Management: Making it Work

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By: Aparna Alapati Gitika Bhatla Nicky Kumari Sakshi Kharbanda Vanshika Ahuja

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Management: Making It Work

Contract system decentralized decision making

Compensation system- objectives in pay model Answers to basic questions

What is the impact Does it help How

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Managing Labor Costs

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Exhibit 18.2: Staffing Analysis Identifies Reasons for Pay Variances

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Reducing Headcount
Often used to cut labor cuts Cuts take form of layoffs or exit incentives Advantages of Reduction in Force (RIF)

Reduces benefit costs Opportunity to re-shape workforce and create positive sorting effects

Layoffs- short term and long term effects

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Core and Contingent Employees

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Segmented SuppliesSt. Lukes Labor Cost Model

Source: George T. Milkovich.

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Hours
Hours of work is used to define employment Firms examine overtime costs versus hiring

costs to manage labor costs Three factors in the labor cost model are not independent Employment Cash compensation Benefit costs
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Controlling Average Cash Compensation

Average cash compensation includes average

salary level plus variable compensation payments The variable component will rise and fall in line with business performance Adjustments to average cash compensation level can be made in two ways Top down Bottom up
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Control Salary Level: Top Down

Factors influencing decision on the increase of

the average pay level for the next period:

Current years rise Ability to pay Competitive market pressures Turnover effects Cost of living
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 Current years rise

Ability to pay Financially healthy/troubled

employers
Competitive market pressures Turnover effects (churn/slippage) annual

turnover*planned average increase 3/5/12

Cost of living
q q

CPI Changes in prices in the product and service markets Changes in wages in labor markets

Rolling it all together

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Control Salary Level : Bottom Up

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Ethics: Managing or Manipulating?

Managing compensation ethically is

increasingly complicated for several reasons Pay really matters The fierce pressure to achieve results Use of pay for performance adds to the pressure

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Cont.
Performance-based pay is not the only reason

that presents ethical dilemmas A starting point to judge our ethical behavior may be our compensation model presented with the advice: Strive to achieve both efficiency and fairness.

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Embedded Controls
Controls on managers pay decisions come

from two different aspects of the compensation process

Controls that are inherent in the design of the techniques The formal budgeting process

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Range maximums and minimums

Range set the maximum and minimum pay for the work

If employees are paid above the range maximum, these rates are called red circle rates Pay below minimum is used for trainees, and may occur if outstanding employees receive a number of rapid promotions and pay increases have not kept up

Broad bands are used to offer managers greater flexibility compared to a grade-range design

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 Assessing how managers pay employees in Compa-ratio is calculated:

relation to the midpoint Compa-ratio

It can be calculated for individual employees,

for organization units, for each range etc

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Cont.
Variable pay- it must be re-earned each period Analyzing

costs- its done recommending pay increase how compensation is viewed

prior

to

Analyzing value added: here there is a shift in

Compensation becomes an investment as well as an expense Decisions are based on analysis of the return on this investment
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Communication: Managing the Message

It signals what is important and what is not ? Employees understanding of the pay system is shaped:

Indirectly through the paychecks they receive Directly via formal communication Reasons for communicating pay information Employees misperceive system and differentials are underestimated. Considerable resources are used in designing a fair and equitable system, it is imp to gain an accurate view of the system World atWork recommended a 6 stage process of communication

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Compensation communication cycle

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Conducting formal communication sessions for various 3/5/12 audiences

Avoid formal communication if pay system is not based on work related or business related. Few employers use open book approach as it results in high commitment, improves employee attitudes and performance. How employees process information and make decisions, the figure below offers some ideas when contemplating compensation communications:

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Pay as change agent

Compensation plays a role when organisations

restructure.
Strategic changes in business strategy means that

compensation strategy must be realigned as well.

Pay changes play two roles in any restructuring

Leading catalyst for change Follower of change

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Structuring the compensation function

Centralization decentralization Flexibility within corporate-wide principles Reengineering and outsourcing

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