COMPENSATION

MANAGEMENT
AND
REWARD SYSTEMS

Understandng Compensaton

What motivates who?

Comparing apples to apples
Non-financial compensation
Managing expectations

EDUCAUSE Live!

Compensation
Compensation is one of the most important HRM
functions.
It can help to reinforce the organisations culture
and key values and facilitate the achievement of
its strategic business objectives.
If there is any significant mismatch between
compensation and organisational strategy, it is
likely to result in major barriers to the
achievement of strategic business objectives.
Compensating an employee is not simply a process
of settling upon a mutually agreeable salary. There
are a number of regulations and reporting
requirements that need to be met.

Compensation Approach in
various countries
In USA - Compensation package includes: base salary,
bonus, long term incentives & other benefits and
peaks. The base salary is the small part of the total
package.
In Europe Paid less compensation than that of
American executives, but benefits and Employee perks
are much better in Europe than America.
In Japan The compensation levels of CEOs of large
companies are just one-third of those of American
CEOs. Japanese compensation is based on seniority of
employees.

Some Facts about

compensation
A Chinese manager with 15 years experience costs less than USD
70,000 per annum, A US expatriate manager with corresponding
expertise would cost his or her organization USD 300,000 per year
Average wage of Chinese worker is only about 3-5% of that of the
U.S. worker.
Vacation time is not important in benefit to Japanese worker, they
take off 3- 4 days off in a Year. However Vacation and holidays are
important in AFRICA, AMERICA and Asian countries.
In European countries , efforts are progressing to establish
EUROPAY, by which member nations would develop common
policies regarding compensation practices.

Job Evaluation and the Pay

Structure
External factors also influence pay structure.
geographic differences (local supply and demand)
labor supply (low supply = higher wages and vice versa)
competition (HR can match, lead, or lag)
cost of living as determined by the CPI
collective bargaining (unions)

Main influencing factor

Goverment influence the compenstion
administration by legislation

Compensation Administration
Government Influence
Compensation Administration
Fair Labor Standards Act :
Compensation act
minimum wage
overtime pay
record-keeping
child labor restrictions

on

Compensation Administration
Government Influence
Compensation Administration
Fair Labor Standards Act
Exempt employees

on

include
professional
and
managerial
employees
not covered under FLSA overtime provisions

Nonexempt employees
eligible for premium pay (time and one-half)
when they work more than 40 hours in a week

Compensation Administration
Government
Influence
on
Compensation Administration
Equal Pay Act of 1963 act requires that
men and women hired for the same job be
paid the same.

Equal Pay Act

Compensation Administration
Government Influence
Compensation Administration
Civil Rights Act:

on

broader than Equal Pay Act

prohibits discrimination on the basis of gender
used to support comparable worth concept

Salaries should be established on the

basis of skill, responsibility, effort, and
working conditions.

Special Cases of
Compensation
Incentive Compensation Plans
Incentives can be added to the basic pay
structure to provide rewards
for
performance.

Leave Travel Allowance

These allowances are provided to retain the best talent in the
organization. The employees are given allowances to visit any place
they wish with their families. The allowances are scaled as per the
position of employee in the organization.
Medical Reimbursement
Organizations also look after the health conditions of their
employees. The employees are provided with medi-claims for them
and their family members. These medi-claims include healthinsurances and treatment bills reimbursements.

Bonus
Bonus is paid to the employees during festive seasons to motivate
them and provide them the social security. The bonus amount usually
amounts to one months salary of the employee.
Special Allowance
Special allowance such as overtime, mobile allowances, meals,
commissions, travel expenses, reduced interest loans; insurance, club
memberships, etc are provided to employees to provide them social
security and motivate them which improve the organizational
productivity.

Apple INC.

