Introduction to Compensation &

Reward Management
Dr. Sumita Mishra
 Total Returns for Work

Total Returns

Total Rel. Returns

Compensation

Recognition Learning
Employment
Cash Benefits Security
Compensation
Challenging work
Short term Allowances
Base Incentives

Merit/COLA Long term Income Work/Life

Incentives Protection Focus
 Current Trends in Compensation Management In India
• Compensation not as CTC but as an employee’s net pay alone!

• Salary increase has been depressing with inflation at 5.7% while real term remuneration has increased by 4.3% in 2017 and
subsequently increased to 5% according to a Korn Ferry forecast

• Gradual Increase in Variable Pay – Pay for Risk (People Matters)

• Basic guaranteed pay has seen a gradual reduction

• Benchmarking against organizations nationally and internationally is common

• Employee stock options have declined

• Non-taxable benefits, which increased the net “take-home” of an employee, are now subject to the Fringe Benefits Tax (FBT)
-FBT cover allowances such as entertainment, travel, food etc., superannuation and ESOPs if any

• Benefits are gradually assuming importance in compensation management

The Best in India for Compensation-2018-
19
1. Google: Flexibility is the key!
2. Marriott Hotels: Staff Discounts and Benefits
3. Amex: Smart Savings and Health Benefits
4. SAP Labs: 20 week long maternity and paid adoption leaves
5. Intuit Technology: LGBT discussions, options to return after a career break
6. Intel: Bonus Programmes
7. Wipro: Paid Holidays, Maternity Leaves and Counselling Sessions
The Modules in the Course

Introduction to CORM Internal and External Future of CORM

Module 4
Module 1

Module 2& 3
Equity (Module-2) -Executive
Legal aspects of Design of a Pay compensation
compensation Structure
---------------------------- -Automation and
--- Compensation
Benefits and Reward
Management
Short term Incentives
Long term Incentives
Gainsharing Plans
Benefits
How do you maintain equity in pay?

1. Find the worth of jobs through job evaluation

2. Conduct wage / salary surveys to find out what other employees
are paying for comparable jobs
• -Informal surveys through phone, 1-1 interactions
• - Formal surveys – published sources like :
 Reports published by Ministry of Labor
 Pay Commission reports (for fixation of wages &
allowances for Central & State Govt. employees)
 Reports of Wage Boards appointed by Central Govt.
(separate wage boards for separate industries)
 Reports by employees’ and employers’ organizations
 Trade journals of specific industry groups
Components of Pay Structure

• Basic Pay: Fixed ….30-60% of gross pay as Basic

• Dearness Allowance: relation with COLA…is varied and can fluctuate
• Allowances (Fully exempted allowances, partly and fully taxable allowances)
1. HRA
2. Conveyance (800/month or 1600/month in case of differently abled)
3. Medical Allowance (Fully taxable)
4. LTA: to be claimed twice in a block of 4 years
Highlights of the 7th Pay
Commission Recommendations
• Capping of DA at 12%
• Minimum Recommended pay at 18,000/-
• Apex positions such as cabinet secretary and others in the same
level: Pay begins at ₹2,50,000
• The new system of Pay Matrix will replace the present system
of Grade Pay and pay band.
• A factor of 2.57 will be applied uniformly to the existing pay
of all the employees to arrive at the new pay scales.
Fixed Pay Package
Component
---example
Amount/PA Remarks
A Basic Salary 1,23,750
B Cash emoluments /LTA 38,023 Taxable cash out if not availed
Out patient medical 7,500 No cash out
Special Allowance 23,023 Balancing figure does not attract PF,
superannuation or gratuity
C=A+B Total Cash 1,61,773
D Conveyance Allowance 12,000
E Retirement Benefits 39,353
Provident Fund 14,850 12% of the Basic
Superannuation 18,563 15% of the Basic
Gratuity 5,940 4.8% of the Basic
F HRA 61,875 Maximum of 50% of Basic in Metros
G=C+D+E+F Total Fixed Pay 2,75,000 Any tax liability to be borne by the
executive
Fringe Benefits/Perquisites

……are the additional benefits & services paid to employees for their contribution, which cannot
be measured by the mere estimation of wages and salaries paid to them.
The characteristics of fringe benefits are:
• Are distinctly additional to the regular wages paid to the workers. As such, they are not
provided as a substitute for wages or salaries of the employees.
• Meant primarily to be of advantage to the employees.
• Only those benefits fall within the purview of fringe benefits which are or can be expressed in
cash terms.
• The scope of fringe benefits is different from that of welfare services. Fringe benefits are
provided by the employers alone whereas welfare services may be provided by other
agencies as well. Benefits that have no relation to employment should not be regarded as
fringe benefits.
 Fringe Benefits - Types

Fringe
Benefit Types

Payment for
Employee Welfare Old age &
time not
security recreational retirement
worked

Jobs to
Hours of Holiday Higher Medical Travelling
Paid holidays employees’
work Homes Education benefits concessions
children
 The Legal Framework of Compensation
Management

