1. Compensation Management

2. Compensation Employee compensation – refers to extrinsic and intangible rewards. – refers to all forms of pay or rewards going to employees and arising from their employment. – includes monetary as well as nonmonetary pay or rewards. – could be – Direct financial payments- Wages, Salaries, Incentives, Commission and Bonuses etc. – Indirect financial payments- Financial benefits like insurance, vacations etc.

3. Components of compensation

4. Typical Compensation Responsibilities

5. Compensation Program It should have four objectives: – 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. Legal compliance Some the compensation related acts in India: – Minimum Wages Act, 1948 – Payment of Wages Act, 1936 – Adjudication of Wage Disputes – Pay Commissions – Payment of Bonus Act, 1965

7. Strategic Compensation Attracting, motivating, and retaining the talent required for a sustainable competitive advantage Focusing the energy of employees on implementing the organization’s particular competitive strategy Improving productivity

8. Compensation Philosophies

9. Other considerations Alignment with organizational cultures Balancing the costs of attracting and retaining employees with the competitive pressures in its industry. – where firm wishes to be positioned in the labor market?

10. Labour Market Positioning Lead strategy – the organization intends to pay somewhat above the market rate in valuing employees as a competitive advantage. Match strategy – sets the organization’s policy line at the middle of the market. Lag strategy – the organization intentionally pays below the market.

11. Competency-based Pay Pay for the competencies Also k/a Knowledge-based pay (KBP) or Skill- based pay (SBP) Employees start at a base level of pay and receive increases as they learn to do other jobs or gain other skills and therefore become more valuable to the employer.

12. Outcomes of competency-based pay

13. Broadbanding It uses fewer pay grades having broader ranges. Prime reasons – creating more flexible organizations, encouraging competency development, and emphasizing career development.

14. Behavioral Aspects of Compensation Equity – Perceptions based on comparisons between an individual’s ratio of inputs and outcomes and the ratios of others doing similar work. Inputs: What an employee gives to the job Outcomes: What people get out of doing the job Self Other

15. Equities Equity – the perceived fairness of the relation between what a person does (inputs) and what the person receives (outcomes). External Equity – Employees are paid comparably to those who perform similar jobs in other firms. Internal Equity – Employees are paid according to relative value of their jobs within an organization. Individual or Employee Equity – Individuals performing similar jobs for the same firm are rewarded according to factors unique to the employee, such as performance level or seniority.

16. Behavioral Aspects of Compensation Pay Fairness – What people believe they deserve to be paid in relation to what others deserve to be paid. Pay Secrecy – Employees may have inaccurate information or misperceptions about pay. – Secrecy is the norm—managers get fewer questions about inequitable pay. Pay Communication – Involving employees in pay system design increases pay satisfaction. – Implementing pay systems fairly and providing due process reduces misperceptions about pay.

17. Wage and Salary Administration It is described as – the development, implementation, and ongoing maintenance of a base pay system. – Base pay The wage or salary an employee receives, exclusive of any incentive pay or benefits. Is predictable and fixed. – Pay Mix The way an organization distributes pay among all elements of total compensation, including monetary versus nonmonetary elements.

18. Wage and Salary Administration Pay Policies – Market positioning – Market pricing Market price is the typical wage paid for a job in the immediate labour market. Unions and Compensation

19. Development of a Base Pay System

20. Pay Surveys A pay survey – is a collection of data on compensation rates for workers performing similar jobs in other organizations. – An employer may use surveys conducted by other organizations, or may decide to conduct its own survey.

21. Pay Surveys While using surveys from other sources, it is important to address following questions: – Participants – Broad-based – Timeliness – Methodology – Job matches

22. Job Evaluation – provides a systematic basis for determining the relative worth of jobs within an organization. – every job in an organization is examined and ultimately priced according to the following features: Relative importance of the job KSAs needed to perform the job Difficulty of the job

23. Job Evaluation Methods Job Ranking Method – Places jobs into a rank order according to the perceived overall value or importance of the job. – Is convenient when only a few jobs need to be evaluated and one person is familiar with them. Job Classification Method – Groups jobs into a set of classifications based on the job descriptions, and then ranks the jobs that are found within each classification. – Jobs classified as being similar are usually referred to as being in the same job grade.

24. Job Evaluation Methods Point Factor Rating Method – It breaks down jobs into various compensable factors and places weights, or points, on them. – Compensable factor is one used to identify a job value that is commonly present throughout a group of jobs. The factors are determined from the job analysis.

25. Job Evaluation Methods Point Factor Rating Method – STEP 1: Select Compensable Factors – STEP 2: Assign Factor Weights – STEP 3: Define Factor Degrees – STEP 4: Establish the Degree of Each Factor Present in Each Job – STEP 5: Calculate Job Values

26. Job Evaluation Point Chart

27. Defining degrees

28. Establishing Pay Structures

29. Executive Salaries Executive Benefits Executive Perquisites (Perks) Annual Executive Incentives and Bonuses Performance Incentives: Long Term vs. Short Term Elements of Executive Compensation