2Introduction to Compensation and rewards management
3CompensationCash and non-cash rewards employees receive in exchange for their workEffective compensation managementEmployees more likely to be satisfied and motivatedCompensation perceived to be inappropriatePerformance, motivation and satisfaction may decline dramaticallyEmployee turnover may occurDissatisfaction with absolute or relative pay
4Total Reward Base pay Recognition Total Reward Financial rewards SkillsDevelopmentFinancialrewardsVariable payNon-financialrewardsTotal remunerationShare owner-shipCurrent opportunitiesQuality of working lifeBenefits
5Reward management defined “Reward management is concerned with the formulation and implementation of strategies and policies the purposes of which are to reward people fairly, equitably and consistently in accordance with their value to the organisation and to help the organisation to achieve its strategic goals”
6Objectives of Compensation AcquirepersonnelAdministrativeefficiencyRetainemployeesEffectiveCompensationLegalcomplianceEnsureequityRewardbehaviourControlcosts
8The conceptWages and salaries constitute the greatest single cost of doing business.Establishing equitable and competitive pay structure is important from attracting point of view . the organization can also hold out the possibility of varying compensation, the payment of which is dependant on specific behavior. Supplementary pay plans ( fringe benefits ) can retain the employees in the organization on a long term basis
9The conceptDevelopment, implementation, maintenance , communication and evaluation of reward processesAssessment of relative job values, the design and management of pay structures, performance management, paying for performance, competence or skills , the provision of employee benefits and pensions, management of reward procedures
10Aims of Compensation and reward management Support the achievement of organizations strategic and short term objectivesSupport culture management and changeDrive and support desired behaviorEncourage value added performancePromote continuous developmentCompete in employment marketMotivate all members of the organizationPromote teamworkPromote flexibilityProvide value for moneyAchieve fairness and equity
11The Reward Management Context The cultural environmentValues ( what is believed to be important )Norms ( accepted way of behavior )Management style ( how managers manage their staff )The organizational structureEmployee relationsTechnologyOperational processes and working methodsManagement practices as a function of business strategy, culture, technology and operationsEmployment practicesExternal environment
12Significant factors affecting compensation policy Supply and demandLabor unionsAbility to payProductivityCost of livingGovernment
13Statutory minimum wage – Wage determined in accordance with the provisions of the Minimum Wages Act, 1948Minimum WageLiving Wage
14Compensation issues Wage and salary levels Wage and salary structures Individual wage determinationIncentive paymentsFringe benefitsCompensation of mangers and professionalsControl
16Compensation strategy defined The deliberate utilization of the pay system as an essential integrating mechanism through which the efforts of various sub-units and individuals are directed towards the achievement of an organizations’ strategic objectivesThe business strategy in particular, serve as a critical guide in designing organizations’ systems, because it specifies what the company wants to achieve, how it wants to behave, and the kind of performance and performance levels it must demonstrate to be effective. The strategy should strongly influence an organization’s design and management style, both of which should drive the design of reward system. These reward systems in turn, help to drive performance by influencing important individual and organizational behavior.
17Compensation strategies & corporate goals The compensation strategy will be mainly concerned with the direction the organization should follow in developing the right mix and levels of financial and non financial rewards in order to support the business strategyIt should be backed up by a realistic action plan .
18How reward strategy contributes to the achievement of corporate goals? Provides for the integration of reward policies and processes with key strategies for growth and improved performanceUnderpins the organizations’ values, especially those concerned with innovation, teamwork,flexibility , customer service and qualityFits the culture and management style of the organization as it is or as it is planned to be.Drives and supports desired behaviors at all levels by indicating to employees what type of behavior will be rewarded, how this will take place and how their expectations will be satisfied.Provides the competitive edge required to attract and retain the level of skills the organization needsEnables the organization to obtain value for money from its reward practices
19Characteristics of reward strategy The demand of the business strategy including cost constraintsHow performance can be driven by influencing important individual and organizational behaviorsHelping to achieve culture changesMeeting objectives for ensuring the organization gets and keeps high quality employeesAligning organizational core competence and individual competenceUnderpinning organizational changeDevelopment of competitive pay structureEnsuring that reward policies are used to convey messages about the expectations and values of the organizationAchieving the right balance between reward for individuals, team and organizational performanceEvolving total reward processes which incorporate the best mix of financial rewards and employee benefitsAchieving the flexibility required when administering rewards processes within fast changing organizations in highly competitive or turbulent environmentsFitting reward processes to the individuals needs and expectations of employees
20Pay and motivation Maslow Herzberg Mclelland Adams Vroom Pay is a flexible reward which can satisfy a number of needsPrimarily a hygiene factorFor high achieving individuals pay a form of feedback; for high affiliation, group targets can motivate; high power, pay confirms statusPay is one of the most important ‘yardsticks’; based on individual assessment, work effort may be altered accordinglyIf individual believes that improved performance will lead to more pay, higher levels of motivation will result; if extra effort required to attract more pay (expectancy) individual can make a decision whether or not to work harder.
