A Report on Compensation Management

Submitted by Group Number:4
15-Nov-10

Aditi Singh: 10004 Apoorva : 10009 Sujit Hemadri : 10049

INTRODUCTION: Compensation is what employees receive in exchange for their contribution. Generally, employees offer their services for three types of rewards. Pay refers to the base wages and salaries employees normally receive. Compensation forms such as bonuses, commissions and profit sharing plans are incentives designed to encourage employees to produce results beyond normal expectation. Benefits such as insurance, medical, recreational, retirement, etc., represent a more indirect type of compensation. So, the term compensation is a comprehensive one including pay, incentives, and benefits offered by employers for hiring the services of employees. IN addition to these, managers have to observe legal formalities that offer physical as well as financial security to employees. All these issues play an important role in any HR department’s efforts to obtain, maintain and retain an effective workforce.

It aims at creating a healthy competition among them. 6. The increasing competitiveness of the labour market and turnover of employees had resulted in nightmare in compensation planning. Generally it defines as facilities & benefits for a employee provided by organization to motivate them for better performance. The components of compensation have to be devised in such a way that. talented 7 happy workforces. The compensation Packages of knowledge workers are different from that of manufacturing sector. The system brings out the best out of every employee in the organization. the growing demands of the employees and competitive salaries offered by multinational companies had almost resulted in a compensation war in certain industries. the human resources managers and tax experts have to evolve proper compensation planning for High end and qualified employees. The organization enjoys the stability. Apart from this. Although it costs compromise on average 65-70% in world economy & are likely substantial elsewhere. 2. The system provides adequate opportunities to those who wish to perform better. The perfect Compensation system provides platform for happy and satisfied workforce. It brings transparency & parity too. encourages them to work hard and efficiently. . Importance of compensation management: 1. The system provides growth and advancement opportunities to the deserving employees.Basics of compensation management: Compensation is a complex & often confusing topic. it focuses on the growing demands of employees while retaining the competitiveness and profitability of the company. This minimizes the labour turnover. 7. The system upholds the principle of equal wages. Sound compensation system brings amicability & peace in the relationship of employer & employees. Therefore. Industry driven factors:There are also certain driven factors that are influencing the compensation planning. 4. 5. The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job. 3. The business organization can of expansion & growth if it has the support of skillful. And as such.

enables the employees to face the increasing prices. Commissions:Commission to Managers and employees may be based on the sales revenue or profits of the . The onslaught of price increase has a major bearing on the living conditions of the labour.The employees working in call centers are compensated differently (vs) employees of technology driven companies. The increasing prices reduce the compensation to nothing and the money's worth is coming down based on the level of inflation. Bonus:The bonus can be paid in different ways. e) Private research and related fields. d) High-end industries having high technology content like Bio/Nano technology. Bonus plans can also be based on piece wages but depends upon the productivity of labour. It can be fixed percentage on the basic wage paid annually or in proportion to the profitability. The Government also prescribes a minimum statutory bonus for all employees and workers. a) Compensation paid in IT/ITES. Dearness allowance:The payment of dearness allowance facilitates employees and workers to face the price increase or inflation of prices of goods and services consumed by him. It is structured based on the position of an individual in the organization and differs from grades to grades. which may be a fixed percentage on the basic wage. It is normally a fixed amount which is subject to changes based on annual increments or subject to periodical pay hikes. Components of compensation:Basic wages/Salaries:These refer to the cash component of the wage structure based on which other elements of compensation may be structured. There is also a bonus plan which compensates the Managers and employees based on the sales revenue or Profit margin achieved. The payment of dearness allowance. Some notable examples are. b) Investment banking/Equity research. c) Software companies.

