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COMPENSATION ADMINISTRATION

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Presentation on theme: "COMPENSATION ADMINISTRATION"— Presentation transcript:

1 COMPENSATION ADMINISTRATION
16-1 EXCEL BOOKS COMPENSATION ADMINISTRATION

2 ANNOTATED OUTLINE INTRODUCTION
16-2 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
16-3 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
16-4 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
16-5 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
16-6 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
16-7 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
16-8 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
16-9 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

10 16-10 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
16-11 State regulation of wages Institutions involved in fixation of wages Compensation Administration

12 Reasons for wage differentials
16-12 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
16-13 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
16-14 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
16-15 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
16-16 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
16-17 Choices In Designing A Compensation System     Below market vs. above market compensation Open vs. secret pay Compensation Administration

18 Managerial Compensation In India
16-18 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
16-19 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
16-20 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


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