compensation management-islamic

BMOD5103OD AND CHANGE

OUM BUSINESS SCHOOL

MAY 2014

BMCM 5103

COMPENSATION MANAGEMENT

PREPARED BY:

MATRICULATION NO : CGS00838119

IDENTITY CARD NO. : 760319-02-5800

TELEPHONE NO. : 012 3737 632

E-MAIL : [email protected]

LEARNING CENTRE : KL LEARNING CENTER

BMCM5103 COMPENSATION MANAGEMENT

OBJECTIVES__________________________________________________________________1

INTRODUCTION_______________________________________________________________1

Compensation Management_____________________________________________________1

Pay Model____________________________________________________________________2

PART 1:_______________________________________________________________________3

Internal Equity________________________________________________________________3

a) Pay structure for Scope International___________________________________________4

b) Internal Pay-structure for Job-based approach__________________________________5

PART 2:______________________________________________________________________10

Journal Article: Compensation Management from Islamic Perspective________________10

Conceptual Framework of Islamic Compensation developed by the Author:____________13

Findings____________________________________________________________________14

CONCLUSIONS________________________________________________________________15

REFERENCES________________________________________________________________17


OBJECTIVES

The objective of this assignment is to enhance our ability to evaluate the internal pay

structure of a profit organisation in Malaysia, and to write a journal article review in the

area of Compensation Management.

INTRODUCTION

Compensation Management

The humanresources.about.com defines Compensation as a total amount of the monetary and non-

monetary pay provided to an employee by an employer in return for work performed as

required.management. (Heathfield, 2014). And Worldatwork.org define compensation

management as a collection of activities that establishes an internal equitable and externally

competitive philosophy and practice for paying employees. (db2_B2B_White_Paper.pdf, 2011).

While I understand it as a reward or payment given by employer for doing a job. And the word

Reward or payment means anything that attracts an employees’ attention and encourage them to

work.

Compensation is an important part of human resource management which helps in encouraging the

employees and cultivating organizational success. Compensation is a key driver to attract and

retain competent talents, motivate talents for higher productivity and better performance, and it can

also be used to heighten healthy competition among the employees. Compensation or rewards can

be classified into:

o Total compensation- cash (base pay, merit, cost of living adjustment) and indirect

( pensions, medical insurance, SOCSO, EPF, employee welfare, social responsibility

programmes)

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o Relational returns – Learning opportunities, recognition and status, employment security,

challenging work, etc

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Pay Model

Every industry or corporations develop their compensation models based on three

components .The basic components of pay model are:-

Strategic compensation objectives : Efficiency, Fairness, Compliance with the

work Ethics

Strategic policies : Internal alignment, External competitiveness, Employee

contributions, and Management /Administration of the pay system.

Techniques of compensation : Internal structure, Pay structure, Incentive

programs, Administration

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PART 1:

Internal Equity

Internal alignment or internal equity is refering to comparisons among jobs or skill levels inside a

single organisations (Milkovich and Newman, 2008) and it is about the fairness of the pay

structure. Internal equity exists when an employer pays wages commensurate with the relative

internal value of each job. This is established according to the employer's perception

of the importance of the work performed. Before an organization can estimate the importance of

each job, however, it must first determine the job-related factors that will be used for setting

compensation levels - in short, compensable factors. Here are some typical compensable factors

used for lower-level jobs:

• Education required.

• Experience required.

• Physical demands.

• Responsibility for equipment/materials.

• Responsibility for the safety of others.

• Supervisory/managerial responsibility.

• Working conditions.

• Accident or health hazards.

• Public contact.

• Manual dexterity.

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Below listed are internal pay structures for Financial Marketing Operations Department in Scope

International (Back Office for Standard Chartered Bank). The pay structure is separated by the

number of levels, the differentials in pay between the levels, and the position title for those

differences describe the structure.

Department Grade Global Grade Position TitleBase salary (RM)

Financial Marketing Operations

B M15 Global Operation Officer 2050-2500

C M16Senior Global Operation Officer 2600- 3700

D M17 Service Lead 3800 - 4800E M18 Assistant Manager 4900 - 6800F M19 Unit Manager 6900 - 9900G M20/M21 Team Manager 10 000 - 12 000H M21/M22 Senior Manager 13 000 - 15 000

a) Pay structure for Scope International

Pay structure for Scope International is in terms of pay levels is based on job levels. It

facilitates the employment process by providing a fixed framework of salary ranges from the

entry level up to the Senior Manager’s level, with 7 hierarchical levels Pay differentials

between the job level determined by employee’s task, behaviour and responsibilities. It is a

job-based pay structure as HR from Scope International has done a proper study on the Job

Analysis and Job Evauation for the position’s task and work performed in each of the job

description.