21Areas of compensation decisions Pay has a strong impact on the employees’ standard of living, it is a status symbol and important in comparisons to othersEmployer:Critical in attaining strategic goalsImpact on employee attitudes and behavioursSignificant organisational costAreas of compensation decisionsPay StructurePay LevelJob StructurePay policies
23Changing Compensation Systems TraditionalModernPay = 100% basesalaryVariable componentaddedEntitlement-baseincreasesPerformance-drivengainsFew incentive/bonusplans, restricted toexecutivesMany kinds of plans, extended throughout the organization
24Compensation Management Phase IJob AnalysisIdentify and study jobsPosition descriptionsJob descriptionsJob standards
25Compensation Management Phase IJob AnalysisPhase IIJob EvaluationDetermine relative worth or value of jobsProvides for internal equityJob evaluation methods:Job rankingJob gradingPoint system
26Compensation Management Discover what other employers are paying for specific key jobsProvides for external equitySources of data:HRDCConsultantsCanada HR CentresAssociationsSelf-conducted surveysPhase IJob AnalysisPhase IIJob EvaluationPhase IIISalary Surveys
27Compensation Management Establishing the pay level for each jobCombines job evaluation ranking, survey wage rates, and other considerations e.g. organization’s pay policyWage-trend line developedGrouping the different pay levels into a structure that can be managedJob classes and rate rangesPhase IJob AnalysisPhase IIJob EvaluationPhase IIISalary SurveysPhase IVPricing JobsMatch
29Some conceptual clarity What is a job ?Collection of tasks, duties , responsibilities which are regarded as a regular assignment of an employeeWhat is a job design ?It is the deliberate attempt to structure the technical and social aspects of work. It comprises of both organizing the components of the tasks to be done and the interaction patterns among the workgroup members in order to get the job done.What is a job description?Clear, concise and understandable description of each job. It describes n sufficient details each of the main duties and responsibilities and indicates the extent of directions received and supervision givenWhat is job specification?Statement of minimum acceptable human qualities necessary to perform a job properly
30Job analysisThe process of collecting, analyzing and setting out information about jobs in order to provide the basis for a job description or role definition and the data for job evaluation , performance management and other HR management purposesDetailed and systematic study of information related to the operations and responsibilities of a particular job.Anatomy of the job
31Points covered in Job analysis What is the job titleTo whom is the position responsible to ?Who is responsible to the positionWhat is the purpose of the job? What is the position expected to do?To achieve the purpose, what are the main areas of responsibility?What you have to do and why.Dimensions of job in terms of outputHoe does the job fit in with other jobs in the department or elsewhere in the companyFlexibility requirements in terms of having to carry out a range of different tasksHow work is allocated and how it is reviewed and approvedDecision making authorityContacts with others- inside or outside the company , equipment, tools usedOther features like traveling, unsocial hours or unusual physical conditionsKnowledge and skills required to do the work
32Job Analysis in Practice Job analysis gets the facts about a job from the job holder, the job holder’s manager and the job holders team mates. These facts can be obtained by interviews or by asking the job holders and / or their managers to write information about the jobs in a structured format.It is essential to provide guidance on how the analysis should be carried out and expressed on paper. Alternatively questionnaires can also be used – either universal questionnaires or those designed for job families
33Role analysisRole analysis covers the collection of information about the job contents and job demands as in job analysis ,but goes beyond these details to look at the part people play in carrying out their roles rather than the tasks they carry out. It is concerned not only with the job content, but also the broader aspects of behavior expected of role holders in achieving the overall purpose of their roles
34What is job evaluation?Job evaluation can be defined as “a systematic procedure designed to aid in establishing pay differentials among jobs…”Job Evaluation is a systematic process for ranking jobs logically and fairly by comparing job against job or against a pre-determined scale to determine the relative size of jobs in an organisation.“A systematic process or set of techniques used to assess the relative worth of jobs within the organisation” (Wright, 2004:46)
35Job evaluation The purpose of job evaluation is to Provide a rational basis for the design and maintenance of an equitable pay structureHelp in the management of existing relativitiesEnable consistent decisions to be made on grading and rates of payEstablish the extent to which there is comparable worth between jobs
36Job evaluation A comparative process A judgmental process An analytical processA structured process
37Job evaluation relearned Job evaluation should reinforce critical behaviors that the the organization needs to demonstrate for overall effectiveness. Traditional job evaluation systems however focus on characteristics representative of organizations of the past
38A new paradigm Today’s business environment Traditional JE JE requirements for today’s organizationsRole based. Employees required to do what is needed rather that what is prescribed and to manage themselvesFlatter organizational structures , little vertical advancements, need for employees to gain broader perspectiveSelf managed teamsMore knowledge workersJob based. Work is valued based on narrow job descriptions which are defined and strict boundaries of authority and accountability are delineatedCommunicate values of hierarchy and bureaucracy by driving empire building behavior , rewarding vertical , rather than horizontal growth. Employees may be reluctant to accept new positions when the new job has fewer pointsFocus on individual contributionMeasure task sizeFlexible enough to evaluate job contents and or role content. The system should communicate and encourage required new behaviorsEncourage employees to gain broader organizational perspective through lateral movesAbility to rank teamsMeasure intangible processes
39JE – basic methodology Benchmark jobs Job evaluation factors For internal assessment and external matchingJob evaluation factorsCharacteristics common to the range of jobsJob and role analysisJob evaluation processDevelop a pay structure
