COMPENSATION MANAGEMENT

Session Overview Benefits of Proper Compensation Consequences of Inadequate Compensation Concepts of Wages Components of Remuneration Theories of Remuneration Factors Influencing Remuneration Remuneration Model Challenges of Remuneration Skill based and Job based Pay

Session Overview Incentive Payments Prerequisites of Effective Incentive System Types of Incentive System Group Incentive Plans Incentives for Indirect Workers Nature of Benefits and Services Benefits as Incentive Types of Employee Benefits and Services Principles of Fringes

Session Overview Significant Benefits and Service Programs Common Benefits in Pakistan Advantages and Disadvantages of Long Term Benefits Administration of Fringe Benefits Remunerating Top Executives Components of Executive Remuneration Issues in Executive Remuneration

Chapter 11 MANAGING BASIC REMUNERATION

Benefits of Proper Compensation Administration Attracts talentMotivates Employees Rewards Performance Reduces Turnover Manages Compensation Budget Compensation policy aims to attract talented employees and motivate them to put their efforts and commitment to work that increase job satisfaction work performance Benefits of Proper Compensation

Consequences of Pay Dissatisfaction grievances Desire for more pay Pay dissatisfaction performance strikes Search for new job Lower attractiveness of job absenteeism turnover Job dissatisfaction absenteeism Psychological withdrawal Poor health Visits to the doctors Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289

Concepts of Wages 1Minimum Wage 2Fair Wage 3Living Wage 4Team based Pay 5Remunerating Professionals 6Contract Employees 7Expatriates and Executives

Components of Remuneration Benefits include both financial and non financial Wages and Salary Incentives Fringe Benefits Perquisites Non Monetary Benefits

Components of Remuneration Remuneration FinancialNon Financial Wages and Salary Hourly wages and monthly rates salary Incentives Individual plans Group plans Fringe benefits CPF Gratuity Medical etc. Perquisites Company car Club membership Furnished house Stock option schemes etc. Job content Challenging job responsibilities Supervision Growth prospects Working conditions Etc. Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286

Theories of Remuneration Employee set expectations and goals Performance is rewarded Employee consider equity of reward and performance Feedback to employee Employee sets new goals and expectations based on experience

Theories of Remuneration Reinforcement Theory Positive ExperienceBehavior is repeatedBehavior rewarded

Theories of Remuneration Equity Theory Adam’s equity theory emphasizes to have equity in pay structure of employee If employee feel that their efforts are well rewarded they will put more efforts and will be satisfied with their job In case of inequity feeling they will be de moralized and dissatisfied resulting into low productivity Individual equity Internal equity External equity Perception of fairness Motivation Commitment Performance Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 287

Agency Theory In the organizations employer and employees are two main stakeholders Employer act as principals and employees assume the role of agent The remuneration of employee is agency cost Principal tries to agency cost and agent expect to have more agency cost The principal (Employer) should try to choose remunerating schemes that align its own interest with expectation of agents (employees) Behavior oriented (merit based pay) Outcome oriented (profit sharing, commission) Theories of Remuneration

Factors Influencing Remuneration Internal FactorsExternal Factors Organization StrategyEconomy EmployeeSociety Job EvaluationLabour Market Performance AppraisalCost of Living Labor Unions Legislation

Factors Influencing Remuneration Business Strategy Market Position Remuneration Strategy Blend of Remuneration Invest to growMerging or grow rapidly Encourage innovation and entrepreneurship High cash and incentives for performance. Modest benefits Manage earning Protect Markets Normal growth to maturity Reward management skills Average incentives with average cash on unit and individual performance. Standard benefits Harvest earnings invest somewhere else Maturity or decline Focus on cost control Below average cash with few incentives that too tied with cost control efforts. Standard benefits Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Remuneration Model Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295 Job description Job evaluation Job hierarchy Pay survey Pricing Jobs Pay levels Pay grades

Challenges of Remuneration Remuneration Salary Reviews Monetary and non monetary rewards Skill based pay Comparable worthBelow market or above market pay Eliticism or Egalitarianism Employee participation Pay Secrecy Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300

FactorsSkill basedJob based Pay structureBased on ability to perform Based on job performance Employer’s focusEmployee carriers wages, Employee linked to skills Job carries wages. Employee linked to job Employee focusSkill acquisition for more pay Job promotion for better pay Procedures requiredSkills assessment, Value skills Job content assessment, Value jobs AdvantagesFlexibility, Reduced workforce Pay based on value of job and work performed DisadvantagesCost controlsInflexibility Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p Skill Based and Job Based Pay

Benefits of Proper Compensation Consequences of Inadequate Compensation Concepts of Wages Components of Remuneration Theories of Remuneration Factors Influencing Remuneration Remuneration Model Challenges of Remuneration Summary