. who accepts the offer. Apart from the salaries paid. commission is again a taxable component of compensation. The payment of commission as a component of commission is practiced heavily on target based sales. Equity research and investment banking companies are paying this to attract the scarce talent. This is also termed as variable component of compensation. Nowadays. It is always a fixed percentage on the target achieved. Piece rate wages:Piece rate wages are prevalent in the manufacturing wages. A person. For taxation purposes.company. Depending upon the targets achieved. This can be paid through payment of cash or through ESOPS. it attracts competitiveness and improved productivity. The gross earnings of the labour would be equivalent to number of goods produced by them. most of the corporate sector is following this practice. Profit sharing payments:Profit sharing is again a novel concept nowadays. Mixed plans:Companies may also pay employees and others a combination of pay as well as commissions. the employees may be eligible for a fixed percentage of commission upon achievement of fixed target of sales or profits or Performance objectives. The GANTT productivity planning and Taylor's plan of wages are examples of piece rate wages and the related consequences. The structuring of wages may be done in such a way that. Even though this practice is not prevalent in most of the industries. companies may pay a commission on a monthly or periodical basis. The fairness of compensation is totally based on the productivity and not by other qualitative factors. Sign on Bonuses:The latest trend in the compensation planning is the lump sum bonus for the incoming employee. This plan is called combination or mixed plan. The laborers are paid wages for each of the Quantity produced by them. Piece rate wages improves productivity and is an absolute measurement of productivity to wage structure. is paid a lump sum as a bonus.

This also includes payments during pregnancy of women employees.Profit sharing can also be in the form of deferred compensation at the time of retirement. a) Travel expenses. b) Entertainment expenses c) Out of pocket expenses d) Refreshments expenses during office routine outside office premises. . companies covering these cost through appropriate insurance policies like. employers provides advances to the employees for incurring certain expenses that are incurred during the course of the business. Certain expenses are also paid based on expenses incurred during the course of business. These includes. Sickness benefits/pregnancy:The increasing social consciousness of corporate had resulted in the payment of sickness benefit to the Employees of companies. However. Some examples are. Fringe benefits:The provision of fringe benefits does not attract any explanation. f) Family vacation packages. Medical and life insurance. Reimbursements:Employees. In certain companies. e) Discounted travel tickets. In many cases. At the time of retirement the employees may be paid a lump sum or retiring benefits.. The expenses incurred due to injury or illness are compensated or reimbursed to the employees. the death of an employee is compensated financially. Companies are also providing supporting financial benefits to the family of the bereaved employees. depending upon their gradations in the organization may get reimbursements based on the Expenses incurred and substantiated. a) Company cars b) Paid vacations c) Membership of social/cultural clubs d) Entertainment tickets/allowances.

Supply and Demand at the Market and Individual Employer Level . External Competitiveness is expressed in practice by 1> Setting a pay level that is above. below. 2> Determining the mix of pay forms relative to those of competitors Pay Forms-are the various types of payments.External competitiveness: Refers to the pay relationships among organizations . or pay mix. Strategy. Size. with other production factors held constant. or equal to that of competitors Pay level. Nature of Supply PRODUCT MARKET FACTORS -Degree of Competition. Level of Product Demand ORGANIZATION FACTORS -Industry. Pay level and mix focus attention on two objectives: Control Labor costs and Attract and retain employees What Shapes External Competitiveness? LABOR MARKET FACTORS -Nature of Demand. Individual Manager Labor Demand The marginal product of labor is the additional output associated with the employment of one additional human resource unit. that make up total compensation.the organization’s pay relative to its competitors. The marginal revenue of labor is the additional revenue generated when the firm employs one additional unit of human resources. with other production factors held constant.refers to the average of the array of rates paid by an employer. (base+ bonuses+ benefits+ options) number of employees.

mix and structures Some major decisions in Pay Level Determination:     Determine Pay level policy Define purpose of survey Define relevant labor market Design and conduct survey .Some Consequences of Pay Levels       Contain operating expenses (labor costs) Increase pool of qualified applicants Increase quality and experience Reduce voluntary turnover Increase probability of union-free status Reduce pay-related work stoppages External Competitiveness: Pay relationships among organizations External Competitiveness Set Policy Define Market Conduct Survey Draw Policy Lines Merge Internal and external pressures Competitive pay levels .