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b) Internal Pay-structure for Job-based approach

As a Human Resource Manager, first I will develop a program outline and set an objective

for the new branch program. Then I will establish target dates for implementation and

completion together with the budget allocated. The next step is:

i. Designate an individual to oversee designing the compensation program.

Determine whether this position will be permanent or temporary.

Determine who will oversee the program once it is established.

Determine the cost of going outside versus looking inside.

Determine the cost of a consultant's review.

ii. Develop a compensation philosophy.

Form a compensation committee (presumably consisting of officers or at least

including one officer of the company).

Decide what, if any, differences should exist in pay structures for executives,

professional employees, sales employees, and so on (e.g., hourly versus salaried rates,

incentive-based versus non-contingent pay).

Determine whether the company should set salaries at, above, or below market.

Decide the extent to which employee benefits should replace or supplement cash

compensation.

iii. Conduct a job analysis of all positions.

Conduct a general task analysis by major departments. What tasks must be

accomplished by whom?

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Get input from senior vice presidents of marketing, finance, sales, administration,

production, and other appropriate departments to determine the organizational structure

and primary functions of each.

Interview department managers and key employees, as necessary, to determine their

specific job functions.

Decide which job classifications should be exempt and which should be nonexempt.

Develop model job descriptions for exempt and nonexempt positions and distribute the

models to incumbents for review and comment; adjust job descriptions if necessary.

Develop a final draft of job descriptions.

Meet with department managers, as necessary, to review job descriptions.

Finalize and document all job descriptions.

iv. Evaluate jobs.

Rank the jobs within each senior vice presidents and manager's department, and then

rank jobs between and among departments. Verify ranking by comparing it to industry

market data concerning the ranking, and adjust if necessary. Prepare a matrix

organizational review.

On the basis of required tasks and forecasted business plans, develop a matrix of jobs

crossing lines and departments.

Compare the matrix with data from both the company structure and the industrywide

market. Prepare flow charts of all ranks for each department for ease of interpretation

and assessment. Present data and charts to the compensation committee for review and

adjustment.

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v. Determine grades.

Establish the number of levels - senior, junior, intermediate, and beginner - for each job

family and assign a grade to each level.

Determine the number of pay grades, or monetary range of a position at a particular

level, within each department.

vi. Establish grade pricing and salary range.

Establish benchmark (key) jobs.

Review the market price of benchmark jobs within the industry.

Establish a trend line in accordance with company philosophy (i.e., where the company

wants to be in relation to salary ranges in the industry).

vii. Determine an appropriate salary structure.

Determine the difference between each salary step.

Determine a minimum and a maximum percent spread.

Slot the remaining jobs.

Review job descriptions.

Verify the purpose, necessity, or other reasons for maintaining a position.

Meet with the compensation committee for review, adjustments, and approval.

viii. Develop a salary administration policy.

Develop and document the general company policy.

Develop and document specific policies for selected groups.

Develop and document a strategy for merit raises and other pay increases, such as cost-

of-living adjustments, bonuses, annual reviews, and promotions.

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Develop and document procedures to justify the policy (e.g., performance appraisal

forms, a merit raise schedule).

Meet with the compensation committee for review, adjustments, and approval.

ix. Obtain top executives' approval of the basic salary program.

Develop and present cost impact studies that project the expense of bringing the present

staff up to the proposed levels.

Present data to the compensation committee for review, adjustment, and approval.

Present data to the executive operating committee (senior managers and officers) for

review and approval.

x. Communicate the final program to employees and managers.

Present the plan to the compensation committee for feedback, adjustments, review, and

approval. Make a presentation to executive staff managers for approval or change, and

incorporate necessary changes.

Develop a plan for communicating the new program to employees, using slide shows or

movies, literature, handouts, etc.

Make presentations to managers and employees. Implement the program.

Design and develop detailed systems, procedures, and forms.

Work with HR information systems staff to establish effective implementation

procedures, to develop appropriate data input forms, and to create effective monitoring

reports for senior managers.

Have the necessary forms printed.

Develop and determine format specifications for all reports.

Execute test runs on the human resources information system.

Execute the program.

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xi. Monitor the program.

Monitor feedback from managers.

Make changes where necessary.

Find flaws or problems in the program and adjust or modify where necessary

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PART 2:

Journal Article: Compensation Management from Islamic Perspective

(Uddin, 2014)

In this article, the author took interest to develop a framework for designing and managing

compensation from Islamic perspective. The rationale of the study lies in the fact that no

comprehensive research regarding employee compensation from Islam perspective has been

undertaken. The objective of this article is to focus on the concept of compensation both from

traditional and Islamic perspectives, to identify the fundamental principles of compensation from

Islamic perspective and to identify the principles of employers and employees in ensuring

compensation from Islamic point of view. In this study a framework for determining and ensuring

employee wages and compensation system has been developed in the light of Islamic principles. If

the compensation system is managed from Islamic perspective both employees and employers will

not only gain conducive, congenial and productive working environment in this world but also can

expect for getting salvation in the hereafter. To develop a conceptual framework for

compensation from Islamic perspective the researcher studied the Holy Qur’an, Sunnah, and

available published literatures, research monograms, journal and magazines. It is a desk-based and

library-oriented research methodology.

