COMPENSATION MANAGEMENT(or Reward Management

or

Compensation & Benefit Management )

By SABA SHAIKH

PART 1 THE FUNDAMENTALS OF REWARD MANAGEMENT

Topic: Reward management: An overview

Reward management defined

The aims of reward management

Achieving the aims

The reward system Elements of a reward SystemFactors affecting reward management policy and

practice

The development of reward management .

• something, typically money, awarded to someone in recognition of loss, suffering, or injury.

COMPENSATION

• the process of dealing with or controlling things or people.

Management

• an advantage or profit gained from something.BENEFIT

Reward management deals with the strategies, policies and processes required to ensure that the contribution of people to the organization is recognized by both financial and non-financial means.

(strategies, policies and processes recognize to give financial and non-financial reward.)

REWARD MANAGEMENT DEFINED:

It is about the design, implementation and maintenance of reward systems(reward processes, practices and procedures), which aim to meet the needs of both the organization and its stakeholders.

The overall objective is to reward people fairly, equitably and consistently in accordance with their value to the organization to achieve organization’s strategic goals.

REWARD MANAGEMENT IS NOT

JUST ABOUT PAY

AND EMPLOYEES BENEFITS

IT IS CONCERNED

EQUALLY WITH NON FINANCIAL REWARDS SUCH AS

RECOGNITION

LEARNING

DEVELOPMENT OPPORTUNITY

INCREASED JOB RESPONSIBILITY

THE AIMS OF REWARD MANAGEMENT

Reward people according to the value they create;

Align reward practices with business goals and with employee values and needs;

Reward the right things to convey the right message about what is important in terms of

behaviours and outcomes;

develop a high-performance culture.

motivate people and obtain their engagement and commitment;

help to attract and retain the high-quality people the organization needs;

ACHIEVING THE AIMS

The aims of reward management are achieved by developing and implementing strategies, policies, processes

and practices.

Historical Development

Traditional approaches (60s – 70s) to managing pay Salary administration: emphasised need to attract,

motivate and retain employees; focus on competitive attributes rather than strategic/tactical issues – reflected on how (rigidly) organisations were structured and managed.

The advent of “reward management” – late 80s Emphasis on performance of all employees

contributing to success of the organisation. Dynamic: more than just money. Non-financial rewards provide intrinsic and extrinsic motivation.

Historical Development …

The “new pay” (Lawler, 1990) Need to understand the goals, values and

culture of an organisation and challenges of a competitive global economy – people-based rather than job-based pay – paying people for the value they add to the organisation

Going into the future… Contribution-related pay, broad-banding,

job family structures and team based pay

ACHIEVING THE AIMS:

By Reward philosophy Distributive justice Procedural justice Fairness Equity Consistency Transparency Strategic alignment Contextual and culture fit Fit for purpose Developing a high-performance culture

Reward philosophy

Reward management is based on a set of beliefs and guiding principles.

Reward management is based on a well-articulated philosophy – a set of beliefs and guiding principles that are consistent with the values of the organization and help to enact them.HR initiatives designed to achieve the motivation, commitment, engagement and development of employees at long term .

Distributive justice

Distributive justice refers to how rewards are provided to people

(They receive what was promised to them and that they get what they need.)

Procedural justice

Procedural justice refers to the ways in which

managerial decisions are made and reward policies

are put into practice.

Fairness

A fair reward system is one that operates in accordance with the principles of distributive and procedural justice. It also conforms to the ‘felt-fair’ principle formulated by Eliot Jaques (3). This states that pay systems will be fair if they are felt to be fair.

Equity

Equity is achieved when people are

rewarded appropriately in

relation to others within the

organization.

Consistency

A consistent approach to reward management

means that decisions on pay do not vary

arbitrarily – without due cause – between

different people or at different times.

Transparency

Transparency exists when people

understand how reward processes

function

Strategic alignment

The strategic alignment of reward practices ensures that reward initiatives are planned

by reference to the requirements of the business strategy and are designed to support the achievement of

business goals.

Contextual and culture fit

The design of reward processes should be

governed by the context .either

university level or college etc.

Fit for purpose

The formulation of reward strategy and the design of the

reward system should be based on an understanding of the

objectives of reward management and should be developed to achieve that

purpose.

Developing a high-performance culture

A high-performance culture is one in which people are aware of the need to perform well and behave accordingly in order to meet or exceed expectations.

THE REWARD SYSTEM

What is the reward system?????

