1. HUMAN RESOURCE
MANAGEMENT
COMPENSATION
MANAGEMENT
CHAPTER NO. 8

2. AFTER STUDYING THIS CHAPTER YOU SHOULD BE ABLE TO:
Understand and differentiate between performance management and performance appraisal.
Identify the factors that effect performance.
Narrate performance management cycle.
Describe two major purposes of performance management.
Understand three job criteria and information types.
Discuss the pros and cons of using different raters to appraise a person’s performance .
Develop, Evaluate, and administer at least four appraisal methods to measure performance
Explain several rater errors by giving examples of them.
Perform an effective appraisal interview.
Design Appraisal form to measure employee performance effectively.

3. WHAT IS COMPENSATION COMPENSATION
Compensation is what employee receives in exchange for their contribution to the organization.

4. COMPENSATION MANAGEMENT
WHAT IS COMPENSATION
MANAGEMENT
COMPENSATION MANAGEMENT
Compensation management help the organization to obtain, maintain and retain a productive Workforce.

5. COMPENSATION MANAGEMENT
OBJECTIVES OF
COMPENSATION MANAGEMENT
Legal compliance with all appropriate laws and regulations.
Cost effectiveness for the organization.
Internal, external, and individual equity for employees.
Performance enhancement for the organization.

6. 1. Intrinsic Compensation 2. Extrinsic Compensation
TYPES OF COMPENSATION
Types of Compensation
1. Intrinsic Compensation
2. Extrinsic Compensation

7. TYPES OF COMPENSATION Cont . . .
1. INTRINSIC COMPENSATION
Rewards once receives from job itself such as pride in One’s work, a feeling of accomplishment, or being a part of a team.
2. EXTRINSIC COMPENSATION
Rewards one gets from employer usually money, a promotion or benefits

8. FINANCIAL Vs. NON FINANCIAL REWARDS
Individual
Financial Rewards
Group
Organization Wide
Non Financial Rewards
Fringe Benefits

9. TYPES OF VARIABLE PAY PLANS
Piece Rate
Sales Commissions
Bonuses
Special Recognition
INDIVIDUAL
GROUP
ORGANIZATIONWIDE
Profit Sharing
Employee Stock Options
Executive Stock Options
Gain Sharing
Labor Cost Reduction

10. COMPENSATION MANAGEMENT
PHASE WISE MODEL OF
COMPENSATION MANAGEMENT
Phase 1
Identity and Study jobs
Job Analysis
Position Description
Job Description
Job Standard
Phase 2
Internal Equity
Job Evaluation
Job Ranking
Job Grading
Factor Comparison
Point System
Phase 3
External Equity
Salary & Wages Survey
Dept. Of Labor
Employee Associations
Professional Association
Self Conducted Survey
Phase 4
Matching Internal and External Work
Pricing Job
Job Evaluation Worth
Match Rate & Range for Each Job
Labor Market Worth

11. COMPENSATION MANAGEMENT Identity and Study jobs
PHASE WISE MODEL OF
COMPENSATION MANAGEMENT
Phase 1
Identity and Study jobs
Job Analysis
Position
Description
Job
Description
Job
Standard

12. JOB ANALYSIS JOB ANALYSIS
A Systematic way of gathering and analyzing information about the Content, Context, and the Human Requirements of jobs for the purpose of developing Job description, Job specification & Job evaluation.

13. COMPENSATION MANAGEMENT
PHASE WISE MODEL OF
COMPENSATION MANAGEMENT
Phase 2
Internal Equity
Job Evaluation
Job
Ranking
Job
Grading
Factor
Comparison
Point
System

14. JOB EVALUATION
Systematically determining the relative worth of the jobs to create job structure. Or
Determining the worth of job for reward, benefits & compensation system.

15. JOB EVALUATION METHODS
1. Job Ranking Method
2. Job Grading / Classification Method
3. Factor Comparison Method
4. Point System

16. 1. JOB RANKING METHOD DEFINITION
Arrangement of job in a simple rank order form highest to lowest or form lowest to highest.
Raters examine the JD of the each job.
e.g. starting from lowest
to highest
Janitor ranked 1
Secretary gets 2
Office manager gets 3
Arrange in order according to value.

