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Human ResourceManagement
Compensation & BenefitsManagement
HRM-II-Lecture#1
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Compensation
Deals with every type of rewardindividuals receive in exchange forperforming organizational tasks
Major cost of doing business Chief reason why most individuals seek
employment An exchange relationship
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Compensation Management
Process of determining cost-effective paystructure
Designed to attractand retain
Provide an incentive
to work hard Structured to ensure
that pay levels areperceived as fair
FOM 9.3
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Compensation Compensation in other terms also
called as EmployeeRemuneration.
Remuneration is the compensation; an employeereceives in return for his or her contribution to theorganization.
Remuneration occupies an important place in thelife of an employee. His or her standard of living,status in the society, motivation, loyalty, andproductivity depend upon the remuneration he orshe receives.
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Objective of Compensation
To create a system of rewards that isequitable to the employer andemployee alike
The desired outcome is an employeewho is: Attracted to the work Motivated to do a good job for the
employer Retain their services over an extended
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Factors That Influence Compensation
Unionization
Level of
Compensationand
Benefits
Employeestenure and
performance
Kind of job performedSize of
company
Management philosophy
Kind of businessGeographical
location
Labour- or capital-intensive
Company
profitability
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Determining Pay Rates
Employee compensation All forms of pay or rewards going to
employees and arising from their
employment. Direct financial payments
Pay in the form of wages, salaries,incentives, commissions, and bonuses.
Indirect financial payments Pay in the form of financial benefits such
as insurance.
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Compensation Policy IssuesPay for performancePay for seniority
The pay cycle
Salary increases and promotionsOvertime and shift payProbationary payPaid and unpaid leavesPaid holidaysSalary compressionGeographic costs of living differences
2005 Prentice Hall Inc. Allrights reserved. 118
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Compensation Policy Issues(contd)
Salary compression A salary inequity problem, generally
caused by inflation, resulting in longer-term employees in a position earningless than workers entering the firmtoday.
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Pricing Managerial andProfessional Jobs
Compensating managers Base pay: fixed salary, guaranteed
bonuses. Short-term incentives: cash or stock
bonuses Long-term incentives: stock options
Executive benefits and perks: retirementplans, life insurance, and healthinsurance without a deductible orcoinsurance.
2005 Prentice Hall Inc. Allrights reserved. 1110
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Financial Compensation
Direct FinancialCompensation
Consists of the pay an
employee receives in theform of: wages salaries bonuses
commissions
Indirect FinancialCompensation
Consists of allfinancial rewards notincluded in directfinancialcompensation i.e.,benefits: pensions insurance employee services
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Total CompensationTotal Compensation
DirectDirect IndirectIndirect
BonusesBonuses
GainsharingGainsharingSecurity Plans Pensions
Employee Services Educational assistance Recreational programs
CommissionsCommissions
Wages / SalariesWages / Salaries
Insurance PlansInsurance Plans MedicalMedical DentalDental LifeLife
Time Not WorkedTime Not Worked VacationsVacations BreaksBreaks HolidaysHolidays
Presentation Slide 91
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A Compensationsystem shouldbe:
AdequateEquitable
Balanced
Cost-effective
Secure
Incentive-
providing
Acceptable to theemployee
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Labor Market Economy
Government Unions
External Influences onCompensation
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Equal Pay Act of 1963
Established the concept of equal pay for equal work
Prohibits wage differentials based ongender between men and womenperforming essentially the same workin organizations skill effort responsibility
working conditions
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Pay and Motivation
Motivation set of attitudes andvalues that predisposes a person toact in a specific, goal-directedmanner: the direction of behavior (working to
reach a goal)
the strength of behavior (how hard orstrongly the individual will work)
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Pay and EmployeesSatisfaction
Pay Satisfaction refers to anemployees liking for or dislike of theemployers compensation package
(including pay and benefits)
Lawlers Model the distinctionbetween the amount employees receiveand the amount they think others arereceiving is the immediate cause of paysatisfaction or dissatisfaction
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Pay and EmployeesProductivity
Studies indicate that if pay is tied toperformance, the employee producesa higher quality and quantity of work
The key to making compensationsystems more effective is to be surethat they are directly connected toexpected behaviors
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Traditional Approach toCompensation
Job AnalysisJob Analysis
Job DocumentationJob Documentation
Job RatingJob Rating
Create JobWorth Hierarchy
Create JobWorth Hierarchy
Prepareto SurveyPrepare
to Survey
Conduct SurveyConduct Survey
AnalyzeMarket Data
AnalyzeMarket Data
Reconcile Internal &External Considerations
Reconcile Internal &External Considerations
DevelopPay Structure
DevelopPay Structure
To discover nature of duties performed To clarify authority and responsibility To determine KASOCs To record job information
Typical content: Job summary Specific duties KASOCs
Identify benchmark positions Select information sources
Choose comparators What information is needed? Document survey
Select methods for analysis
Apply job evaluattion instrument
Sore-thumbing Check for evidence of bias
Internal External