The author, Mohammad Rahim Uddin cited from Ali, Abbas J. saying that Islam ensures

appropriate recognition to the dignity of work and employment through sufficient reward and

compensation system (Ali, 2005). The employee is permitted to a just wage for his contribution to

output. In Islamic perspective,it is a crime if employer disregard the employee’s right for a fair

pay; where leaders should be careful and be true to their duty of promoting the welfare for all

(Ather, khan & Hoque, 2011). Author cited from As-Sunnan Al-Kubrra Lil-Byhaqee and Quran-

2:286; in Islam, the salary paid must be adequate for the cost of living for the employee and

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his family. And to make the remuneration an employee earns meaningful, Islam also advice that

the payment should not be

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unduly deferred as what The Prophet of Muhammad said, “Pay the laborer his wages before his

sweat dries up.”(Sunanu Ibn Majah-2434, vol 7, p294).

And as for the employee, if the employee gets standard welfare package from his job while failing

in his obligation to his employer than justice would be defeated, Islam equally seats some moral

obligations on the employee (Hoque, 2012). One is to practice utmost diligence and proficiency in

discharging his employment duties for the assistance of his employer and the latter's customers

(Hoque, Mamun & Mamun, 2014). The Prophet assured that "an employee who excels in his

devotion to God and also renders to his master what is due to him of duty , sincerity and

obedience, for him there is double rewards (with God).”(Bukhari 2361, vol 8, p481) He equally

said: “God likes one of you, if he does a job, to perfect it.” The learning here for the workers is to

keep away from unethical work habits like absenteeism, lateness to work, maltreating

customers and the public or unscrupulously receiving wages for work not done. Ghost workers

and their accomplices should desist from such criminal practice (Hoque,2012). Another

responsibility as an employee is to be honest and abstain from having illegal affluence from the

employment. Thus, if Islam has placed a number of obligations on the employer, the employee is

also expected to do the job conscientiously and diligently, and be honest and trustworthy.

Author had also mentioned that Islam recognizes the employees’ rights from their employers and

employees have to do their part to help resolve conflicts between job duties and personal needs. In

my humble opinion, employees should have a want to serve their customers as much as they want

to be paid and comply with their employers rules and regulations. And employers should not only

provide job opportunities, but also give their employees the rights to fulfil their personal needs and

obligations. Hence, this will established the scale of justice to both the employers and the

employees in their relationships.

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On top of all the above, author also emphasized on the value of work in Islam. According to him,

in Islam, work is equal to Jihad in Allah's way, and Islam is not only a religion but also a “way of

life”. Therefore, employees should be commited to their works in particular and employer should

be justice to their employees and should also provide them with sufficient help to enable them to

do the job without undue hardship. The magnitude of work values associated with doing work

include: Itqan and work solidity, work obligation, work spirituality motivation, effort and

perseverance, continuous improvement, service- oriented morale. (Khanifar, H. et al, 2011). In this

article he also make a comparison between islamic principles of compensation against the

traditional wage system. From the islamic perspective compensation should correspond to the

employee’s contribution and there should not be any favoritism in pay or promotion. He also

quoted on the Principle of Fair Compensation in Surah Al-Ujrah 83:1-3; “Woe to those who deal

in fraud, those who take the full measure when they receive from others, but give less when give

them in measure or weight.” Author also indicated that as per Islamic principle of ethics, the

compensation should be paid based on “ukhuwah” (brotherhood) and “ihsan” ( benevolence)

and it should be mutually agreed by both parties.

For the employees’ remuneration in Islamic principles, author has identified few important facts

like payment must be defined in advance by the employer to avoid any confusion and argument

between both parties, the formulation of the salary scale should be made carefully according to

employees’ past experience and qualification and the most vital point in employees remuneration

is on the salary to be granted by the employer to the employee must commensurate with the

work done and performance made by the employee. Author has also bring to light on the

statement in the Holy book of Al-Quran; from Chapter 36; Surah al-Yaasiin verse 54, and Chapter

53, Surah An-Najm verse 39 about how Islam encourages employers to reward their employees

according to their qualifications, experiences, knowledge, capabilities and amount of work

they do. 14


And in order to decide on how much to pay for the salary, Islam affirms the necessity to give out

salaries in full and sufficient enough to cover the needs of the staff without any prejudice,

bias or favoritism. And his statement were supported with 3 Chapters in Al-Quran from the