40Meeting the Needs Non- Analytical Basis of Comparison Job-job Simple rankingInternal benchmarkingPaired comparisonMarket pricingFactor comparisonJob-scaleClassificationPointFactorRating
41Non-analytical job evaluation – job ranking StepsAnalyse and describe jobsIdentify key or benchmark jobsRank all other jobs around theseDivide ranked jobs into gradesAdvantagesQuick and cheapDisadvantagesDoes not measure differences between jobs, not acceptable in determining equal worth in an equal value case
42Job classification Steps Advantages Disadvantages Decide on number and characteristics of gradesCompare whole job with grade definition and allot jobs to gradesAdvantagesEasy, cheap, easily understoodDisadvantagesCannot cope with complex jobs or borderline casesNot acceptable in equal value cases
43Analytical JE – point factor schemes Break down jobs into factors such as knowledge, skill, responsibility, dealing with people, working conditionsGive each factor a range of points or percentage weightingMaximum points for each factor are divided between levels or degrees for that factorSelect and analyse benchmark jobsAllocate points to each job under each factorAdd together points to give a total score which represents job sizeDesign grade structureAnalyse, evaluate and grade non-benchmark jobsPrice job grades
44Point-Factor PlansThe most commonly used type of job evaluation methodMake the criteria for comparisons explicit, unlike ranking and classificationThe criteria for classification (the compensable factors) are related to the strategy of the business; they are the factors valued by or of high worth to the firm
45Point-Factor Plans Point factor plans all include three elements: Compensable factors are definedDegrees or level of each factor are given numerical rankingsFactors weighted as to their relative value to the organizationJob worth is measured by the total number of pointsThe steps to follow:Job analysisDetermine compensable factorsScale the factorsWeight the factorsCommunications and documentationApply the planCompensable Factors“Characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives”
46Selecting and Weighting Compensable Factors These should be:Based on the work performedBased on the strategy and values of the organizationAcceptable and considered to be fair by all concerned partiesAs a result, compensable factors should be developed by each organization, rather than using an off-the-shelf planBasic group of compensable factors:SkillEffortResponsibilityWorking conditionsWeighting compensable factorsWhat should we select as compensable factors? Obviously, we want to cover the four basic areas (depending on the types of jobs we are looking at, working conditions may not be included), but what specific dimensions do we include. The factors should be:Based on the work performedBased on the strategy and values of the organizationAcceptable and considered to be fair by all concerned partiesAs a result, compensable factors should be developed by each organization, rather than using an off-the-shelf plan.The next step is to determine the relative importance or weight of factors to the score total. Each factor contributes a different amount towards the total score for the job, depending on the importance of the factor to the organization. These weights can be arrived at in two waysCommittee judgments (compensation committee, which is made up of management representatives)Statistical analysis: the weights are chosen so that the factor scores for a selected group of benchmark jobs will predict market prices or current rates for those jobsThe final step: when compensable factors are weighted and the total number of points determined, points are assigned to each level of the factorsHay Plan FactorsKnow-howFunctional expertiseManagerial skillsHuman relationsProblem solvingEnvironmentChallengeAccountabilityFreedom to actImpact of end resultsMagnitude
47Point-Factor: Pro and Con Point-factor systems orderly, rational, and make criteria for evaluating jobs explicitTime consuming to set up (and they do need to be periodically updated), but very simple to add new jobsJob evaluations may still be affected by what the evaluator already knows or believes the market value of the job to be
48Example factor plan Levels/ factors 1 2 3 4 5 6 Knowledge and skills 50100150200250300ResponsibilityDecision making4080120140180220Complexity2575125Contacts
49Issues in the selection of factors Factors express the values of the organisationFactors influence the extent to which the scheme constitutes a fair basis for assessing relative valuesConsider the whole range of jobs in choosing factorsAvoid double counting
51How are jobs evaluated using the Hay System? Job description questionnaires are completed and signed by the jobholder, the supervisor, and other managerial staff who have responsibility for the position.The job description questionnaire is given to each member of the job evaluation committee for his/her initial evaluation.The committee meets with the jobholder and supervisor to explore questions and clarify content.The committee members then compare their individual evaluations and resolve differences that might exist.
52The Hay Methodology Background Most widely used method for total job populationsAdopted by a large number and range of organisationsManageable and coherent number of factors usedSuccessfully used for a huge range of jobsRelies on simple job descriptions and contextual informationMethodology combined with process aids equal valueManageable process in relation to resources requiredFacilitates:external pay comparisonpay structure developmentanalysis of organizational and career structures
54} Elements of Job Size Technical Know-How Planning and Organising PROBLEMSOLVINGKNOW-HOWACCOUNTABILITYTechnicalKnow-HowPlanning andOrganisingCommunicating andInfluencingFreedomto ActArea ofImpactNature ofThinkingEnvironmentChallenge}
55Hay System Factors KNOW-HOW The sum total of every kind of skill, however acquired, needed for acceptable job performance.This sum total which comprises the overall “fund of knowledge” has three dimensions – the requirements for:Practical procedures, specialized techniques, and learned disciplines.Active, practicing skills in the area of human relationships.Know-how of integrating and harmonizing the diversified functions involved in managerial situations (operating, supporting, and administrative). This know-how may be exercised consultatively as well as executively and involves in some combination the areas of organizing, planning, executing, controlling, and evaluating.
