1. COMPENSATION ADMINISTRATION
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EXCEL BOOKS
COMPENSATION ADMINISTRATION

2. ANNOTATED OUTLINE INTRODUCTION
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ANNOTATED OUTLINE
INTRODUCTION
Compensation is what employees receive in exchange for their contribution to the organization. Generally speaking, employees offer their services for three types of rewards
        Base pay
        Variable pay
        Benefits
The most important objective of any pay system is fairness or equity, generally expressed in three forms
Internal equity: where more difficult jobs are paid more
External equity: where jobs are fairly compensated in comparison to similar jobs in labour market
Individual equity: where equal pay is ensured for equal work
Compensation Administration

3. Objectives of compensation planning
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Objectives of compensation planning
Attract talent
Retain talent
Ensure equity
Reward appropriately(loyalty, commitment, experience, risk raking and other desired behaviours)
Control costs
Comply with legal rules
Ease of operation
Compensation Administration

4. Equity And Pay Rates Ensuring equity in pay rates
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Equity And Pay Rates
Equity in pay rates could be achieved through five steps
Ensuring equity in pay rates
Find the worth of each job through job evaluation
Conduct a salary survey through the following methods
Key job matching
Key class matching
Occupational method
Job evaluation method
Broad classification method
Group similar jobs into pay grades(pay grades are groups of jobs within a particular class that are paid the same rate
Price each pay grade by using wage curve(curve in a scatter diagram representing the relationship between relative worth of jobs and wage rates)
Fix a pay rage for each grade (like pay for officer category I, II, III etc)
Compensation Administration

5. Components of Pay Structure
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Components of Pay Structure
The two essential components of pay structure are; basic wages and dearness allowance .the basic wage rate is fixed taking the skill needs of the job, experience needed, difficulty of work, training required, responsibilities involved and the hazardous nature of the job. Dearness allowance it paid to employees in order to compensate them for the occasional or regular rise in the price of essential commodities.
Components of pay structure in India
Under the Workmen's Compensation Act
Wages for leave period, holiday pay, overtime pay, bonus, attendance bonus and good conduct bonus
Under the Payment of Wages Act
Retrenchment compensation, payment in lieu of notice , gratuity payable on discharge
Compensation Administration

6. Components of Pay Structure
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Components of Pay Structure
The following, however, do not come under the term wages
Bonus
Payments made under a profit sharing scheme
Value of house accommodation
Medical allowances
Travelling allowances
Any other sum paid to defray special expenses incurred by the worker
Contribution to pension, provident fund
Any amenity or service excluded from the computation of wages
Compensation Administration

7. Wage And Salary Administration
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Wage And Salary Administration
It is the process of managing a company’s compensation (base compensation as well as supplementary) programme Base compensation, here, refers to monetary payments to employees in the form of wages and salaries. It is a fixed, non-incentive kind of payment calculated on the basis of time spent by an employee on the job. Supplementary compensation signifies incentive payments based on the actual performance of an employee.
Compensation Administration

8. Wage And Salary Administration
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Wage And Salary Administration
Objectives
To establish a fair and equitable remuneration
To attract competent personnel
To retain present employees
To control labour cost
To improve motivation and morale of employees
To project a good image of the company
Principles
Wage and salary plans be sufficiently flexible
Job evaluation being done scientifically
Wage and salary plans be always consistent with overall plans
Wage and salary plans being responsive to changing conditions
Compensation Administration

9. Factors affecting compensation levels
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Factors affecting compensation levels
Factors influencing compensation levels
Job needs
Ability to pay
Cost of living
Prevailing wage rates
Unions
Productivity
State regulation
Demand and supply of labour
Compensation Administration

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Wage Policy In India
A wage policy offers certain guidelines for determining a wage structure. The term wage structure refers to various pay scales showing rages of pay within each grade. Three important elements of wage policy in India need to be elaborated here
Minimum wage: Wage sufficient to sustain and preserve the efficiency of the worker and offer basic amenities of life
Fair wage: It is above the minimum wage but below the living wage. It is fixed, taking into account factors such as the productivity of labour, prevailing wage rates, level of national income and its distribution, the employer’s capacity to pay etc.
Living wage: This is the highest amount of wages proposed by the government, offering basic amenities of life and satisfying the social needs of worker.
Compensation Administration

11. State regulation of wages
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State regulation of wages
Institutions involved in fixation of wages
Compensation Administration