Survey provides the data for setting the pay policy relative to competition and translating that policy into pay levels and structures. Set Competitive Pay Policy      Adjust pay level –How much to pay? Adjust pay mix-what forms? Adjust pay structure Special situation Estimate competitors’ labor costs Define relevant market competitors    Employers who compete for the same occupations or skill required Employers who compete for employees within the same geographic area Employers who compete with the same product or services .  Interpret and apply results Design grades and ranges or bands Salary Survey A survey is a systematic process of collecting and making judgments about compensation paid by other employers.

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breaking down the boundaries between the internal organization and the external market forces .Sets pay structures almost exclusively on external market rates Objective: Is to base most of the internal pay structure on external rates.Developing a pay policy line It is basically Line of best fit prepared analyzing survey data Balancing Internal and External Pressures: Adjusting the Pay Structure Market Pricing      Issues Validity of market data Use of competitors’ pay decisions as primary determinant of pay structure Lack of value added via internal alignment Difficult-to-imitate aspects of pay structure are deemphasized Fairness Market pricing: pay strategies that emphasize external competitiveness and deemphasize internal alignment .

documented. Its usefulness is that it provides framework for give-and-take –an exchange of views. This potential to blend organizational forces and external market forces is both a strength and challenge of job evaluation. numerical. Those making pay decisions hold a different view. Its statistical validity is not an issue. generalizable. validity. “MEASURE FOR MEASURE” VERSUS “MUCH ADO ABOUT NOTHING” Some say that if job evaluation takes on the trappings of measurement (objective. and usefulness of job evaluation plans can be computed. DETERMINING AN INTERNALLY ALIGNED JOB STRUCTURE: INTERNAL ALIGNMENT: WORK RELATIONS WITHIN THE ORGANIZATION JOB ANALYSIS JOB DESCRIPTION JOB EVALUATION JOB STRUCTURE . the reliability. then it can be judged according to technical standards. Just as with employment tests. The evaluation is based on a combination of job content.EVALUATING WORK: JOB EVALUATION Job evaluation is the process of systematically determining the relative worth of jobs to create a job structure for the organization. skills required. This interpretation is consistent with the history of job evaluation. and the external market. organizational culture. They see job evaluation as a process that help gain acceptance of pay differences among jobs – an administrative procedure through which the parties become involved and committed. value to the organization. which began as a way to bring labor peace and order to an often-chaotic and dispute-driven wage-setting process. and reliable).

The job most frequently judged “more valuable” becomes the highest ranking job. one or two representative titles. This same approach describes the classification system of job evaluation. RANKING CLASSIFICATION POINT Can group a wide range of work together in one system Compensable factors call out basis for comparisons. Class descriptions are the labels. Although a greater . A job description is compared to the class descriptions to decide which class is the best fit for the jib. Different job evaluation plans generate different pay structures.MAJOR DECISIONS IN JOB EVALUATION:      Establish purpose of evaluation Decide whether to use single or multiple plans Choose among alternative approaches Obtain involvement of relevant stakeholder Evaluate plan’s usefulness CHOOSE AMONG ALTERNATIVE METHODS: Ranking. classification. The paired comparison method uses a matrix to compare all possible pairs of jobs. Descriptions may leave too much room for manipulation Can become bureaucratic and rule-bound. Each class is described in such a way that the “label” captures sufficient work detail yet is general enough to cause little difficulty in slotting a job description onto its appropriate “shelf” or class. 2. Alternation ranking orders job descriptions alternately at each extreme. compensable factors communicate what is valued. ADVANTAGE Fast. Each shelf is labeled with a paragraph describing the kinds of books on that shelf and. simple. easy to explain DISADVANTAGE Cumbersome as number of jobs increases. Writing class descriptions can be troublesome when jobs from several job families are covered by a single plan. A series of classes covers the range of jobs. The two ways of ranking include: Alternation Ranking and Paired Comparison. CLASSIFICATION: Picture a bookcase with many shelves. RANKING: Ranking simply orders the job description from highest to lowest based on a global definition of relative value or contribution to the organization’s success. Basis for comparisons is not called out. 1. and point method are the most common job evaluation methods. perhaps.