56Hay System Factors PROBLEM SOLVING Problem solving has two dimensions: The original “self starting” thinking required by the job for analyzing, evaluating, creating, reasoning, arriving at and making conclusions. To the extent that thinking is circumscribed by standards, covered by precedents, or referred to others, problem solving is diminished and the emphasis correspondingly is on know-how.Problem solving has two dimensions:The environment in which the thinking takes place.The challenge presented by the thinking to be done.
57Hay System Factors ACCOUNTABILITY The answerability for an action and for the consequences thereof. It is the measured effect of the job on end results. It has three dimensions in the following order of importance:Freedom to Act – the degree of personal or procedural control and guidance the jobholder has.Job Impact on End Results – ranges from direct to indirect impact on end results by auxiliary, contributory, shared, or primary effects.Magnitude – indicated by the general dynamic dollar size or accountability area(s) most clearly affected by the job.
58A guide chart is used for each of the three factors containing descriptive scales for each element and a numbering pattern based on a 15 % step difference , which is an important building block in making comparisons between jobs. Job size is the sum of the results from the three factors. In addition , an explicit judgment is made about the balance between the factors in each job – the profile – which provides a valuable consistency check.
59The Hay Methodology Checks and Balances Profiles – how do the elements fit togetherStep differences – internal relativities‘Sorethumbing’ – common sensePanel process – challenge perceptionsFocus on jobs – not people or performance
61A pay structure provides framework within which an organization defines the different levels of pay for jobs or groups of jobs on the basis of their relative internal value and of external relatives.
62Criteria for pay structures Be appropriate to the characteristics and need of the organizationFlexible in response to market rates and skill shortagesFacilitate operational and role flexibilityScope for rewarding performanceEnsure that consistent decisions are made on pay in relation to job size, contribution, skill and competenceClarify career laddersLogically and clearly constructedEnable the organizations to exercise control over the implementation of p[ay policies and budgets
63Principles of pay structure design Is in accordance with the organization's philosophy and policies concerning differentials, relationships with market rates, and the scope for and methods of progressing the pay in jobs.Designed on a logical basis and helps in the application of equitable and consistent reward management process.Assist the management and maintenance of appropriate internal and external relativitiesFlexible enough to enable the organization to respond to changeReward competence and performanceCan be implemented with minimum amount of efforts and cost.Is likely to be acceptable to management and every other member of the organization
64Methodology of developing pay structures Analyze present arrangementSet objectives and timetableDecide who is going to conduct the reviewEstimate the likely cost of conducting and implementing the reviewDecide the extent of employee involvementBrief employeesMake preliminary decision about the type of structure requiredAnalyze and evaluate jobsMake a final decision on the type of structure (s) required and the main design and operational featuresPrepare a detailed design for the structure and how it will be managed and maintained.Communicate with the staff the details of the structure and how it will affect themTrain managers on hoe to operate the structureMonitor the implementation of the structureEvaluate the application and impact of the structure.
65Three important types of pay structures GradedJob familyBroad banded
66Graded pay structureA graded pay structure consists of a sequence of job grades to each of which is attached a pay range.A pay grade is a grouping of different jobs that are considered substantially equal for pay purposes. Grades enhance the organizations’ ability to move people among jobs that are within a pay grade without changing their pay.Jobs are allotted to grades on the basis of their relative size.A pay range is attached to each grade. This defines the minimum and maximum rate payable to any job in a grade and indicates the scope provided for job holders to progress through the range
67Job family structuresMarket rate pressures operate differently on particular occupations or categories of employeesThere are significant variations in the type of work carried out and the competencies required by different occupational groups , which can not be easily centered for in a single pay structureA job family structure consists of separate graded pay structures for each of the job families which have been identified for this purpose. These structures are aligned individually to market rates and contain a number of pay ranges which reflect the particular levels of work within the job family.
68What are job families?A job family consists of jobs in a function or discipline such as research scientists, development engineers or personnel specialists. The jobs will be related in terms of fundamental activities carried out and the basic skills required , by they will be differentiated by the level of responsibility, skill or competence involved.A job family is a group of jobs. Their essential nature and purpose is similar but the work is carried out at different levels. Job families may be functional, in that they cover specific work groups within a function such as marketing, finance or personnel. Or they may be generic , in that they cover similar types of work across functional boundaries e.g. administrators, managers or team leaders
69Broadbanding Collapse narrow salary grades into wide bands. 20 grades reduced to 4 to 5 bands.40-60% ranges increased to %Increased emphasis on market pricing jobsDecreased emphasis on job evaluation
70BroadbandingCompressing a hierarchy of pay grades or salary ranges into a number of wider bandsTypically no more than five or six bandsWide pay spansMarket pricing used to define reference pointsFocus on lateral career development and competence growth
71BroadbandingWhat are the advantages and disadvantages of broadbanding?
