or well-being at some cost to the employer

Mandatory Benefits 

UIF Compensation for injuries and diseases

Voluntary Benefits 

Most of these benefits have certain legislative mimimums. Vacation leave Paid public holidays Time for personal matters Sick leave Maternity leave Health and life insurance Medical Aid Schemes Pension Funds Employee Services e.g.. Canteens, social and recreational services

Benefit Planning and flexible benefit plans 

Establish objectives Collect complete descriptive data on the current workforce Determine how much money is available in the budget Determine what programmes fit your objectives, your workforce and your budget Determine what your employees need and want Decide what you will provide and what you will actually spend in total Determine options and costs, of admin, management and communication Plan how the above will be accomplished Implement the above

Advantages of flexible benefits programme    

The company can set the sum total of benefits for each employee The changing needs of the workforce are catered for Employees take ownership for their choice of benefits by satisfying their own unique needs It is less costly for the organisation when an employee adds a new benefit

Disadvantages of flexible benefits  

Without proper assistance employees can make bad choices and find themselves not covered for emergencies Company administrative costs increase The cost of some benefits may increase as a result of a majority of employees choosing the benefit

Calculating the costs of employee benefits  


The total annual costs of benefits for all employees Cost of benefits per employee per annum Percentage of the payroll (total costs of benefits divided by the annual wage) Costs per employee per hour

What to consider when considering costs  


There is little evidence that benefits really encourage improved performance, or increase employees¶ job satisfaction Costs of employee benefits and services have increased dramatically Employers are required by law to introduce certain programmes So-called voluntary programmes are constantly under pressure from labour unions, competitors and the industry to improve on employee benefits and services

Benefits Strategy 

The pace-setter Comparable benefits Minimum benefits

Compensation systems and quality assurance  


Compensation benefits will shift towards base rates with top-up incentives based on performance, such as gain share,profit share etc. Increased flexibility will become evident in remuneration packages. Remuneration packages will become more taxeffective. Remuneration will be linked to teams rather than to individuals