is determined by total points assigned to it. Determine compensable factors III. Weight the factors according to importance V. Points are then attached to each factor 4. 3. There are six steps in the design of point plan. Scale the factors IV. POINT METHOD: point methods have three common characteristics (1) compensable factors (2) factors degrees numerically scaled and (3) weighta reflecting the relative importance of each factor. Communicate the plan and train users. Conduct a job analysis II. Each job’s relative value. Apply to no benchmark jobs THE FINAL RESULT: STRUCTURE MANAGERIAL GROUP TECHNICAL GROUP MANUFACTURING GROUP ADMINISTRATIVE GROUP Vice Presidents Division General Managers Managers Project Leaders Supervisors Head/Chief Scientist Senior Associate Scientist Associate Scientist Scientist Technician Assembler I Inspector I Packer Materials Handler Inspector II Assembler II Drill Press Operator Rough Grinder Machinist I Core maker Administrative assistant Principal Administrative Secretary Administrative Secretary Word Processor Clerk/Messenger JOB EVALUATION JOB EVALUATION COMPETENCY BASED . it also limits the variety of jobs that can be easily classified.specificity of the class definition improves the reliability of evaluation. Point plans are the most commonly used job evaluation approach in the United States and Europe. and hence its location in the pay structure. I. prepare manual VI. Compensable factors are based on the strategic direction of the business and how work contributes to these objectives and strategy. The factors are scaled to reflect their overall importance to the organization.

Skill analysis is a systematic process of identifying and collecting information about skills required to perform work in an organization. To build the structure. Related skills can be grouped into a skill block. which is similar to the task statements in a job analysis. the plans provide strong . Structures based on skill pay individuals for all the skills for which they have been certified regardless of whether the work they are doing requires all or just a few of those particular skills. DETERMINING THE INTERNAL SKILL-BASED STRUCTURE Work relationships within the organization Skill analysis Skill blocks Skill certification Skill-based structure Skill based structure begins with an analysis of skills. abilities. In contrast. and value the skills.SKILL PLANS Skill-based structures link pay to the depth or breadth of the skills. The major skill analysis decisions are:      What is the objective of the plan? What information should be collected? What methods should be used? Who should be involved? How useful are the results for the pay purposes? Skill based plans are generally well accepted by employees because it is easy to see the connection between the plan. the paycheck. regardless of the skills they possess. the work. a job-based plan pays employees for the job to which they are assigned. skill blocks can be arranged by levels into a skill structure. Consequently. a process is needed to describe. and knowledge a person acquires that are relevant to the work. certify.

The other three competency categories – self-concepts. values. And it is these inferred characteristics that were judged to be the differentiating competencies – critical factors that distinguish superior performance from average performance. PERSON-BASED STRUCTURES: COMPETENCIES All approaches to creating a structure begin by looking at the work performed in the organization. In team settings. While skill. Such competencies are observable and measurable and can be acquired through training and development. Core competencies are often linked to mission statements that express an organization’s philosophy. rather they must be inferred from actions. broadly applicable knowledge. “Learn to earn” is a popular slogan used with these plans. business strategies. Examples might include effective listening or team problem solving.and job-based systems hone in on information about specific tasks. Early competencies focused on five areas:      Skills (demonstration of expertise) Knowledge (accumulated information) Self-concepts (attitudes. self-image) Traits (general disposition to behave in a certain way) Motives (recurrent thoughts that drive behaviors) The first two areas – skills and knowledge – were considered the essential characteristics that everyone needs to be effective in a job.motivation for individuals to increase their skills. and plans DEFINING COMPETENCIES Because competencies are trying to get at what underlies work behaviors. assumption or interpretation. and behaviors that form the foundation for successful work performance at any level or job in the organization. competencies take the opposite approach. values. As experience with competencies has grown. there is a lot of fuzziness in defining them. differentiating characteristics might include a strong identification with the team (self-concept). and the drive to produce results (motive). and motives. skills. They look at the organization and try to abstract the underlying. traits. placing a greater emphasis on business-related descriptions of behaviors “that excellent performers exhibit much more consistently than average performers” and less on underlying inferences. personal flexibility (trait). traits and motives – are not directly measurable.” . Competencies are becoming “a collection of observable behaviors that require no inference. organizations seem to be moving away from the vagueness of self-concepts. These are the core competencies.