72Broadbanding Technical Band 160% $85K IV 40% III 40% Salary grades for Engineers40%II40%I$35K
73Advantages of Broadbanding Facilitate Lateral career movesEnhanced flexibility for transfersCross-functional teams with fluid dutiesMore flexible pay decisionsFew control points such as midpoints or salary caps.More pay opportunities based on skills
75Why Conduct Salary Surveys? To create and adjust pay structureAdjust actual pay in response to the marketMonitor other forms of pay, such as shift differentials, bonuses, incentives, overtime practices
76What Is The Market?Who?Employers who compete for the same occupations and skillsEmployers who compete for employees in the same geographic areaEmployers who compete with the same productsHow to determine this?Who are our competitors?Where do we recruit?Where are employees going?Interaction of skill/place/productIf labor market is rich in a particular skill, may recruit/price locallyIf labor market does not include skills, recruiting and pricing are on a wider scaleCommuting time within a market may also be a factor
77Guidelines for Salary Surveys Make or buy?How many firms to includePrice fixing issuesWhat jobs to surveyWhat data to collectHow to surveyDo we run our own survey or buy one? For national data, we may need to buy the survey from a consultant with the reputation to survey on a national basis. Some firms may be reluctant to respond to your survey, but will participate in third-party survey. However, you do get more control with own survey. Purchasing a survey means you get what they want to report. So, in the long run, conducting your own survey takes more time, but may be less expensive. Finally, odd jobs or unusual jobs may not be available commerciallyHow many firms to include: Include fewer firms if you are a major employer and make the market; you have less need for external data. Note, too, that commercial surveys often include several hundred firms, but they make money by getting participants and selling them surveys.Price fixing issues: Under the Sherman Act, surveys can be viewed as a conspiracy in restraint of trade. Having a third party conduct the survey protects you, but, as discussed above, you lose control.What jobs to survey: First, survey your benchmark jobs. These are jobs with well-known and stable content, stable pricing, and stable supply/demand. Benchmark jobs are called that because they are used to represent the entire pay structure, and they represent the majority of covered positions. You may also want to survey market sensitive jobs.What information to collect? Obviously, you want basic company information, for comparability, and weighting of results. Try to find out how closely the surveyed jobs match your jobs. For each job, ask for the salary range and the actual pay (individuals, range or average). Other useful information includes other forms of compensation (shift differential, incentives, etc.) and benefits.How to survey: Mail surveys are the cheapest, but you have the response problem, and the information may not be as accurate. For accuracy, fact-to-face interviews are the best, but are very time consuming. A compromise might be phone verification of mail data or, as is done by the Department of Labor, mail surveys with confirmatory interviews every second or third year.
78Putting it Together: The Pay Regression Line Job evaluation (internal equity) gives us relative value of jobs within the organizationSalary surveys (external equity) gives us value of selected jobs outside the organization
80Contingent pay covers the various methods of providing additional rewards for individuals or teams
81Types of contingent pay Contingent pay for individualsService related pay: provides fixed increments which are usually paid annually to people on the basis of continued service either in a job or in a gradeCompetence related pay: Links pay to an assessment of competence achievedContribution related pay: Links pay both to performance as measured by results and competenceSkill based pay: Which provides additional payments that reflect the level of skill attained
82Types of contingent pay contd. Contingent pay for teamsPayments to members of a formally established team or the provision of other forms of non-financial reward which are linked to the performance of that team. The rewards are shared by the team members in accordance with a published formula.Contingent pay based on organizational performance:Profits sharing: Provides a cash payment related to the level of profitsProfit related pay:Provides for a proportion of pay to go up or down in line with profitsGain sharing :Shares gains in terms of added value or some other measure between the company and its employees , and includes various forms of its involvement
83Performance related pay Provides individuals with financial rewards in the form of increases to basic pay or cash bonuses which are linked to an assessment of performance , usually in relation to agreed objectives.
84Reasons for introducing performance related pay To attract the right type of applicant and to send strong messages to those employees the organization wanted to loose as well as those they wanted to retainTo achieve organizational transformation by promoting values suggesting that the company was performance-driven , cost conscious and flexible , and by encouraging commitment- locking individuals in through objectives cascading from the company’s business plan.
