Compensation Management

Compensation Management

Compensation is what employees receive in exchange for their contribution to the organization.

Nature of compensation:1. Base pay: it is the basic compensation an employee

gets, usually as a wage or salary2. Variable pay: it is the compensation that is linked

directly to performance accomplishments (bonuses, incentives, stock options)

3. Benefits: these are indirect rewards given to an employee or group of employees as a part of organizational membership (health insurance, vacation pay, retirement pension, etc)

A model of the consequences of pay dissatisfaction

Desire for more pay

Performance

Strikes

Grievances

Search for a higher paying

job

Absenteeism

Turnover

Pay dissatisfactionLower

attractivenessof job

Absenteeism

Job dissatisfaction

Psychological withdrawal Dispensary visits Poor mental health

Objectives of Compensation Management

Acquire qualified personnel Retain present employees Ensure equity Reward desired behavior Control costs Comply with legal regulations Facilitating understanding Further administration efficiency Compensation objectives are not rules, they are

guidelines

Major phases of Compensation ManagementPhase 1

Identify and study jobsJob Analysis

Job Evaluation

Job Ranking Job Grading Factor Comparison Point System

Wage and Salary

Department ofLabor

Employer associations

Professional association

Self-conductedsurveys

Pricing Jobs

Job evaluation worth

MatchLabor market

worth

Rate range foreach job

Phase 2Internal equity

Phase 3External equity

Phase 4Matching internal

And external worth

Phase 1 Job Analysis : Job analysis collects information

about jobs to produce job position descriptions.

Phase 2 Job Evaluations: Job evaluations are systematic

procedures use to determine the relative worth of jobs. Job Ranking: method requires a committee typically

composed of both management and employee representatives to arrange jobs in a simple rank order.

Job Grading: In this method each job is assigned a grade or class. These classifications are created by identifying some common denominator skills, knowledge, responsibilities – with the desired goal being the creation of a number of distinct classes or grades of jobs.

Factor comparison: It requires the job evaluation committee to compare critical or compensable job components. The compensable components are those factors common to all the jobs being evaluated – such as responsibility, skill, mental effort, and working condition.

Point system: It is used more than any other method. This system evaluates the compensable factors of each job. Instead of using wage rates, as the factor comparison method does, it uses points.

Phase 3 Wage and Salary surveys: These surveys discover what

other employers in the same labor market are paying for specific key jobs.

Source of compensation data- Department of labor- Employer associations- Professional associations- Self-conducted surveys

Phase 4 Pricing jobs: In pricing jobs, the job evaluation

worth is matched with labor market worth. Two activities are involved: establishing the appropriate pay level for each job, and grouping different pay levels into a structure that can be managed effectively.

Reward System

An incentive or a reward scheme is a plan or program to motivate individual or group performance. An incentive program is most frequently built on monetary rewards, but may also include a variety of non-monetary rewards or prizes.

Features of a reward system An incentive plan may consist of both

'monetary' and 'non-monetary' elements. The timing, accuracy and frequency of

incentives are the very basis of a successful incentive plan.

The plan requires that it should be properly communicated to the employees to encourage individual performances, provide feedback and encourage redirection.

Principles of Reward Strategy Pay for performance Links to other levers of organisational change

such as providing recognition when deserved Reward measurable competencies Match incentives to the company culture Keep incentives clear and simple Over-communicate the reward strategy for the

best results The greatest incentive is the work itself as

employees want to be recognised for the work they do and the contributions they make