those with the right skills and competencies. A job-based approach controls costs by paying only as much as the work performed is worth. regardless of any greater skills the employee may possess. . certification. that is. managers must assign the right work to the right people. Now. developing and work assignments opportunities Control costs via certification and assignments Seek competencies Seek skills Seek competencies Procedures Skill analysis Skill certification Comtinuous learning Flexibility Reduced work force Advantages Competency analysis Competency certification Continuous learning Flexibility Lateral movement Limitations Potential bureaucracy Potential bureaucracy Requires costs control Requires cost controls Managers whose employers use job-based plans focus on placing the right people in the right job.THE PERFECT STRUCTURE Job based skill based Compensable factors Skill blocks Factor degree weights Skill levels Assign points that reflect criterion pay structure Based on job performed/market Promotion Link employees to work Promotion and placement Cost control via pay for job and budget increase Certification and price skills in external market Based on skills certified/market Skill acquisition Competency based Competencies Competency levels What is valued Quantify the value Mechanisms to translate into pay Pay structure Pay increases Manager’s focus Employee focus Seek promotions to earn more pay Job analysis Job evaluation Clear expectations Sense of progress Pay based on value of work performed Potential bureaucracy Potential inflexibility Certification and price competencies in external market Based on competency developed/market Competency development Utilize skills efficiently Be sure competencies Provide training add value Control costs via Provide competencytraining. A switch to skill/competency – based plans reverses this procedure.

in which all members share a common skill. In the UK. composed of workers from across the same industry. -(4) raise new demands on behalf of its members. and hence has more power over issues effecting workers nationally. Also called house union. (b) General union that represents workers from several firms from the same industry. the union is there to represent the interests of its members. and may even engage in political activity where legislation affects their members. and -(5) help settle their grievances. An association of workers united as a single. There are two types: the horizontal union. representative entity for the purpose of improving the workers' economic status and working conditions through collective bargaining with employers. etc. Organization whose membership consists of workers and union leaders. using the collective power of the members. working hours.(1) negotiate wages and working condition terms. Trade unions are generally classified as: (a) Company union that represents interests of only one firm and may not have any connection with the trade union movement. and whose principal purposes are to . which represents many unions. job security. and often offer legal advice and strike pay during disputes when members refuse to work. a company union is often a bogus one and generally illegal. this amount is dependent on the jurisdiction it wants to form in. The group of employees wanting to form a union usually needs a set amount of signatures. and the vertical union. -(2) regulate relations between workers (its members) and the employer. Also . whose aim is to negotiate with employees over pay. most unions belong to the TUC (Trades Union Congress).Trade Union: A group of employees in a particular sector. ================================================= LEGAL STATUS The union formation process in most countries is regulated by a government agency such as the National Labor Relations Board in the United States. -(3) take collective action to enforce the terms of collective bargaining. If enough signatures are obtained there is a vote by all employees and if passed the union will negotiate on their behalf with the employers. They are funded by subscriptions from members. In general. Also known as "unions".

