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Compensation Management

Dony Joseph C52
Garima Sharma C53
Gauri Singh C54
Harsha Tandure C55
Indira Tata C56
What
• Employee compensation
refers to all forms of pay
going to employees and
arising from their
employment
• Includes all the direct
and indirect financial
compensations
Benefits
• Employees today are not
willing to work only for
the cash alone, they
expect 'extra'. This extra
is known as employee
benefits.
• Employee benefits are
non-financial form of
compensation offered in
addition to cash salary
to enrich workers’ lives.
Why
• Attract & retain talent in
firm
• Job Satisfaction
• Motivation
• Low absenteeism
• Low Turnover



Compensation
Total Compensation
Package
Financial
Direct
Fixed
Pay
Base
Pay
Differential
Pay
Overtime
On Call
Shift
differential
Pay
Variable
Pay
Annual
Incentive/
Bonus
Profit
sharing
Achieve
ment
Award
Indirect
Pay for
Time Work
Pay for Time
Not at work
Sick
Leave
Holiday
Annual
Leave
Income
Protection
program
Health
Insurance
Life
Insurance
Pension
Gratuity
Non -
Financial
Recognition
Work Life
Balance
Alternative
Work
On The Job
Training
Career
Development
opportunity



Components of Compensation



Typical Pay Slip



Theories of Compensation
Reinforcement
& Expectancy
Equity Agency
Reinforcement
& Expectancy
Equity Agency
Behavior
Rewarded
Positive
Experience
Behavior
repeated
Individual
Equity
External
Equity
Internal
Equity
Motivation
Commitment
Performance
Perception
Of
Fairness
Reinforcement
& Expectancy
Equity Agency
Reinforcement
& Expectancy
Equity Agency
Stakeholders
• In the organizations employer and employees are two main stakeholders

• Employer act as principals and employees assume the role of agent
Cost
• The remuneration of employee is agency cost

• Principal tries to decrease agency cost and agent expect to have more agency cost
Align
• The principal should try to choose remunerating schemes that align its own interest with expectation of agents
Basis

• Behavior oriented (merit based pay)

• Outcome oriented (profit sharing, commission)

Employee sets
expectations & Goals
Performance is
rewarded
Employee considers
equity of rewards
Feedback to
employees
Rewards
Employees sets new
expectations



Motivation & Performance Model
Desire for more pay
Performance
Strikes
Grievances
Search for other job
Absenteeism
Turnover
Pay Dissatisfaction
Lower attractiveness
of job
Job Dissatisfaction
Psychological
Withdrawal
Visits to Doctor
Poor mental health Absenteeism



Consequences of Pay dissatisfaction
C
Remuneration
Cost of Living Labour Markets
L
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U
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E
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Society
Legislations
Business Strategy
Job Evaluation
E
m
p
l
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y
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P
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f
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a
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e

A
p
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Factors influencing employee compensation
Business Strategy Market Position &
Maturity
Compensation Strategy Blend of Compensation
Invest to Grow Growing Rapidly Stimulate
Entrepreneurialism
• Modest Benefits
• High cash with above
average incentive
Manage Earnings – Protect
Markets
Normal Growth to Maturity Reward Management Skills • Standard benefits
• Average cash with
moderate incentives
Harvest Earnings –
Reinvest Elsewhere
No real growth / Decline Stress on Cost Control • Standard benefits
• Below average cash with
small incentive




Compensation Plans & Business Strategy
Job
description
Job
Evaluation
Job
Hierarchy
Pay
Survey
Pricing
Jobs
Pay
levels
Pay
Grades



Devising a compensation plan



Wage Trends
Compensation
Skill based
pay
Salary
reviews
Pay secrecy
Elitisms
Comparable
worth
Employee
Participation



Challenges of Compensation
Factors Job Based Skill Based
Pay Structure Based on job performance Based on ability to perform
Employer’s Focus Employee linked to job Employee linked to skills
Employee Focus Job promotion to earn greater pay Skill acquisition to earn greater pay
Procedures Required Assess job content Assess skills
Advantages Value of work performed Flexibility; Reduced workforce
Disadvantages

Inflexibility Cost controls



Skill Based pay & Job based pay
Wage Policy
Objectives
 To set minimum wages
 Abolish malpractices in wage
payments
 Efficient allocation and
utilization of human resources


Acts
 Payment of Wages Act, 1936
 Industrial Disputes Act, 1947
 Minimum Wages Act, 1948
 Remuneration Act, 1976