17. Assigned a grade or class for each job.
2. JOB GRADING METHOD
Assigned a grade or class for each job.
Step 1
These classification are created by identifying a number of job related factors such as, education, experience and responsibilities with the goal to determine classes or grades of Job.
Step 2
After classifications, jobs are ranked in an overall order of importance according to criteria chosen and each job is placed in its appropriate grade
Step 3
The standard description that most nearly matches the JD determines the job’s grading/classification.

19. 3. FACTOR COMPARISON METHOD
The each compensable factor such as responsibility, skill, mental effort, physically effort and working conditions is compared one at time with the same factor for other key job and then evaluated.
i. Determine the Compensable Factor
Steps Of Factor Comparison Method
ii. Determine Key Jobs
iii. Apportion Present Wages for Key Jobs
iv. Place Key Jobs on a Factor Comparison Chart
v. Evaluate Other Jobs

22. 4. POINT SYSTEM METHOD 1 2 Steps Of Point System Method 3 4 5 6
An approach to job evaluation in which numerical values are assigned to specific job factors and the sum of those values provides a quantitative assessment of a job’s relative worth.
Determine the Critical factor 1
Determine Sub-factor 2
Steps Of Point System Method
Determine the levels of factors 3
Allocate points to factor
under each level 4
Develop a point manual 5
Apply the point system 6

23. Factors 1st Degree 2nd Degree 3rd 4th 5th SKILL 15 30 45 60 75 20 40
Education 15 30 45 60 75
Experience 20 40 80
100
Initiative and Ingenuity
EFFORT
Physical demand 10 50
Mental or visual demand 5 25
RESPONSIBILITY
Equipment or process
Material or product
Safety of others
Work of other job conditions
JOB CONDITIONS
Working conditions
Unavoidable hazards

24. A Point Manual Description of “Responsibility: Equipment and Material”
b. Equipment and materials: each employee is responsible for conserving the company’s equipment and material. This includes reporting mal functioning, equipment or defected material, keeping equipment and material clean or in proper order, and maintaining , repairing, or modifying equipment and materials according to individual job duty. The company recognizes that the degree of responsibility for equipment and material varies widely through out the organization
Level1: Employee reports mal functioning equipment or defective materials to immediate
superior.
Level 2: Employee maintain the appearance of equipment or order of materials and has
responsibilities for the security of such equipments and materials
Level 3: Employee performs preventive maintenance and minor repairs on equipment or
corrects minor defects in materials
Level 4: Employee performs major maintenance or overhauls of equipment or is
responsible for deciding type, quantity, and quality of material to be used.

25. COMPENSATION MANAGEMENT
PHASE WISE MODEL OF
COMPENSATION MANAGEMENT
Wage & Salary Survey
Phase 3
External Equity
Department of
Labor
Employee
Associations
Professional
Association
Self-Conducted
Surveys

26. Steps in Wage And Salary Survey
A collection of data on existing compensation rates for workers performing similar jobs in other organizations.
Steps in Wage And Salary Survey
Department of Labor
i. Identifying Key Jobs
Employee Associations
ii. Selecting the Organizations
to Survey
Professional Association
iii. Data Collection Sources
Self-Conducted Surveys
iv. Interpreting the Data
On live Surveys

27. Matching Internal and External Work
PRICING JOB
Allocate the Value to the job After matching the job evaluation worth with the market worth.
Phase 4
Matching Internal and External Work
Establishing Pay Structure
Establishment of Pay Grades
Establishment of Pay Ranges

28. ESTABLISHING PAY STRUCTURE
Used for tying pay survey information to job evaluation data.
Wage
Curve
The line on a graph showing the relationship between job value, as determined by job evaluation points, and pay survey rates.
Market
Line
A grouping of individual jobs having approximately the same job worth.
Pay
Grades
It involves collapsing multiple salary grades and ranges into a few wide levels known as bands.
Broad
Banding
Using the market line as a starting point, the employer can determine maximum and minimum pay levels for each pay grade by making the market line the midpoint line of the new pay structure.
Pay
Ranges

29. ESTABLISHING PAY STRUCTURE

30. Pay Scatter
Gram

31. Pay Grades &
Pay Ranges

32. Incentive system could be individual based
INCENTIVE SYSTEMS &
GAIN SHARING
links compensation and performance by rewarding performance instead of seniority or hours being worked.
Incentive system could be individual based
Incentive System
Matches an improvement (gain) in performance with a distribution (sharing) of the benefits with employees.
Gain Sharing