85Stages in development of PRP program Define the objectivesAnalyze the existing situationDecide on the involvement of line managers, team leaders, employees , trade unions.Consider alternative designsConsider process elementsProduce overall designPrepare implementation programImplement communication and training programsImplement the planEvaluate the impact of the plan
86Advantages and disadvantages of PRP MotivatesIs a lever of changeLinks rewards to resultsDelivers message that performance is importantHelps to attract and retain staffMeets basic human need-to be rewarded for achievementIs not the only motivatorIs not an effective motivatorCan demotivateMay deliver the wrong messageProblems of measuring performanceRelies on managerial judgment which may be partialEmphasizes quantity at the expense of qualityIs prejudicial to teamworkMay be discriminatoryMay not deliver value for moneyMay not be appropriateIs too often taken on trustMay be right in principle but is hard to make work in practice
87Advantages and disadvantages of Competence related pay Encourages competence developmentFits de-layered organizations by facilitating lateral career movesHelps to integrate role and organizational core competenceForms part of an integrated, competence based approach to people managementDelivers message that competence is importantRelies on appropriate relevant and agreed competence profileAssessment of competence levels may be difficultMight pay for irrelevant competenciesLink to pay may be arbitraryCosts may escalate if inappropriate or unused competencies are rewarded
88Competence related pay Method of rewarding people wholly or partly by reference to the level of competence they demonstrate in carrying out their roles. It is a method of paying people for the ability to perform.
89Process of competence related pay Competency analysisAgreeing competency requirements in a particular roleAssessing levels of competence for individuals against the requirementsRelating pay of individuals to the assessment
90Appropriateness Well researched competency framework exists Criteria are available for the measurement/assessment of competenciesThe organization is concerned with the development of competence levelsManagers and staff are properly briefed and trained on the assessment of competence
91Performance Management A business process intended to ensure alignment of group and individual efforts for achievement of continuous business improvementHow much and how??
92Critical success factors Ongoing trackingDirect linking to company’s missionTimely communication and skills trainingConnection between reward and performanceObjective feedback and reviewEmployee ownership – I own the direction in which I goSenior leadership involvement
93Why does the companyExist ?MissionVision of futureWhere is it going?How will itGet done? Esp.Focusing onValues.Strategic organizationalgoalsCoreOrganizationalCapabilitiesPerformanceDevelopment& planning
94Four stages of performance Contribute by following directionContribute demonstrating individual competencyContribute through peopleContribute by shaping the organization
95Performance management at a glance Business strategy & goalsUnit performanceGoal setting13Individual / team goal settingAnd planningFormal assessmentAnd pay linkWrite performance goals/ plansWrite development plan for currentPerformance goal and future interestSelect coaches2Ongoing progress reviewAnd coaching
96Performance management & rewards Not purely for what you DO but also HOW you do it.Integration of demonstrated development , performance , results and competitive market to determine total compensationPerformance and incentive compensation linked to business results
98ObjectivesAchieve competitiveness through pay increases which are more related to productive measures as a way of absorbing increased labor costs, while at the same time rewarding and motivating employees
99Types Individual based Profit sharing Gain sharing Employee share ownership
100ElementsAdequate criteria to measure performance which is understood communicated and acceptedAppropriate performance appraisal systemRegular feedback of performanceAppropriate quantum of pay which is subjected to performance criteriaPeriodic evaluationRecognition to factors outside the control of employees
101Benefits of productivity linked incentive The benefits to management and employees are: where performance/profits increase, higher pay is an incentive to employeeswhere profits reduce, the reduction in the performance-related pay can cushion employees against redundanciesemployee identification with the success of the business is enhancedvariations in pay lead to employees becoming more familiar with the fortunes (or misfortunes) of the business. This would depend on the information-sharing practices of the management.
102GuidelinesA performance pay system should be designed to promote the kind of performance an organization needs. In order to do soan analysis should first be made of the objectives and results soughtthe principles/policies and practices needed to obtain the results (e.g. team work) should be establishedthese policies and practices should form part of an overall human resource management strategy.Employees should be consulted in the formulation of the plan (to ascertain the type of rewards most likely to have motivational effect), in regard to its operation and distribution of rewards, and in monitoring the scheme.
103Guidelines ( contd.)The criteria for the determination of performance pay should beobjectivemeasurable and measure only what is importantthat it is operated along with an appraisal system which measures performance appropriatelydesigned to feed back information to employees, and not only to managementeasily understoodrelated to what is controllable, so as to exclude what is beyond the control of employees.The intrinsic reward system should be strengthened if need be, e.g. throughconsultation, communication, participatory systemstrainingjob satisfaction and responsibilityreorganization of work processes
104Guidelines ( Contd.)How the performance pay is shared is as important as the quantum, because the manner of sharing affects employees' perceptions as to whether the scheme is equitable.The impact of the scheme also depends on the frequency of the payment. Therefore the reward should follow the performance as soon as possible.The scheme should be given wide publicity within the enterprise.The performance level should be achievable or else the scheme will have no motivational impact.The quantum of pay on account of performance which is placed at risk (i.e. the amount that can be lost due to poor performance) should be carefully determined. At the same time the scheme should be sufficiently flexible to absorb downturns and adequately reward when performance is good.
106Rewarding Contribution What do we really mean by Contribution related pay and how is it different from PRP?What are the key building blocks?What do you have to do to get this right?