12. Reasons for wage differentials
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Wage differentials
Differences in wage rates are inevitable in any industry and the reasons are fairly obvious
Reasons for wage differentials
Compensation Administration

13. Choices In Designing A Compensation System
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Choices In Designing A Compensation System
The compensation that is followed by a firm should be in tune with its own unique character and culture and allow the firm to achieve its strategic objectives. A variety of choices confront a firm here:
Internal and external pay
Fixed vs. variable pay
Performance vs. membership
Compensation Administration

14. Choices In Designing A Compensation System
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Choices In Designing A Compensation System
Guidelines for effective performance based pay stems
To be fair to employees, organisations should keep the following guidelines in mind while instituting merit-pay systems
Establish high standards of performance, so that only the truly outstanding employees emerge as winners.
Develop accurate performance appraisal systems. The focus must be on job- specific, results-oriented criteria as well as employee behaviours.
Train supervisions in the mechanics of carrying out appraisals and offering feedback to employees in a proper way.
Tie rewards closely to performance.
Use a wide range of increases. Also, make pay increases meaningful.
Compensation Administration

15. Choices In Designing A Compensation System
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Choices In Designing A Compensation System
Job vs. individual pay
Suitability of job based vs. knowledge based pay systems
A job based-pay system is suitable when:
Jobs do not change often
Technology is stable
Lot of training is required to learn a given job
Turnover is relatively how
Employees are expected to move up through the ranks over time
Jobs are fairly standardised within the industry
Individual-based pay system is suitable when:
The firm has relatively educated employees with both the ability and willingness to learn different jobs
The firm's technology, processes are subject to frequent change
Vertical growth opportunities are limited
Opportunities to learn new skills exist
Teamwork and employee participation are encouraged
Compensation Administration

16. Broad banding vs. Competency based pay system
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Broad banding vs. Competency based pay system
Organisations that follow a skill-based or Competency Based Pay System frequently use broad banding to structure their compensation payments to employees. Broad branding simply compresses many traditional salary grades (say 15 to 20 grades) into a few wide salary bands (three or four grades). By having relatively few job grades, this approach tries to play down the value of promotions. Depending on changing market conditions and organisational needs, employees move from one position to another without raising objectionable questions, (such as when the new grade is available, what pay adjustments are made when duties change etc.) As a result movement of employees between departments, divisions and locations becomes smooth. Employees with greater flexibility and broader set of capabilities can always go in search of jobs in other departments or locations that allow them to use their potential fully. Broad banding, further, helps reduce the emphasis on hierarchy and status. However, broad banding can be a little unsetting to a new recruit when he is made to roll on various jobs. Most employees still believe that the existence of many grades helps them grab promotional opportunities over a period of time. Any organisation having fewer grades may be viewed negatively – as having fewer upward promotion opportunities. Moreover, a number of individuals may not want to move across the organisation into other areas.
Compensation Administration

17. Choices In Designing A Compensation System
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Choices In Designing A Compensation System
    Below market vs. above market compensation
Open vs. secret pay
Compensation Administration

18. Managerial Compensation In India
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Managerial Compensation In India
Executive compensation is built around three factors in India
Job complexity
Employers’ ability to pay
Managerial productivity
Compensation Administration

19. Executive compensation: Private sector vs. Public sector
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Executive compensation: Private sector vs. Public sector
In a well publicised front page news sometime back The Economic Times mentioned about the miserable salary levels of top executives in public sector units in India. For example the State Bank of India chief is paid 10% of HDFC Bank Managing Director, BHEL's chief getting about Rs.10 to 12 lakhs per year as against ABB's MD getting nearly Rs.40 to 50 lakhs; Indian Oil Corporation's chief getting Rs.10 to 15 lakhs per annum as against Reliance Industries' Ambanis getting a package of over Rs.10 crore per annum. Salary levels in 'hot' private sector such as BPO, hospitality, biotechnology 'Media', IT, Telecommunications, Oil, Automobiles and Insurance are way above the packages offered to executives in public sector for various reasons such as: overstaffing, inefficient processes, pressure on margins due to competition, appointment of people without requisite skills at the top level, political interference especially in pricing the products or services, legal constraints etc.
Compensation Administration

20. How to retain talent? Improving communication Changing work rules
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How to retain talent?
Improving communication
Changing work rules
Increasing pay and incentives
Ego massaging services
Non-poaching agreements
Opportunities to upgrade skills and knowledge
Offering jobs with stretch, pull and challenge
Compensation Administration