Chapter 16, Surah An-Nahl verse 97, Chapter 18, Surah Al-Kahfi verse 30 and surah Al-A’raf in

Chapter 7 verse 85 in which he translated as; irrespective to their gender, the amount of reward

should be adequate for the employees to buy foods, clothing, place to stay and transportation and

there should be no discrimination in rewarding the employees. Author conceded that the above

Quranic verses should motivate employees in any organization to work harder in carrying out their

duties which entrusted to them as these good deeds would be given endless reward in the

Hereafter. In addition, Islamic principles for the employer should be based on Amanah or

Trustworthiness as trust in this context refers to the fear of God (Allah S.W.T) and in searching for

Allah’s pleasure it is important for the employers to be obedience to Allah and to treat employees

fairly and justice.

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Conceptual Framework of Islamic Compensation developed by the Author:

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Findings

This article forwarded the following findings:

1. In a very brief statement, Author has underlined 7 importance Islamic practices for the

employers and pointed out 3 Islamic values for the employees such as:

Employers:

a) Trustworthiness

b) Fair compensation

c) Brotherhood or Ukhuwwah

d) Knowledge or ‘Ilm

e) Fulfilling the contract

f) Justice

g) Cooperation

Employees:

a) Commitment

b) Dedication

c) Sincerity

2. Author identified few vital points for employees’ remuneration in Islamic principles:

a) Payment must be defined in advance by the employer to avoid any confusion and

argument between both parties

b) Formulation of the salary scale should be made carefully according to employees’ past

experience and qualification

c) Salary must commensurate with the work done and performance made by the employee

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3. As employment is regarded as an “Ibadah” in Islam therefore, employees are required and

enjoined to observe full dedication, sincerity and commitment to their tasks

4. Employees should know their duties and responsibilities and they should be told their

rights in terms of vacations, leaves, compensations, etc and must abide by their agreements,

unless there is an agreement that makes halal what is haram or makes haram what is halal.

5. From the islamic perspective compensation should correspond to the employee’s

contribution and there should not be any favoritism in pay or promotion

CONCLUSIONS

Author has presented Islam as a comprehensive way of life. This article attempts to manage

compensation from the islamic perspective on the concept of compensation both from traditional

and Islamic perspectives, recognize the fundamental principles of compensation and identify the

Islamic principles for employers and employees in ensuring fair and justice in compensation

management. The principles of Islamic compensation management are derived from the Quran,

which is the most fundamental source in Islamic shari’ah, and the sunnah, which is the second

important source in Islam. A conceptual framework has been developed describing the Model of

Compensation Management from the Islamic perspective. As per author’s findings, Islam teach us

to treat employees equally irrespective of what task they are assigned. Moreover, the concept of

work should be understood from the Islamic perspective which says that one should excel and

become successful in life following the ethics of Islam- that is according to the Quran and the

sayings of the Prophet (s.a.w.). The role of this framework tend to establish harmonious, peaceful,

and healthy relationships between the two groups. Using this framework, an Islamic approach to

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wage compensation has been suggested – The compensation scheme should provide adequate

supply of real goods and services to employees as to enable each worker to afford at least a

minimum level of decent living. A package of net benefits offered to an employee should include

monetary amount which enable employee to meet his/her basic needs plus the adjustment made for

working hours, leave and sickness provisions, pension rights, cash bonuses, work intensity, etc.

And if an employer is imparted with Islamic values, then he/she is not always looking at the

potential economic alone, he/she is also looking for reward in the afterlife. As such, employees

should have a want to serve their customers as much as they want to be paid and comply with their

employer’s rules and regulations. Hence, this will established the scale of justice to both the

employers and the employees in their relationships.

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REFERENCES

1. Ali, A. J. (2005). Islamic Perspectives On Management And Organization. Cheltenham,

UK: Edward Elgar Pub.

2. db2_B2B_White_Paper.pdf. (2011). Retrieved from http://www.worldatwork.org:

http://www.worldatwork.org/adim/marketplace/pub/db2_B2B_White_Paper.pdf

3. Heathfield, S. M. (2014, Aug 4). compensation.htm. Retrieved from

http://humanresources.about.com:

http://humanresources.about.com/od/glossaryc/g/compensation.htm

4. Randall S. Schuler, S. E. (1987). Linking Competitive strategies with Human Resource

Management Practices. The Academy of Management EXECUTIVE, 207-219.

5. Uddin, M. R. (2014). Compensation Management from Islamic Perspective. European

Journal of Business and Management, 37-43. Retrieved from European Journal of Business

and Management: http://www.iiste.org/Journals/index.php/EJBM/article/view/13554

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