107What Do We Mean By Contribution Related Pay? ‘a new concept in contingent pay design which links pay both to performance, as measured by results, and competence’
108How Much Of It Is There About? (2) ‘Paying for contribution will be the most popular method of rewarding managers and staff. Such an approach reflects a general dissatisfaction with flat rate market rises ……. but it also reflects problems experienced with pay progression linked solely to individual performance (outputs) with no appreciation of how they are achieved, and with progression exclusively linked to skills or competencies (inputs) with no recognition of results.’CIPD Reward Management Survey 2004
109A New Direction? FROM Pay for performance TO Pay for Contribution Discretionary effort-people as assetsFocus on team and individualInvestment in skills/behaviours for the futureResults matter too – but look at interdependenciesDraws on commitment/ engagement/motivation researchCapability is crucialTends to be owned by usersVariety of reward methodsPeople as costsTends to focus on individualOne Dimensional results focusRewards immediate past performanceLittle recognition of motivation researchOr the key role of line managersSimplisticTends to be controlled by HRPay links usually a fixed formula
110Key Elements Constructive focus Clear rules of the game on personal and pay progressionBased on:an agreement on deliverables/resultsandacquisition and use of competences required for current role e.g. IT skillsbehaviours acknowledged as key to success (e.g. customer orientation, respect for others, partnership working, developing others)base pay progression and variable pay – best fit for level/rolePerformance management as the key vehicle for continuing dialogue on delivery and development
111A Reminder About Performance Management Establishing individual/team objectivesDescribing job expectationsDescribing competencies and planning improvementsDescribing tasksTraining and development planningAgreeing performance standardsCoachingCounsellingFeedback and day-to-day planning meetingsSelf monitoringMonitoring training & development activitiesFormal review of performancePerformance measurementFormal team feedback sessionsIndividual self-reviewPeer group and upwards appraisal360 degreePraisePromotion/Job enrichmentLinks to individual and/or team payPrizesSpecial AwardsOther forms of recognitionManagingPerformanceReviewingPlanningRewardingA‘Virtuous Cycle’
112The Impact of Performance Management ‘A once a YearEvent(1)An ongoingManagement Process(2)Competency Based(‘Mixed Model’)(3)HolisticProcess(4)Organisation/CultureChange Process(5)Impact on theOrganisationHighDegree of integration with otherHR and related processes/Management CapabilityLowLevel of InterventionHighAIMSFeature of PM Process‘We want to improve our skills in objective setting/appraising’‘Once a year event’Not integratedLittle managing of performance‘We want to improve our appraisal scheme’‘We want to integrate competencies and/or skills in our appraisal process’‘We want to ink up our PM process to other initiatives/ processes e.g. Investors in People, Business Process Re-design, Business Planning, EFQM‘We want to transform how we operate’Business Process Re-engineering‘An integrated management process covering four phases – Planning, Managing, Reviewing and RewardingA competency-based integrated PM processA holistic process with explicit links to other initiatives/ processes360 feedback usually involvedPM process part of an integrated HR project – Pay, Work Definition, Organisation Change, Benefits Management
113Pay Progression Mechanism And The Impact On Pay ….HIGHPay Progression MechanismStrengthof MessageFixedIncrementsFlexibleIncrementsPaymatrixFlexibleGuidelinesLine Management held BudgetHIGHLOWNotRelevantManageExceptionsOnlyDecisionson RatingRatingand PayTotalOwnershipManagement Capability
114Making Contribution related pay work requires: Clarity about organisational strategy and plans and requirements they will make on:Departments, teams and individualsValues that recognise that ‘how’ can be as or more important as ‘what’Skill/competence frameworks that support delivery and are well understoodLearning and development resourcesSound performance management processesClear pay progression rules linked to roles/levels (often in job families)Capable managers who praise achievement and confront contribution shortfalls
115Getting The Detail Right (1) Are your skill/competence/competency frameworks good enough? i.e.specific to role/job or career familylinked to skills/behaviours associated with high quality deliverydesigned and used to support learning and development, recruitment AND assessment of contributionsupportive of your organisation’s change and transformation agendaClearly communicated and understood
116Competencies – A Reminder Social RoleHow I see my jobSelf ImageWhat I value in myselfMy TraitsMy non-conscious patterns ofbehaviourMy MotivesWhere my excitement comes fromExpertBest in fieldAloofAchievementHelps people get betterHealerSitting by bedPowerOutcomesMore readmissionsEarlier dischargeDr SharpeDr Hart2.2/8SameSkillsWhat I can doKnowledgeWhat I knowCaring
117Getting The Detail Right (2) Performance Management‘Just in time’ Training/Communication, Competence – Confidence – Trust – Engagement.Focus on coaching/regular feedback.Appreciative enquiry –’what would be happening if this area of contribution was going well – what would you/others be doing to create success?Focus on raising rather than rating contribution (a besetting sin of PRP).Recognition that managers and their people raise contribution levels – pay systems and performance management forms/systems cannot do this.It is the quality of dialogue not the elegance of the paperwork that matters.Reward should support this.