Source: Reprinted from Elements of Sound Base S alary Administration , 2nd edition, copyright 1988 , with permission from the American Compensation Associationand American Society for Personnel Administration, 14040 N. Northsight Blvd., Scottsdale, AZ U.S.A. 85260; telephone (602) 951-9191; fax (602) 483-8352 ACA
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Compensation Decisions
Pay-Level Decision
Examines pay relative to employeesworking on similar jobs in otherorganizations
Objective is to keep the organization
competitive in the labor market Pay survey is the major tool used in this
decision
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Compensation Decisions
Pay-Structure Decision
Examines pay relative to employeesworking on different jobs within theorganization
Involves setting a value on each job
within the organization relative to allother jobs
Job evaluation is the approach used
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Compensation Decisions
Individual Pay Determination Examines pay relative to employees
working on the same job within theorganization
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Pay Surveys
Techniques and instruments used tocollect data about compensation paidto employees in: a geographic area an industry an occupational group
Obtaining valid, reliable informationabout pay is critical to creating acompensation system that supports
corporate goals
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GovernmentSources
Professional and Trade
Organizations
Surveys Conductedby OtherOrganizations
Surveys by Journals
Sources of Pay Surveys
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Compensation Conclusion
Determining the worth of a job isdifficult because it involvesmeasurement and subjective decisions
Using systematic job evaluationprocedures is one way to determinenet worth
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How to Develop the
Compensation MechanismMethods & Techniques
HRM-II-Lecture # 2
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Determination of IndividualPay
Three questions need to be addressed:1. How should one employee be paid
relative to another when they bothhold the same job in theorganization?
2. Should we pay all employees doingthe same work at the same levelthe same?
3. If not, on what basis should wemake the distinction?
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Pay differentials are basedon:
1. Individual differences in experience,skills, and performance
2. Expectations that seniority, higherperformance (or both) deservehigher pay
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Methods of Payment
Flat Rates
Payment for TimeWorked
Variable Pay: IncentiveCompensation
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Payment for Time Worked
General, across-the-board increase forall employees
Merit increases paid to someemployees based on some indicator of job
performance
Seniority
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Variable Pay
Percentage of an employeespaycheck is put at risk
If business goals are not met, the payrate will not rise above the lowerbase salary
Annual raises are not guaranteed Helps manage labor costs Does not guarantee equitable
treatment of employees
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Types of Variable Pay
Individual Incentives
Group Incentives
Organization Incentives
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Individual Incentives
Possible only in situations whereperformance can be specified interms of output e.g., sales rupees generated e.g., number of items completed
Employees must work independentlyof each other so that individualincentives can be applied equitably
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Reasons to Use TeamIncentives
When it is difficult to measureindividual output
When cooperation is needed tocomplete a task or project
When management feels this is amore appropriate measure on whichto base incentives
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Organization-wideIncentives
Usually based on one of twoperformance concepts: A sharing of profits generated by all
employees altogether A sharing of money saved as a result of
employees efforts to reduce costs
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Employee Benefits
Five general categories of employeebenefits.government-mandated programsemployee welfare plans, including all
forms of health care plans, survivorbenefits, and disability programspension plans and other long-term
capital accumulation programs, includingprofit-sharing plans, and other savingsplanstime-off programs (whether paid or
unpaid), such as vacation and sick pay
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Pension PlansPension payment to a retired employeebased on the extent and level of employmentwith the organization.
defined benefit plan plan which guarantees a specificretirement payment based on a percentage of pre-retirementincome; typically, the amount is based on years of service,average earnings during a specified time period, and age attime of retirementdefined contribution plan plan whereby the employerprovides a specific amount of money (typically a percent of the base salary) deposited into an individual's account eachperiod; the employee chooses among investment optionsand, typically, may take the vested portion of the accountwith them if they leave employment (vesting refers to the
point in time when pension moneys set aside by a companyfor an individual become the actual property of that
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Components of InternationalCompensation
Four major components. base salary the amount of cash compensation that will
be provided to an individual each pay period foreign service inducements monetary payments
above and beyond base salary that companies offer inorder to encourage employees to accept expatriateassignments
allowances additional money given to expatriates forhousing expenses, educational expenses, relocation
expenses, spouse assistance, etc. benefits indirect forms of compensation that are
intended to maintain or improve quality of life foremployees
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AwardsAwards
Other Employee Benefits and Services
Recreational andRecreational andSocialSocial
Credit UnionsCredit Unions
Food ServicesFood Services
PurchasingPurchasing
AssistanceAssistance
TransportationTransportationPoolingPooling
On-Site HealthOn-Site HealthServicesServices
Legal ServicesLegal Services
FinancialFinancial
PlanningPlanning
Housing andHousing andMovingMoving
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