Disparities
 Disparity in remuneration of
government sector and private
sector
 Disparity in remuneration of
organized sector and unorganized
sector
 Disparity in remuneration as per
industry





Wage policy in India
Team Based
Pay
Remunerating
Professionals
Contract
Employees
Expatriates &
Executives
SPECIAL GROUPS



Compensating special groups





INCENTIVES
N
a
t
u
r
e

• Incentives payments
are monetary benefits
paid in recognition of
outstanding
performance
• Also called variation
rewards or payment
by results
• Varies from to time to
time and from
individual to
individual
A
d
v
a
n
t
a
g
e
s

• Inducement and
motivation of workers
• Increase in
productivity
• Reduced lost time
• Reduced supervision
• Reduced absenteeism
and turnover
D
i
s
a
d
v
a
n
t
a
g
e
s

• Deterioration in
quality of products
• Error in estimating
bonus rates
• Disregarded safety
regulations
• Jealousy amongst
workers




Nature, drawbacks, importance of
incentives
• Employee’s cooperation and participation
• Realistic standards and necessary tools and facilities
• Easy to understand and calculate
• Commitment of top management

• Indirect workers should also be given benefit of incentive system

• Setting and reviewing specific objectives and incentives of each employee periodically
• Careful Planning (well prepared and implemented)
• Clear link between output and reward



Pre-requisites for an effective incentive
system
Variation
• Vary from industry to industry and also from one plant to another
Modification
• Laws are modified to suit the local requirement
Coverage
• Schemes in public sector have extremely varied coverage
• From day rated workers to top level management
Inflation
• Due to inflation, the incentives must be substantial to motivate employees to work



Incentive Schemes in Indian Industry
Incentive Scheme
Vary in same proportion
as Output
Straight piece work
Standard Hour
Vary less proportionately
than output
Halsey Plan
Rowan Plan
Barth Scheme
Bedaux Plan
Vary proportionately more
than output
High Piece Rate
High Standard Hour
Differ at different
levels
Taylor’s Differential
Piece Rate
Merrick Differential
Piece Rate
Gantt Task System
Emerson’s Efficiency Plan



Types of incentive schemes
Vary in same proportion
as Output
Rate per unit is fixed
Total earnings depend on
output of worker

Vary in less proportion
as Output
Barth variable sharing system
Workers pay is equal to square
root of time taken and standard
time


Vary in more proportion
as Output
High piece rate
Increment and earnings for
each unit of output above
standard is greater
Earnings differing in
differential level of
output
Merrick Differential piece
rate system
INCENTIVE SCHEMES



Types of Incentive Schemes





Employee Benefits & Services
• Form of Indirect compensation
• Tax Saving Instrument
• Cost Saving
• Enhances productivity
• Mitigating Fatigue
• Satisfy employee objectives
• Reduced turnover
• Minimized overtime costs



Nature of Benefits & Services
• Cost effective
• Benefit should satisfy real need
• Bargaining power of union need to be
considered
• Administration of benefits need to be
preceded by sound planning
• Employees need to be educated to make use of
benefits
Legally
Required
Payments
• Old age, Survivors,
Disability
• Worker’s Compensation
• Unemployment
Compensation
Contingent
& Deferred
benefits
• Pension Plans, Life
Insurance, Guaranteed
annual wage
• Leaves
• Tuition aid, Service
awards
Payments
for time
not worked
• Vacation
• Holidays
Other
Benefits
• Travel
allowances
• Moving
expenses
• Meal Expenses




Principle of fringes
T
r
e
a
t
s

K
n
i
c
k

K
n
a
c
k
s

A
w
a
r
d
s

T
o
k
e
n
s

O
n

T
h
e

J
o
b

O
f
f
i
c
e

E
n
v
i
r
o
n
m
e
n
t

• Free
Lunch
• Festival
Bash
• Coffee
Breaks
• Picnics

• Desk
Accessories
• Company
Watches
• T Shirts
• Wallets
• Calendars

• More
responsibility
• Job Rotation
• Special
• Assignments
• Training
• Movie
Tickets
• Vacation
Trips
• Early time
offs
• Trophies
• Citations
• Certificates
• Letter of
Appreciation

• Re
decoration
• Office with
a window
• Flexible
Hours




Non – Monetary Rewards
Benefits Strategy
Establish Benefits
Objectives
Assess
Environmental
Factors
Assess
Competitiveness
Communicate
Business
Information
Control Benefits
Costs and
Evaluation



Administration of Benefits & Services



Bosch India Case







THANK YOU