In many countries. strong networks. Unions may organize a particular section of skilled workers (craft unionism). In addition. providing services. union leaderships are usually formed through democratic elections. unions have certain legal rights. the organizing model typically involves full-time union organizers. in Germany only open shops are legal. such as the International Trade Union Confederation. and other terms and conditions of employment.called industrial union. a union may acquire the status of a "juristic person" (an artificial legal entity). In other circumstances. and the definitions of the models themselves are still debated. violent or illegal activities may develop around these events. unions may not have the legal right to represent workers. all discrimination based on union membership is forbidden. a cross-section of workers from various trades (general unionism). In such cases. or attempt to organize all workers within a particular industry (industrial unionism). or the right may be in question. Many unions are a blend of these two philosophies. German unions have played a greater role in management decisions through participation in corporate boards and co-determination than have unions in the United States. As well. so is the function of unions. In extreme cases. that is. culminating in either strike action or management lockout. and resolving disputes. Although their political structure and autonomy varies widely. These federations themselves will affiliate with Internationals. Alternately. The inability of the parties to reach an agreement may lead to industrial action. This lack of status can range from non-recognition of a union to political or criminal prosecution of union activists and members. These unions are often divided into "locals". and united in national federations. (c) Craft union that represents skilled workers in a particular field such as carpentry or welding. . who work by building up confidence. and confrontational campaigns involving large numbers of union members. Unions are also delineated by the service model and the organizing model. Diversity of international unions: As labor law varies from country to country. For example. unions in some countries are closely aligned with political parties. Social Unionism encompasses many unions that use their organizational strength to advocate for social policies and legislation favorable to their members or to workers in general. most importantly the right to engage in collective bargaining with the employer (or employers) over wages. Unions may also engage in broader political or social struggle. with many cases of violence and deaths having been recorded both historically and contemporarily. with a mandate to negotiate with employers for the workers it represents. This affects the function and services of the union. working hours. and leaders within the workforce. The service model union focuses more on maintaining worker rights. or binding arbitration.

the Republic of Korea has regulated collective bargaining by requiring employers to participate but collective bargaining has been legal only if held in sessions before the lunar New Year. or social democratic party. The United States takes a more laissez-faire approach. In the United States. with a political party intended to represent the interests of working people. this is especially true among the individual "rank and file" members. Federal minimum wage is 5.15 an hour (set in 1997) Almost all states have their own minimum wage to cover jobs omitted from federal legislation. although it is historically aligned with the Democratic Party. Governments’ usual interests are whether: Procedures for determining pay are fair (pay discrimination) Safety nets for the unemployed and disadvantaged are sufficient (minimum wage. but permitted the union shop unless the state government chose to prohibit it. the structure of employment laws affects unions' roles and how they carry out their business. Government and legal issues in compensation: Government is a key stakeholder in compensation decision making. . unions' relations with political parties vary. socialist. In many countries unions are tightly bonded. In the United States. by contrast. All agreements requiring a worker to join a union are now illegal. setting some minimum standards but leaving most workers' wages and benefits to collective bargaining and market forces. the Taft-Hartley Act of 1947 outlawed the closed shop. or even share leadership. Finally.In Britain a series of laws introduced during the 1980s by Margaret Thatcher's government restricted closed and union shops. Typically this is a left-wing. but many exceptions exist. the labor movement is by no means monolithic on that point. the higher one prevails. Historically. unemployment insurance) Employees are protected from exploitation (overtime pay. If state and federal legislation cover the same job. Minimum Wage Minimum wage legislation is intended to provide an income floor for workers in society’s least productive jobs. In addition. In many western European countries wages and benefits are largely set by governmental action. child labor).

government affects compensation through policies and purchases that affect supply and demand for labor. Indirect Effect – of a minimum wage increase refers to the changes in the remainder of the wage curve to maintain appropriate differentials for jobs that deserve higher pay. production bonuses. When someone is classified as an employee.   Legislation in any society reflects people’s expectations about the role of government. A workweek is any fixed. In the United States. and commissions Overtime is paid on time worked. shift premiums.There are direct and indirect effects of this Direct Effect – of a minimum wage increase refers to the increase in wages for jobs at the bottom of the wage curve that have been below the minimum wage. Beyond direct regulation. not time compensated. the organization must: Withhold federal/state/local income taxes Match Social Security/Medicare withholding Include the person in the company benefit programs Pay for unemployment insurance and workers’ compensation Allow up to 12 weeks of unpaid leave for family emergencies Provide any other state or federally mandated benefits FLSA Basic Overtime Provisions All non-exempt workers must be paid one and one-half times their regular rate of pay for hours worked in excess of 40 in any workweek. Regular rate of pay includes basic pay plus non-discretionary bonuses. Governments around the world play varying roles in the workplace. recurring period of 168 consecutive hours. legislation reflects the changing nature of work and the workforce. .

