compensation management
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Elobrates about Compensation ManagementTRANSCRIPT
Compensation Management
Payroll involves large sums of money Pays systems are therefore an integral part of the business
strategy The pay debate as to whether the best way of rewarding service
is through pay is far from settled.
Objectives of Compensation System
A large sum of money is invested in people
Design rests on what must the company achieve.
System therefore needs to attract good employees by structuring packages that tempt people to do the job
Achievement of the Objectives are Determined By :
Top managements willingness to recognise ability and effort of individual employees
Top managements Commitment and philosophy regarding pay Operating Labour markets forces Collective bargaining Process Government legislation and rules
Designing a Compensation System
Traditional way of paying was done by ignoring the interaction of organizational members and buying employees time by the hour.
No Incentives, rewards etc In a rewarding environment , people work
hard. Today we value employees.
The Rewarding Environment Includes
How does this benefit practice benefit the organization ? Does the benefit offset the administrative costs? If we discontinued this practice, would that adversely affect
the organization’s performance? This gives off a holistic picture of the organization.
Elements of Total Compensation
Direct compensation is the fixed pay an employee receives on a regular basis, either in the form of a salary or as an hourly wage.
It includes cash incentives and various share offers from employers. The defining factor is that it has a cash value. Designed to reward employees for good performance. Can be monetary or non-monetary. Can also include medial aid, pension, provident fund etc. Perquisites or perks are a special category of benefits and are only
available only to employees with some special status, such as upper – level managers.
Principles of Value-Chain Compensation
Companies need to look at compensation as a value-creating function.
It creates value for the organisation and employees. Balances the four major compensation objectives which include:
Sustaining management Motivating performance Building employee commitment Encouraging growth in employee’s skills
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
Model for Compensation System
Job- Based Compensation Plan Route
Traditional Pay Systems
Traditionally people were paid primarily through base (basic) salaries determined by specific job, the need to maintain a certain level of internal pay equity an the need to pay externally competitive salaries.
Employees were not encouraged to develop skills. Most of salary structures had various other components.
Emerging Pay Systems
Pay for knowledge and skills Pay for competencies Performance based pay Incentive pay systems Broadbanding = rather than climb up through a series
of grades, employees might spend most of their careers in a single band moving laterally and acquiring new knowledge and competence. Useful in ‘boundaryless’ organisation.
Employee Benefits
Items in the total package offered to employees over and above salary which increase their wealth or well-being at some cost to the employer
Voluntary Benefits
Most of these benefits have certain legislative minimums. Vacation leave Paid public holidays Time for personal matters Sick leave Maternity leave Health and life insurance Medical Aid Schemes Pension Funds Employee Services e.g. Canteens, social, and recreational
services
Benefit Planning and Flexible Benefit Plans
Establish objectives Collect complete descriptive data on the current workforce Determine how much money is available in the budget Determine what programmes fit your objectives, your
workforce and your budget Determine what your employees need and want Decide what you will provide and what you will actually spend
in total Determine options and costs, of admin, management and
communication Plan how the above will be accomplished Implement the above
Advantages of Flexible Benefits Programme
The company can set the sum total of benefits for each employee
The changing needs of the workforce are catered for
Employees take ownership for their choice of benefits by satisfying their own unique needs
It is less costly for the organisation when an employee adds a new benefit
Disadvantages of Flexible Benefits
Without proper assistance employees can make bad choices and find themselves not covered for emergencies
Company administrative costs increase The cost of some benefits may increase as a result of a
majority of employees choosing the benefit
Calculating the Costs of Employee Benefits
The total annual costs of benefits for all employees Cost of benefits per employee per annum Percentage of the payroll (total costs of benefits
divided by the annual wage) Costs per employee per hour Other Benefits
What to Consider when Considering Costs
There is little evidence that benefits really encourage improved performance, or increase employees’ job satisfaction
Costs of employee benefits and services have increased dramatically Employers are required by law to introduce certain programmes So-called voluntary programmes are constantly under pressure from
labour unions, competitors and the industry to improve on employee benefits and services
Benefits Strategy
The Trend-setter Comparable
Benefits Minimum Benefits
Compensation Systems and Quality Assurance
Compensation benefits will shift towards base rates with top-up incentives based on performance, such as gain share,profit share etc.
Increased flexibility will become evident in remuneration packages.
Remuneration packages will become more tax-effective. Remuneration will be linked to teams rather than to
individuals