118Contribution RatingRating is only important where contribution level is directly linked to pay decisions.The approach to “rating” depends on the purpose and emphasis of the performance management process:-Individual RemunerationOrganisational ContributionIndividual DevelopmentQuantitative JudgmentsQualitative IndicatorsWhere rating is judged essential, a 5-point scale is often used. This may be expressed in numbers, letters and descriptors e.g.A Outstanding Exceptional contributionB Superior Consistently high level of contributionC Fully Acceptable A good year’s work D Incomplete Acceptable contribution, some shortcomings E Marginal/Not Proven Contribution less than acceptable/learner/ achieverWords and psychology matter a lot!
119Pulling It All Together Capability building will be key especially for line managers.Decide how this approach fits with the current culture, strategy and existing processes.Start paying for personal contribution as soon as this makes sense.Consult, involve and put ‘L plates’ on what you do – everyone stands to learn.Communicate early and often.Top team clarity & commitment is crucial.
121Team-based Pay Team Definition (Katzenbach & Smith, 1993) Group of employees whose members are mutually accountable to each other for common goals.Team members interact on a regular basis.There is the possibility of synergy between team members.Size of team is between 2 and 25 members.
122Types of Teams (Cohen & Bailey, 1997) Work TeamControls a business process such as customer service or manufacturing. Product or service quality is a key criteria.Permanent work assignment and full-time commitment.Project TeamProject is limited by completion time such as new product design or construction project. Delivery time, budget variance and design quality are some criteria.Full-time commitment; after project team members are reassigned to different projects.
123Types of Teams (Cont’d) Parallel TeamsUsed to solve specific problems such as quality, safety, employee grievances or impact of technology change.Used in parallel to functional units where employees spend most of their work time.Requires only a part-time commitment as team member.
124Why Use Team Pay? To Encourage Behaviors such as… Peer Cooperation Information SharingUnselfish behavior supportive of teamSacrifice personal interest for good of team such as giving up leisure time on weekend to work for an important team goal.Mutual MonitoringProvide performance feedback to team members.
125Monetary Team Rewards (Gomez-Mejia & Balkin, 1992) Team Bonus - Cash payment to tied to achieving major team performance outcome and allocated on non-recurring basis.Team Merit Pay - Cash adjustment to salary tied to achieving team behavioral and performance outcomes.Skill-based Pay - Adjustment to base pay rate of team members tied to team competence level.Gainsharing - Share gains of unit/department with interdependent teams.Spot Cash Rewards - Discretionary basis.
126Non-monetary Team Rewards Team Recognition Reward - Public ceremony or announcement in company newsletter.Team Celebration - Celebrate team “win”; includes special dinner, ticket to sports event,etc.Merchandise - Team jacket, pin, emblem to build team identity and “espirit de corps.”Travel - Team members (and possibly spouses) travel to resort for relaxation and fun - often used for sales teams after successful marketing “push.”
127Team Pay: Design Issues Eligibility - full or part time? managers? Newcomers?Size of Reward - large or small?Individual’s shares - equal or equitable shares?Frequency of rewards - one time only? recurring?Criteria for Reward - performance metric? Outcome? Milestone? Behavior/Funding the reward - self-funding: costs savings, profits, customer goodwill.Administration of rewards - team? managers? HR? customers?
128Team Pay: Controversies Dealing with Free RidersInhibiting High Individual PerformersInterdependent Teams may Compete rather than Cooperate with each other.
130Meaning of fringe benefits Those benefits which are supplied by an employer to or for the benefits of an employee and which are not in the form of wages, salaries and time rates paymentAny wage cost not directly connected with the employees productive effort, performance or sacrifice.Benefit is primarily a means in the direction of ensuring, maintaining and increasing the income of the employee. It is a benefit which supplements ordinary wages and which is of value to them and their families in so far as it materially increases their retirement.
131Meaning of perquisites An element of compensation provided in addition to cash which can directly facilitate more effective performance for the job, as well as augmenting the total value of compensationThe term perquisites should be reserved for those benefits which are not fundamentally catering personal security and personal needs.
132Objectives of benefits To increase the commitment of the employees to the organizationTo provide for the actual or perceived needs of employeesTo demonstrate that the company cares for its employeesTo ensure that an attractive remuneration package is provided which attracts and retains high quality staffTo provide tax-efficient method of remuneration which reduces tax liabilities with those related to equivalent cash payments
133Goals of fringe benefits Social goalHuman relations goalsMacro economic goals
134Benefits policies Range of benefits to be provided Scale of benefits providedProportion of benefits to total remunerationAllowing choiceAllocation of benefitsHarmonizationMarket considerationsGovernment policyTrade unions
135Major categories Payment for time not worked Hazard protection Employee servicesLegally required payment
136Cost to the companyCost to the company includes the value of all the perks and benefits one gets from the company in addition to ones salary. All the components of the salary may not be always apparent. In order to arrive at a comprehensive figure one has to carefully add the value of all components or their cash equivalent.
137Tax considerationsA tax efficient remuneration package can benefit both employers and employees. From the employees perspective it can enhance the benefits of working for that employer, from the employers point of view, it can mean reduced costs.In the past , tax efficiency was one of the main reasons for the proliferation of benefits, but it has become progressively less important as governments have tightened up the fiscal rules relating to employee benefits.Because fiscal regulations are constantly changing, it is essential to update the information related to tax law for salaried persons.