etc. Whether you want to plan your entire budget or use a more detailed budget structure and perform budgeting using the organizational structure. these laws regulate the design and administration of pay systems. the definition of pay discrimination. and thus the approaches used to defend pay practices. Sound practices are those with three basic features:    They are work related. The Compensation Administration component accesses the budget values created for organizational units. is in a state of flux. bonuses. This component provides the basis for Compensation Administration. In brief.    First. They are related to the mission of the enterprise. you can use this component to perform: _ Create budget units and structures _ Finance organizational units _ Change budget structures and values _ Copy budget structures and organizational structures _ Release budgets Implementation Considerations .) for the employees whose compensation is under review. Budgeting Purpose You can use the budgeting tool to allocate both monetary and non-monetary fund to a particular organizational unit within your organization. this component is flexible enough to encompass a variety of budget planning methods which you can process graphically. They include an appeals process for employees who disagree with the results. Second. Many of the provisions of these laws simply require sound practices that should have been employed in the first place. The Compensation administrator uses these values to determine compensation adjustments (pay Increases.  1930s legislation was concerned with the social safety net 1960s legislation turned to the issue of civil rights Pay discrimination laws require special attention for several reasons.

In this view. Integration with the Organizational Management component also acts as a control mechanism to make sure you stay within budget when administering compensation awards via the organizational unit. You cannot use these budget units to track changes that occurred as a result of a new indirect valuation or a change in the employee's capacity utilization level. job. User-defined Calculation rules and eligibility criteria mean that you can create compensation adjustments that meet your individual requirements and comply with your compensation policy. Budget units are displayed in a hierarchical structure. In this view. _ The Financing view Displays the budget structure and the corresponding organizational structure. position and organizational unit data. Integration To perform budgeting over the organizational structure. Budgeting The budget units in the Compensation Management component are solely used to distribute amounts and quantities when you plan and administer adjustments for a group of employees. The Compensation Administration component provides you with the necessary tools for strategic remuneration Planning that reflects both your corporate culture and your salary policies. you can only work with the budget units. you can use this component to perform: _ Distribute and change employee compensation adjustments _ Display employee compensation adjustments . you can assign financed objects to the budget units and determine what the budget unit finances. you must install the Organizational Management component so that You have the necessary employee. that is. In brief.Install this component if you want to perform compensation budget planning and administration. Compensation Administration Purpose Use this component to establish compensation methods that not only support the employee’s Corporate thinking and sense of responsibility. The Budgeting component has two display options you can use when changing and displaying budgets: _ The Budget distribution view Displays the budget structure. Features Budgeting has a roll-up feature that allows you to use a bottom-up process to submit the budget. but also reward them. and a top-down process to approve the budget. to assign organizational units to Budgets units. install the Organizational Management component. If you want to use the budget values as the basis of administering and planning compensation Packages for employees.

for example. and distribute a bonus over the organizational structure  Provides mechanisms for multi-level approval  Allows you to store and track compensation adjustments changes using the Compensation  Adjustment Info type record  Applies compensation adjustments for groups of employees over the organizational structure . To simplify compensation administration. you must install: _ The Personnel Administration component so that you can access employee data and update Employee records _ The Organizational Management component so that you can define an organizational Structure for selecting employees _ The Budgeting component if you want to administer compensation within budget guidelines Features This component also comprises the following components: _ Compensation Packaging Use this component to make the distinction between different types of compensation and to categorize the compensation types. You can also use this component to select which employees should participate. either at the organizational unit level or at the employee level. _ Eligibility Use this component to identify who qualifies for compensation adjustments based on a series of eligibility criteria.Implementation Considerations You can use this component to: _ Assign compensation adjustments to employees based on eligibility criteria _ Plan and administer adjustments over the organizational structure _ Plan and administer adjustments for individuals or groups of employees _ Roll up remuneration distribution Integration To use this component. SAP AG Compensation Management (PA-CM) Compensation Administration _ Adjustments Use this component in conjunction with the Compensation Administration component to determine how and when you want to distribute your compensation adjustments. increase salaries. this component:  Allows you to perform compensation tasks. _ Guidelines Use this component to determine how compensation adjustments are calculated or to set limits on the calculation results.