33. INCENTIVE SYSTEMS & GAIN SHARING
DESCRIPTION
Piece Work
Compensates the worker for each unit of output
Production Bonuses
Paid to workers for exceeding output goals
Commissions
The seller may be paid a percentage of selling price or a flat amount for each unit sold
Merit Raises
Pay increases given after an evaluation of performance
Pay for knowledge/pay for Skills Compensation
Rewarding employees with higher pay as an incentive for increased knowledge or skills they acquire.
Non Monetary Incentive
e.g. recognition programs in which employee receives certificates, time off, vacations etc
Executive Incentive
Stock option: the right to purchase the company’s stock at a predetermined price.
Weighted incentive systems: reward executives on the basis of improvements in the multiple areas of business

34. INCENTIVE SYSTEMS & GAIN SHARING
DESCRIPTION
Employee Ownership
Many company have stock purchase plans that allow workers to buy shares in the company, so owing the fractional part of the firm and sharing its success
Production Sharing Plans
Allow groups of workers to receive bonuses for exceeding predetermined levels of output.
Profit Sharing Plans
Share profits with the employees
Cost Reduction plans
Scanlon Plan: Employees aim to reduce costs and then share in the savings that result.
Bonuses on improvements in quality of labor costs compared with the historical norms

35. EQUITY FACTOR APPROACH
The perceived fairness of the relation between what a person does (inputs) and what the person receives (outcomes).

36. EQUITY FACTOR APPROACH Cont . . .
PERSON
COMPARISON
OTHER
Other’s Rewards
Equity
My Rewards (Outcomes)
My Contributions (Inputs)
Other's Contributions
Inequity
(Under-Rewarded)
My Rewards
Other’s Rewards
My Contributions
Other's Contributions
Inequity
(Over-Rewarded)
My Rewards
Other’s Rewards
My Contributions
Other's Contributions

37. EQUITY FACTOR APPROACH Cont . . .
PROCEDURAL JUSTICE
The perceived fairness of the process used to determine the distribution of rewards.
DISTRIBUTIVE JUSTICE
Perceived fairness of the amount and allocation of rewards among individuals.

38. COMPENSATION MANAGEMENT
PHASE WISE MODEL OF
COMPENSATION MANAGEMENT
Pricing Job
Pay above the
Market Rate
Pay Market Rate
Pay below the
Market Rate

39. MARKET RATE & COMPENSATION 1. Pay Above the Market Rate
PLANS
1. Pay Above the Market Rate
Advantages
Disadvantages
Attracts better employees.
Additional Compensation Cost
Minimize voluntary turnover.
Sense of entitlement
Fosters Strong culture & competitive Superiority

40. MARKET RATE & COMPENSATION
PLANS
1. Pay Market Rate
Advantages
Disadvantages
Higher quality of Human Resource at midrange of market-driven Compensation.
Does not attract huge factor forever
Turnover will vary with labor demand of competitively firms.

41. MARKET RATE & COMPENSATION
PLANS
1. Pay Below Market Rate
Advantages
Disadvantages
Lower Compensation Costs
Lower Quality Employee
Useful in labor Market where Unemployment rate large
Low Moral / Job Satisfaction
High Turnover, Especially wage

42. Management Quality Circle
CHAPTER 8
Intrinsic Compensation
Types of Compensation
Extrinsic compensation
Financial Rewards
Wages & Salaries
Incentives
Gain
Sharing
Financial Rewards Vs. Non Financial Rewards
Non Financial Rewards
Fringe Benefits
Phases of Compensation Management
COMPENSATION MANAGEMENT
Scientific Management
PHASE 1
Job Analysis
(Identify & Study the Job)
Scientific Management
PHASE 2
Job Evaluation
(Internal Equity)
Scientific Management
PHASE 3
External Equity
(Salary & Wages Survey)
Scientific Management
PHASE 4
Pricing Job
(Matching Internal & External Equity)
Scientific Management
Position Description
Job Description
Job Standard
Scientific Management
Job Ranking
Job Grading
Factor Comparison
Point System
Scientific Management
Department of Labor
Employee Associations
Professional Associations
Self Conducted Survey
Scientific Management
Job Evaluation Worth
Match Rate & Range for
each Job
Labor Market Worth
Pay Above the
Market Rate
Pay Market
Rate
Pay Below the
Market Rate & Compensation Plans
Management Quality Circle

43. THOUGHT OF THE DAY
If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don't have to manage them.
“Jack Welch”