• Payment of Gratuity Act, 1972

• Payment of Wages Act, 1936
• Minimum Wages Act, 1948
• PF Act of 1952
• Payment of Bonus Act , 1965
 Additions to Base Pay…….Rewards

• Individual Performance Related Pay/Merit Pay

• Bonus
• Incentives
• Commissions
• Service Related Pay/Retention Bonus
• Competency Related Pay
• Career Development Pay
 • Pay for Units Produced : Piece rate plans
(Straight, Taylor and Merrick Plans)
• Pay for Time Saved: Work hour plans (Halsey and
Rowan Plans)
Short Term • Individual Based Awards and Bonuses (Attendee
Incentives Bonus, Length of service and seniority awards,
Referral Awards & Patent Awards)
• Organizational Incentives: Gain Sharing (Scanlon
& Improshare) and Profit Sharing
 • Components of deferred pay programme

Long Term • Pension Plans

Incentives
• Stock Options
 1. Job Evaluation
2. Conduct a market survey (what would the
How do we percentiles mean?)
3. Method of least squares or market trend line
map the fixed 4. Design of a Pay Range (Minimum, Maximum
pay? and midpoint along with issues such as red
and green circled employees, compa ratio
and broad banding)
 • Differences between bonuses and incentives
Problems in
• Propensity of organizations to solve
Compensation compensation claims on an ad hoc basis
Management • Complicated equity participation plans
 Lets start at the beginning….Job Evaluation
• Why do it??????
 To establish an orderly, rational & systematic structure of jobs
 To justify an existing pay rate or develop one based on internal equity principles
 To assist in setting pay rates that are comparable to similar jobs of other org.
 Collective bargaining
 Ladder of progression or direction for the future to all employees interested in improving their
comp. opportunities
 Compliance with legislation details
 To develop a base for a merit pay or pay-for-performance program
  To Establish the Purpose
-Supports org. strategy
-Supports work flow
-Is fair to employees
-Motivates behavior toward org. objectives
Job
Evaluation….The  Single vs. Multiple Plans (Benchmarking jobs: vertical
and horizontal)
Process
 Choose among alternate approaches

 Obtain involvement of relevant stakeholders

 Evaluate the usefulness of the results

 Different Job Evaluation Systems
SCOPE OF COMPARISON

JOB AS JOB PARTS

BASIS FOR A WHOLE OR FACTORS
COMPARISON (NONQUANTITATIVE) (QUANTITATIVE)

Job vs. job Job ranking Factor comparison

system system

Job vs. scale Job classification Point

system system
 Job Evaluation…Job Ranking
 Ranking simply orders the job descriptions from highest to lowest based on a global
definition of relative value or contribution to the org. success

 Alternative ranking

 Paired Comparison method

 Quick and can provide accurate results

 Provides no yardstick for measuring the relative value of jobs
 Provides little assistance in comparing jobs in different or geographically dispersed units
 Inflexible and susceptible to evaluator bias
 Paired-Comparison Job Ranking Table

Directions: Place an X in the cell where the value of a row job is higher than that of a column job.
 • In any paired comparison technique, if the rating is to
be accurate , the rater must know the factors or
characteristics to be rated & the job being rated

Job • It is difficult to use when the number of comparisons

Evaluation- made are large

Job Ranking
• N (N-1)/2 where N = the number of comparison items
Comparing 7 factors = 7(7-1)/2 = 21 comparisons
 • What is a class? And what is a class label?
-A range of jobs (class) & class description is the label (job
description)

Job Evaluation- • Developing a Class standard/Pay Grade Narrative

-Identify & describe key jobs that would normally be paid at

Job the highest & lowest levels of pay

-Job content requirements

Classification -Pay Grade Classification standards

• Broad-banding: The trend in organizations today

• Assigning a Position/Job to a Pay Grade

 Job Evaluation-The Point Method
• The development & use of compensable factors
-The inadequacies of the earlier approaches to satisfy the cont. demand for precise methods of
differentiating pay in private org.
-The use of individual aptitudes in measuring job differences
-Eugene Benge, Merrill Lott, A.W. Bass, Edward Hay

• Compensable factors: A definition

-are paid for, measurable qualities, features, requirements, or constructs that are common to many
different kinds of jobs
-To be useful compensable factors should be:
• Based on the strategy & values of the org.
• Based on the work performed
• Acceptable to the stakeholders affected by the pay structure
 Groups of Commonly Used Universal Compensable Factors

Bass Benge NEMA-NMTA FES Hay & Purves

-Mental -Knowledge
Requirements -Supervisory
-Skill Controls
-Skill -Skill
-Skill Requirements -Guidelines
-Effort -Effort
-Responsibility -Physical -Complexity
-Responsibility -responsibility
-Working Requirements
-Job Conditions -Scope & effect -Working
Conditions -Responsibility -Personal conditions
-Working Contacts
Conditions -Purpose of
Contacts
-Physical
Demands
-Work
environments
 Job Evaluation-The Point Method
• Determining degrees
-Through the use of degrees it is possible to develop an orderly approach for measuring each job
relative to others in the org.
-The grouping of the specific degrees from the available sub-factors furnishes a unique worth profile
for each job
-Profile statements
-Helps in explaining nebulous modifiers such as ‘minimal’, ‘slight’, ‘average’, ‘considerable’ etc.