THE REWARD SYSTEM,This consists of

Reward strategies,

Reward policies,

Reward practices,

Reward processes,

Reward procedures,

REWARD STRATEGIES,

Reward strategi

es

Are set out what the organization intends to do in the longer term to develop and

implement reward policies, practices,

processes and procedures

that will further the achievement of its business

goals.

For example, an organization may have a strategy to maintain

competitive rates of pay.

Reward policies,

Reward policies, which set guidelines for decision making and action.

For example, an organization may have a policy that sets the levels of pay in the organization compared

with median market rates.

REWARD PRACTICES,

For example, the policy on pay levels will lead to the practice of collecting and analyzing market rate data, and making pay adjustments that reflect market rates of increase.

It consist of the grade and pay structures, techniques such as job evaluation, and schemes such as contingent pay used to implement reward strategy and policy.

Reward processes,

Reward processes, which consist of the ways in which

policies are implemented and practices carried out,

for example the way in which the outcomes of surveys are applied and how managers

manage the pay adjustment and review process.

REWARD PROCEDURES,

Reward procedures, which are operated in order to maintain the system and to ensure that it operates efficiently and flexibly and provides value for money.

For example, a procedure will be used for conducting the annual pay review.

ELEMENTS OF A REWARD SYSTEM

Business strategyReward strategy and

policyBase or basic payContingent pay

Employee benefitsAllowances

Total earningsTotal remuneration

Job evaluationMarket rate analysis

Grade and pay structures Performance management

Non-financial rewardsTotal reward

Business strategy

The starting point of the reward system is the business strategy of the organization.

This identifies the business drivers and sets out the business goals.

It include items such as

high performance,

profitability,

productivity,

innovation,

customer service,

quality, price/cost leadership and the need to satisfy stakeholders – investors, shareholders, employees and, in local authorities, elected representatives.

Reward strategy and policy

The reward strategy flows from an analysis of the business drivers

The reward strategy will define longer-term intentions in such areas as pay structures, contingent pay, employee benefits, steps to increase engagement and commitment and adopting a total reward approach.

Base or basic pay

The base rate is the amount of pay (the fixed salary or wage) that constitutes the rate for the job.

It may be varied according to the grade of the job or, for shop floor workers, the level of skill required.

Contingent pay

Additional financial rewards may be provided that are related to performance, competence,

contribution, skill or experience.

Employee benefits

Employee benefits include

pensions,

sick pay,

insurance cover,

company cars and a number of other ‘bonus’.

They consist of elements of remuneration additional to the various forms of cash pay and also include provisions for employees that are not strictly remuneration, such as annual holidays

Allowances

Allowances are paid in addition to basic pay for special circumstances (e.g. living in London) or features of employment (e.g. working unsocial hours).

Total remuneration

Total remuneration consists of the financial rewards represented by total earnings plus the value of the benefits received by employees.

Job evaluation

Job evaluation is a systematic process for defining the relative worth or size of jobs within an organization in order to establish internal relativities and provide the basis for designing an equitable grade structure, grading jobs in the structure and managing relativities.

Market rate analysis

Market rate analysis is the process of identifying the rates of pay in the labour market for comparable jobs to inform decisions on levels of pay within the organization and on pay structures.

Grade and pay structures

Jobs may be placed in a graded structure according to their relative size. In such a structure, pay is influenced by market rates, and the pay ranges attached to grades provide scope for pay progression based on performance, competence, contribution or service.

Performance management

Define individual performance and contribution expectations, assess performance against those expectations, provide for regular constructive feedback, and result in agreed plans for performance improvement, learning and personal development.

Non-financial rewards

Non-financial rewards do not involve any direct payments and often arise from the work itself,

for example

achievement,

autonomy,

recognition,

scope to use and develop skills,

training,

career development opportunities and high-quality leadership.

Total reward

Total reward is the combination of

financial and non-financial rewards

available to employees

FACTORS AFFECTING REWARD MANAGEMENTPOLICY AND PRACTICE

These consist of contextual factors and conceptual factors

CONTEXTUAL FACTORS

External environment

The internal environment

The internal environment: consists of the organization’s culture

and its business, technology and peopleThe external environment :

competitive pressure, globalization, and changes in demographics and employment.

conceptual factors

Are relating to theories and beliefs about

strategic management,

total reward,

human capital management,

the factors affecting pay levels,

motivation,

engagement,

commitment and the psychological contract.