Compensation managementCompensation management

““Attracting, retaining and motivating Attracting, retaining and motivating magic people”magic people”

The lighter sideof

compensation

ReferenceReference

Module guide ~ Learning unit 7Module guide ~ Learning unit 7

Text book:Text book:Chapter 11 (Pages 279 – 299)Chapter 11 (Pages 279 – 299)

Chapter 4 (Pages 80 – 86)Chapter 4 (Pages 80 – 86)

Chapter 4 (Pages 110-113)Chapter 4 (Pages 110-113)

OutcomesOutcomesAt the end of this module you should:At the end of this module you should:

1.1. Understand the objectives of compensationUnderstand the objectives of compensation

2.2. Discuss the design of a compensation system including Discuss the design of a compensation system including

elements of total compensation and value chain elements of total compensation and value chain

compensationcompensation

3.3. Describe the steps in a job based compensation systemDescribe the steps in a job based compensation system

4.4. Debate pay for ~ knowledge & skills, competencies, Debate pay for ~ knowledge & skills, competencies,

performance and incentives.performance and incentives.

OutcomesOutcomes

At the end of this module you should:At the end of this module you should:

5. Discuss voluntary employee benefits5. Discuss voluntary employee benefits

6. Mandatory employment benefits6. Mandatory employment benefits

Basic Conditions of Employment ActBasic Conditions of Employment Act

Compensation for Occupational and Injuries ActCompensation for Occupational and Injuries Act

Unemployment Insurance ActUnemployment Insurance Act

Objectives of a compensation systemObjectives of a compensation system

Attract “magic” peopleAttract “magic” people

Retain competent peopleRetain competent people

Motivate people to add valueMotivate people to add value

Meet legal obligationsMeet legal obligations

Repel under-performing people?Repel under-performing people?

Fair Compensation Fair Compensation Fairness is the key to sound compensation Fairness is the key to sound compensation

practices: practices: (read 11.2. on page 282)(read 11.2. on page 282)

What are the 4 categories of fairness?What are the 4 categories of fairness?

1.1. External equityExternal equity ~ ~ market related salariesmarket related salaries

2.2. Internal equityInternal equity ~ ~ Paid according to Paid according to affordability levels of organizationaffordability levels of organization

3.3. Individual equityIndividual equity ~ ~ Similar performance and Similar performance and jobs should attract similar payjobs should attract similar pay

4.4. Procedural equityProcedural equity ~ ~ Compensable factors Compensable factors need to be fairly applied to all staffneed to be fairly applied to all staff

Total compensationTotal compensation

All compensation received by an employee All compensation received by an employee generally expressed as an annual figure:generally expressed as an annual figure:

1.1. Direct compensationDirect compensation (Basic pay)(Basic pay)

2.2. Employee benefitsEmployee benefits (retirement benefits, medical (retirement benefits, medical aids, disability benefits)aids, disability benefits)

3.3. Fringe benefitsFringe benefits (Motor car allowance, loans)(Motor car allowance, loans)

4.4. Incentives Incentives (Bonuses, profit sharing)(Bonuses, profit sharing)

I&I Fish Finders ~ Fair payI&I Fish Finders ~ Fair pay

In your groups decide how will fairly split the In your groups decide how will fairly split the Salary budget.Salary budget.

What criteria did you apply?What criteria did you apply?

Value chain compensationValue chain compensation

Take into account the needs of the people;Take into account the needs of the people;

1.1. Pay for performancePay for performance2.2. Link reward to levers of changeLink reward to levers of change3.3. Reward measurable competenciesReward measurable competencies4.4. Match incentives to culture of organizationMatch incentives to culture of organization5.5. Keep incentive schemes simpleKeep incentive schemes simple6.6. Over communicate reward strategyOver communicate reward strategy7.7. Reward the contribution people makeReward the contribution people make

Designing a Job Based

compensationsystem

1. Conduct job analysis

2. Identify payfactors

3. Develop job hierarchy

4. Construct job grades

5. Salary survey

6. Establish pay policy

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1. Job analysis1. Job analysis

Collect job information and produceCollect job information and produce

Job descriptionsJob descriptionsJob specificationsJob specifications

For all positionsFor all positions

2. Identify pay factors2. Identify pay factors

Evaluate Evaluate JOBSJOBS to determine their relative worth to to determine their relative worth to organizationorganization

Could be based on = Decision making, skills, Could be based on = Decision making, skills, knowledge, multi-skilling, responsibility, etcknowledge, multi-skilling, responsibility, etc

Job evaluation systems = Task, Peromnes, Patterson, Job evaluation systems = Task, Peromnes, Patterson, Hays, simple ranking.Hays, simple ranking.