-The necessary factors to consider in the appointment of degrees are:

• Ensure the no: of degrees to distinguish among jobs
• Use understandable terminology
• Anchor degree descriptions with benchmark job titles
• Make it apparent as to how the degree applies to the job
Five Levels of the Compensable Factor “Technical Skills”
 Example: Compensable Factor domain knowledge

Compensable Factor-Education Degree Points

General Bachelor Degree 1st 10
Bachelor Degree with B-School Diploma 2nd 15
Bachelor Degree with B-School Diploma and 3rd 20
membership of any professional association
Bachelor Degree with B-School Diploma from Tier 1 4th 25
Institutions & membership of professional association
Post graduate management degree with membership of 5th 30
professional association
 Job Evaluation-The Point Method
• Providing Weights to the Factors

-The major purpose of job evaluation is the establishment of internally equitable ordering of jobs
-Identification of factors & its importance
-When reviewing the objectives of the org. some factors happen to be more important than the
others
-Thus the weighting of factors becomes necessary
-The weighting or comparison process must be as exact as possible, even though it consists of
subjective judgments made by experts in the field
-Weighting done by an advisory committee
-Weighting done through the normalizing process
 The Normalizing Process

Order of % of highest rated Weight of highest

Ranking factor rated factor

Knowledge & 100% 100/290 =34.5

application

Problem 70% 70/290 =24.1

Solving

Communication 60% 60/290 =20.7

Work 60/290 =20.7

60%
Environment

Total=290 Total=100
 • Calculating the total number of points for a job
-Supposing an organization uses a single method of job
evaluation and all jobs are related on a single linear pay
Job scale. The president receives an annual salary of $210,000
and the lowest paid worker receives an annual salary of

Evaluation- $14,040. How would you find the total number of points
assigned to a job?

The Point -If one uses the Factor Evaluation Scale (FES) the maximum total
number of points assigned to a job is =4480 and the
Method minimum is=190
-Any other alternative option available for the calculation of
points?
Job Evaluation: Point System Method
 • Communicate the Plan and Train users
-Job evaluation manual
-How the plan could fit into the org. overall pay system
Job
• Apply to non-benchmark jobs
Evaluation- -Can be done by the people who were not necessarily
involved in the design process but have been given
The Point adequate training in applying the plan
-Trained evaluators will also be asked to evaluate new
Method positions that may be created or re-evaluate jobs
whose work content has changed
 • Job: Talent Acquisition Specialist
• Job Description/Job Brief: Talent Acquisition responsibilities
include sourcing candidates through various channels,
planning interview and selection procedures and hosting or

Solve a participating in career events. To be successful in this role,

you should be able to develop long-term recruiting strategies
and nurture trusting relationships with potential hires.
Problem • Major duties include:
• Coordinating with hiring managers to identify staffing needs.
• Determining selection criteria.
• Sourcing potential candidates through online channels (e.g.
social platforms and professional networks.)
 • Candidate X: Is a fresh recruit from XLRI with a
PGDM in HRM and a gold medallist. Basic
Educational qualifications include a BA from St.
Stephen’s College.

Potential • Candidate Y: Is a PGDM from IIM Indore. Has

two years of work experience at Infosys as a
Candidates…. software engineer. Basic Educational
Qualifications include a BE from IIT Kanpur.

• Utilize the point method to score the job

given and then rank the candidates.
 • Providing Weights to the Factors (Hay’s Profile
Method) by Edward Hay in 1981
-Factor comparison approach to determine the worth of
managerial and professional jobs in the bank, The
Pennsylvania Company
-Skill, mental effort and responsibility later modified to
The Hay Know-How (KH), Problem Solving (PS) and
Accountability (Freedom to Act, Job Impact on End
Results, Magnitude) (AC) and working conditions
Method of (Physical stress, Mental Stress, Physical Environment
and Sensory Attention)
Job -Problem Solving has two dimensions-thinking
environment and thinking challenge

Evaluation -When comparing two jobs to determine differences in a

compensable factor, Hay stated that if you cannot see
any difference, none exists, they are therefore the same
-One step (15%), two steps (33%) and three steps (50%)

-Difficult to sense accurately differences of more than 50%

Factor Intermediate Insurance Clerk School Bus Driver
Total Points 155 155
Know How 100 87
Problem Solving 19 16
Accountability 25 22
Working Conditions (Physical Effort) 2 5
Physical Environment 1 7
Sensory Attention 6 9
Mental Stress 2 5