In line with this principle. Ford: The compensation committee wants the compensation of Ford executives to be competitive in the worldwide auto industry and with major U. experience. awarded at year-end  The percentage of compensation awarded in equity increases as an employee’s total compensation increases . as appropriate. The development of at-risk pay policies is driven more by Company strategy than by competitive practice. and achievements of individual executives. the committee reviews a report from an outside consultant on Ford’s compensation program for executives. and its assessment of the skills. in most cases. The report discusses all aspects of compensation as well as how Ford’s program compares with those of other large companies. we do not award multi-year.S. companies. Over time. Particularly for Senior Management  To avoid misaligning compensation and performance.Examples of Executive Compensation Strategies at Various Companies: Coca-Cola: The company emphasizes total compensation opportunities and focuses less attention on the posture of each component of compensation. includes discretionary compensation. Overview of Goldman Sachs’ Compensation Principles Attract and Retain Talent  Our compensation framework is designed to attract and retain the most talented human capital. its own review of various parts of the program. guaranteed employment contracts  Senior and more highly paid employees experience more variability in their compensation based on year-to-year changes in our firm's results Evaluate Performance over Time  Compensation. Based on this report. Each year. the level of the Company’s competitiveness in compensation opportunities is based heavily on the company’s stock price performance relative to other large companies. the committee decides the compensation of executives. current total compensation competitiveness is targeted in the top quartile of the range of total compensation of a comparator group of companies. which has been a key contributor to generating excess returns relative to peers Align Compensation with Results.

Being significantly invested in our stock over time. as part of an individual’s compensation. transfer and other restrictions over a extended period of time. advances our partnership culture of stewardship for our firm Pay practices & Average Salaries in some of the Indian Industries: .Equity awards are subject to vesting. including recapture provisions Discourage Excessive or Concentrated Risk Taking  The risk/return profile of one’s business is taken into account in individual compensation determination  Revenue producers do not determine the compensation of risk managers  No employees compensated based on a fixed percentage of earnings  Align Employee and Shareholder Interests  Our compensation policies encourage employees to think and act like long-term shareholders.

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org . Patten. inspire and motivate capable employees but also be perceived as fair by these employees.Conclusion: Compensation administration intends to develop the lowest-cost pay structure that will not only attract. legal provisions. “Pay: Employee Compensation and Incentive Plans” www. While designing a compensation system. demand and supply of labour.ioma. company’s paying capacity. The pay structure of a company depends on several factors such as labour market conditions. prevailing wage rates.org www.pbgc. every company needs to pay attention to:  Internal as well as external equity  Fixed versus variable pay  Payments based on performance or membership  Job based pay or knowledge-based pay  Payment as per market rates Literature Review:         “Human Resource Management” – Text and Cases – V S P Rao “Compensation – Theory. degree of unionization etc.com www.acaonline.idc. evidence and Strategic Implications” – Barry Gerhart Variable Pay Rules – Business World T.com www.

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every company needs to pay attention to: • Internal as well as external equity • Fixed versus variable pay . legal provisions. prevailing wage rates. inspire and motivate capable employees but also be perceived as fair by these employees. degree of unionization etc. The pay structure of a company depends on several factors such as labour market conditions. demand and supply of labour. While designing a compensation system.Conclusion: Compensation administration intends to develop the lowest-cost pay structure that will not only attract. company’s paying capacity.

ioma.com www.acaonline.com www.• • • Payments based on performance or membership Job based pay or knowledge-based pay Payment as per market rates Literature Review: • • • • • • • • “Human Resource Management” – Text and Cases – V S P Rao “Compensation – Theory. “Pay: Employee Compensation and Incentive Plans” www. Patten.org . evidence and Strategic Implications” – Barry Gerhart Variable Pay Rules – Business World T.pbgc.idc.org www.

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