The charts on this page feature a breakdown of the total annual pay for the
top executives at APPLE INC as reported in their proxy statements.
Total Cash Compensation information is comprised of yearly Base Pay
and Bonuses. APPLE INC income statements for executive base pay and
bonus are filed yearly with the SEC in the edgar filing system. APPLE
INC annual reports of executive compensation and pay are most commonly
found in the Def 14a documents.
Total Equity aggregates grant date fair value of stock and option awards
and long term incentives granted during the fiscal year.
Other Compensation covers all compensation-like awards that don't fit in
any of these other standard categories. Numbers reported do not include
change in pension value and non-qualified deferred compensation
earnings.

TESLA MOTORS INC

Total Cash Compensation information is comprised of yearly Base
Pay and Bonuses. TESLA MOTORS INC income statements for
executive base pay and bonus are filed yearly with the SEC in the
edgar filing system. TESLA MOTORS INC annual reports of
executive compensation and pay are most commonly found in the
Def 14a documents.
Total Equity aggregates grant date fair value of stock and option
awards and long term incentives granted during the fiscal year.
Other Compensation covers all compensation-like awards that
don't fit in any of these other standard categories. Numbers reported
do not include change in pension value and non-qualified deferred
compensation earnings.

Special Cases of
Compensation
Incentive Compensation Plans
Individual Incentives include
merit
pay
plans
(annual
increase, based on performance)
piecework plans (pay based on
number of units produced
typically in a specified time
period.)
time-savings
bonuses
and
commissions

Special Cases of
Compensation
Incentive Compensation Plans
Individual Incentives:
Work best where clear objectives can be set
and tasks are independent.
Many organizations today require employees
to place a percentage of their salary at risk
so that merit pay does not become a
substitute for automatic cost-of-living raises.

Special Cases of
Compensation
Incentive Compensation Plans
Group Incentives
Incentives can be offered to groups, rather
than individuals, when employees' tasks are
interdependent and require cooperation.

Special Cases of
Compensation
Incentive Compensation Plans:
Plant-wide Incentives:
Direct
employee
efforts
toward
organizational goals (such as cost
reduction)
Scanlon Plan - supervisor and employee
committees
suggest
labor-saving
improvements
IMPROSHARE - formula is used to determine
bonuses based on labor cost savings

Special Cases of
Compensation
Paying for Performance
Pay is based on some measure of
performance.
Common performance measures are:
piece-rate plans
gainsharing
wage incentive plans
profit sharing
lump sum bonuses

Special Cases of
Compensation
Paying for Performance
Competency-based compensation
Rewarded for skills, knowledge and behaviors

leadership
problem solving
decision making
strategic planning

Broad-banding - pre-set pay levels that

determine what people are paid based upon
the type and level of competencies they
possess.

REWARD SYSTEMS

Reward
People do what they do to satisfy some need
and they look for a payoff or reward.
The most obvious reward is pay, but there
are many others, including:
-promotions
-desirable work assignments
-peer recognition
-work freedom

Rewards Review
Extrinsic

Intrinsic
Financial

Non-financial

participation in
decision making

greater job
freedom
more
responsibility
opportunities
for growth
diversity
of activities

Performance
based

Implied
membership-based

Explicit
membership-based

bonuses

cost of living
increase

protection
Program

piecework

labor market
adjustment

pay for time

not worked

profit sharing

services/
perks

commission
incentive
plans
merit pay
plans

assigned
parking space
preferred
assignments
business
cards
own
secretary
impressive
title

time-in-rank
increase

42

Types of Reward Plans

Intrinsic versus Extrinsic Rewards
intrinsic rewards (personal satisfactions)
come from the job itself, such as:
pride in ones work
feelings of accomplishment
being part of a work team

extrinsic rewards come from a source

outside the job, mainly by management:
money
promotions
benefits

Types of Reward Plans

Financial versus Nonfinancial Rewards
financial rewards:

wages
bonuses
profit sharing
pension plans
paid leaves
purchase discounts

nonfinancial rewards:
make life on the job more attractive;
employees vary greatly on what types they like

Types of Reward Plans

Performance-based versus Membership-Based
performance-based rewards are tied to specific job
performance criteria
commissions
piecework pay plans
incentive systems
group bonuses
merit pay
membership-based rewards such as cost-of-living
increases, benefits, and salary increases are offered
to all employees