Generally done through representative job evaluation Generally done through representative job evaluation committeescommittees

3. Develop job hierarchy3. Develop job hierarchy

Place jobs in a hierarchy of importancePlace jobs in a hierarchy of importance

Cleaners Security

Operators Clerks

Supervisors

Mngrs

4. Construct job grades4. Construct job grades

Assign a grade to each hierarchical levelAssign a grade to each hierarchical level

A band, B band, C band, D band, E bandA band, B band, C band, D band, E band

ORORGrade 1 - 14Grade 1 - 14

5. Conduct salary survey5. Conduct salary survey

Determine what the market is likely to pay Determine what the market is likely to pay for the job and or gradefor the job and or grade

Ensure that when using surveys that you Ensure that when using surveys that you compare “apples with apples”compare “apples with apples”

Will allow you to set equitable salary Will allow you to set equitable salary rangesranges

6. Establish pay policy6. Establish pay policy

Pegging your pay scales in the marketPegging your pay scales in the market

Do you want to be a market leader, average or Do you want to be a market leader, average or bottom feeder!bottom feeder!

You might want to pay certain grades or jobs at You might want to pay certain grades or jobs at the high end to ensure you retain a scarce skill, the high end to ensure you retain a scarce skill, andand

At the average rate for common skillsAt the average rate for common skills

Emerging pay systemsEmerging pay systems

1.1. Knowledge and skills based payKnowledge and skills based pay

2.2. Competency based payCompetency based pay

3.3. Performance based payPerformance based pay

4.4. Incentive based payIncentive based pay

Knowledge & skills based payKnowledge & skills based pay

More skills and knowledge = more flexibleMore skills and knowledge = more flexible

More flexible = more valuableMore flexible = more valuable

Organizations identify the critical Organizations identify the critical knowledge and skills and place a premium knowledge and skills and place a premium pay on thesepay on these

Competency based payCompetency based pay

A person might hold the knowledge and skill but A person might hold the knowledge and skill but not have the behavioural characteristics to apply not have the behavioural characteristics to apply skills in workplaceskills in workplace

Determine certain KSA & behaviours that are Determine certain KSA & behaviours that are critical and reward these competenciescritical and reward these competencies

Teamwork, energy, commitment, service Teamwork, energy, commitment, service orientation, attention to detail, technical orientation, attention to detail, technical competencecompetence

Performance based payPerformance based pay

Organizations set clearly measurable Organizations set clearly measurable performance objectives for each employee performance objectives for each employee

People are rewarded for meeting the People are rewarded for meeting the agreed performance standardsagreed performance standards

Incentive based payIncentive based pay

The more you achieve the more you get paidThe more you achieve the more you get paid

May be group or individually based:May be group or individually based:Sales volumeSales volume

Products producedProducts produced

Costs savedCosts saved

Quality improvementsQuality improvements

Voluntary benefitsVoluntary benefits

Benefits Benefits over and aboveover and above what is required in law that may what is required in law that may be attractive to employee:be attractive to employee:

Health and life assuranceHealth and life assurance Medical aid schemesMedical aid schemes Retirement fundingRetirement funding Membership to gyms, clubs, professional bodiesMembership to gyms, clubs, professional bodies Onsite cafeterias, gyms, wellness programsOnsite cafeterias, gyms, wellness programs Creches, after school care, study assistance for childrenCreches, after school care, study assistance for children VacationsVacations Study, housing, technology loansStudy, housing, technology loans

Mandatory benefitsMandatory benefits

1.1. Basic Conditions of employmentBasic Conditions of employment minimum pay, overtime, mealtimes, leave~ maternity, minimum pay, overtime, mealtimes, leave~ maternity,

annual, sick, family responsibilityannual, sick, family responsibility

2.2. Compensation for Occupational injuries/diseasesCompensation for Occupational injuries/diseases Temporary disability, permanently disabled, deathTemporary disability, permanently disabled, death

3.3. Unemployment insuranceUnemployment insurance Sick , maternity , adoption, dependant, unemployment Sick , maternity , adoption, dependant, unemployment

benefitsbenefits

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