Compensation management “Attracting, retaining and motivating magic people”

The lighter side of compensation

Reference Module guide ~ Learning unit 7 Module guide ~ Learning unit 7 Text book: Text book: Chapter 11 (Pages 279 – 299) Chapter 4 (Pages 80 – 86) Chapter 4 (Pages )

Outcomes At the end of this module you should: 1. Understand the objectives of compensation 2. Discuss the design of a compensation system including elements of total compensation and value chain compensation 3. Describe the steps in a job based compensation system 4. Debate pay for ~ knowledge & skills, competencies, performance and incentives.

Outcomes At the end of this module you should: 5. Discuss voluntary employee benefits 6. Mandatory employment benefits  Basic Conditions of Employment Act  Compensation for Occupational and Injuries Act  Unemployment Insurance Act

Objectives of a compensation system Attract “magic” people Attract “magic” people Retain competent people Retain competent people Motivate people to add value Motivate people to add value Meet legal obligations Meet legal obligations Repel under-performing people? Repel under-performing people?

Fair Compensation Fairness is the key to sound compensation practices: (read on page 282) What are the 4 categories of fairness? 1. External equity ~ market related salaries 2. Internal equity ~ Paid according to affordability levels of organization 3. Individual equity ~ Similar performance and jobs should attract similar pay 4. Procedural equity ~ Compensable factors need to be fairly applied to all staff

Total compensation All compensation received by an employee generally expressed as an annual figure: 1. Direct compensation (Basic pay) 2. Employee benefits (retirement benefits, medical aids, disability benefits) 3. Fringe benefits (Motor car allowance, loans) 4. Incentives (Bonuses, profit sharing)

I&I Fish Finders ~ Fair pay In your groups decide how will fairly split the Salary budget. In your groups decide how will fairly split the Salary budget. What criteria did you apply? What criteria did you apply?

Value chain compensation Take into account the needs of the people; 1. Pay for performance 2. Link reward to levers of change 3. Reward measurable competencies 4. Match incentives to culture of organization 5. Keep incentive schemes simple 6. Over communicate reward strategy 7. Reward the contribution people make

Designing a Job Based compensation system 1. Conduct job analysis 2. Identify pay factors 3. Develop job hierarchy 4. Construct job grades 5. Salary survey 6. Establish pay policy movie

1. Job analysis Collect job information and produce Collect job information and produce Job descriptions Job descriptions Job specifications Job specifications For all positions For all positions

2. Identify pay factors Evaluate JOBS to determine their relative worth to organization Evaluate JOBS to determine their relative worth to organization Could be based on = Decision making, skills, knowledge, multi-skilling, responsibility, etc Could be based on = Decision making, skills, knowledge, multi-skilling, responsibility, etc Job evaluation systems = Task, Peromnes, Patterson, Hays, simple ranking. Job evaluation systems = Task, Peromnes, Patterson, Hays, simple ranking. Generally done through representative job evaluation committees Generally done through representative job evaluation committees

3. Develop job hierarchy Place jobs in a hierarchy of importance Place jobs in a hierarchy of importance CleanersSecurity Operators Clerks Supervisors Mngrs

4. Construct job grades Assign a grade to each hierarchical level Assign a grade to each hierarchical level A band, B band, C band, D band, E band A band, B band, C band, D band, E bandOR Grade Grade

5. Conduct salary survey Determine what the market is likely to pay for the job and or grade Determine what the market is likely to pay for the job and or grade Ensure that when using surveys that you compare “apples with apples” Ensure that when using surveys that you compare “apples with apples” Will allow you to set equitable salary ranges Will allow you to set equitable salary ranges

6. Establish pay policy Pegging your pay scales in the market Pegging your pay scales in the market Do you want to be a market leader, average or bottom feeder! Do you want to be a market leader, average or bottom feeder! You might want to pay certain grades or jobs at the high end to ensure you retain a scarce skill, and You might want to pay certain grades or jobs at the high end to ensure you retain a scarce skill, and At the average rate for common skills At the average rate for common skills

Emerging pay systems 1. Knowledge and skills based pay 2. Competency based pay 3. Performance based pay 4. Incentive based pay

Knowledge & skills based pay More skills and knowledge = more flexible More skills and knowledge = more flexible More flexible = more valuable More flexible = more valuable Organizations identify the critical knowledge and skills and place a premium pay on these Organizations identify the critical knowledge and skills and place a premium pay on these

Competency based pay A person might hold the knowledge and skill but not have the behavioural characteristics to apply skills in workplace A person might hold the knowledge and skill but not have the behavioural characteristics to apply skills in workplace Determine certain KSA & behaviours that are critical and reward these competencies Determine certain KSA & behaviours that are critical and reward these competencies Teamwork, energy, commitment, service orientation, attention to detail, technical competence Teamwork, energy, commitment, service orientation, attention to detail, technical competence

Performance based pay Organizations set clearly measurable performance objectives for each employee Organizations set clearly measurable performance objectives for each employee People are rewarded for meeting the agreed performance standards People are rewarded for meeting the agreed performance standards

Incentive based pay The more you achieve the more you get paid The more you achieve the more you get paid May be group or individually based: May be group or individually based: Sales volume Sales volume Products produced Products produced Costs saved Costs saved Quality improvements Quality improvements

Voluntary benefits Benefits over and above what is required in law that may be attractive to employee: Health and life assurance Health and life assurance Medical aid schemes Medical aid schemes Retirement funding Retirement funding Membership to gyms, clubs, professional bodies Membership to gyms, clubs, professional bodies Onsite cafeterias, gyms, wellness programs Onsite cafeterias, gyms, wellness programs Creches, after school care, study assistance for children Creches, after school care, study assistance for children Vacations Vacations Study, housing, technology loans Study, housing, technology loans

Mandatory benefits 1. Basic Conditions of employment minimum pay, overtime, mealtimes, leave~ maternity, annual, sick, family responsibility minimum pay, overtime, mealtimes, leave~ maternity, annual, sick, family responsibility 2. Compensation for Occupational injuries/diseases Temporary disability, permanently disabled, death Temporary disability, permanently disabled, death 3. Unemployment insurance Sick, maternity, adoption, dependant, unemployment benefits Sick, maternity, adoption, dependant, unemployment benefits

Next session Health & safety Health & safety