salay and om module

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Report On

Prepared By: Submitted To:

Rabeka Nazim Sir Mehmood Shah

Indus Institute of Higher Education (IIHE)



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Acknowledgement

First of all I am very thankful of Allah who is merciful .he gave me power to

complete this r eport af ter that I am very thankful of my course teacher who ha s gave me opportunity to fulf ill this tar get.

I her eby submit my r eport on the ³Salary & Compensation Module´. In

pr eparing this r eport, I wish to extend our gr atitude towar ds the management of

Indus institute who have pr ovided us the opportunity to attend this course ³Salary

and Compensation´.

Further I am highly indebted to my teacher, as without his guidance, cooper ation

and patience, I would have not been able to effectively apply my sk ills to this

r eport.

Sincer ely

R abeka Nazim



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Table of Content

Introduction «««««««««««««««««««««««««. 4

Compensation (Definition) «««««««««««««««««««. 5

How is compensation used «««««««««««««««««««.. 5-6

What are the components of compensation ««««««««««««.. 6-7

Components of compensation system«««««««««««««««. 7

Types of compensation ««««««««««««««««««««« 8-11

Need of compensation management ««««««.................................... 11

Strategic compensation ««««««««««««««««««««.. 12

Employee compensation ««««««««««««««««««««. 12

Compensation & benefits, practices, programs and policies ««««.« 12-20

Component & objective of organization reward system ««««««« 20-21

Determinants of pay structure & level ««««««««««««««. 21-22

Minimum wages rate«««««««««««««««««««««.. 22-23

Payments of wages ««««««««««««««««««««««. 23-25

Policy issues in pay planning & administration ««««««««««. 25-29

Guidelines for effective orient-pay system ««««««««««««.. 28-29

Compensation module for an organization ««««««««««««. 29-33

R eference ««««««««««««««««««««««««««. 33



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Introduction

Compensation is the Human Resource Management functions that deal with every ty pe of

r ewar d that individuals r eceive in r etur n for per for ming or ganizational task. It is basically an

exchange of r elationshi ps. Employees exchange their labor for f inancial and nonf inancial

r ewar ds. Financial compensation is both dir ect and indir ect.

Fr om the employees¶ point of view, pay is a necessity of life. The compensation r eceived f r om

wor k is one of the chief r easons people seek employment. Pay is the means by which people

pr ovide for their own and their families¶ needs.

Compensation is one of the most important HRM functions for the employer too. Compensation

of ten equals 50 percent of the cash flow of an or ganization and for some ser vice or ganization it

is even lar ger percentage. Historically, compensation systems, including benef its management

have been concer ned with ensuring that people wer e equitably paid, that wage r ates wer e

competitively set and that benef it plans wer e appr oximately administer ed.



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Compensation Definitions

"If you pick the right people and give them the opportunity to s pr ead their wings - and put

compensation and r ewar ds as a carrier behind it - you almost don't have to manage them."

Or

Compensation is a systematic appr oach to pr oviding monetary value to employees in exchange

for wor k per for med. Compensation may achieve sever al pur poses assisting in r ecr uitment, job per for med and job satisfaction.

How is compensation used?

Compensation is a tool used by management for a variety of pur pose to further the existence of the company. Compensation may be adjusted accor ding the business needs, goals and available

r esources. Compensation is a tool used by management for a variety of pur poses to further theexistence of the company. Compensation may be adjusted accor ding the business needs, goals,

and available r esources.

Compensation is used to:

y Recr uit and r etain qualif ied employees.

y Incr ease or maintain mor ale/satisfaction.

y Rewar d and encour age peak per for mance.

y Achieve inter nal and exter nal equity.

y Reduce tur nover and encour age company loyalty.

y Modif y (thr ough negotiations) pr actices of unions.

Recr uitment and r etention of qualif ied employees is a common goal shar ed by many employers.

To some extent, the availability and cost of qualif ied applicants for open positions is deter mined

by mar ket factors beyond the contr ol of the employer . While an employer may set compensation

levels for new hir es and advertise those salary r anges, it does so in the context of other

employers seek ing to hir e f r om the same applicant pool.

Mor ale and job satisfaction ar e affected by compensation. Of ten ther e is a balance (equity) that

must be r eached between the monetary values, the employer is willing to pay and the sentiments



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of worth felt be the employee. In an attempt to save money, employers may opt to f r eeze salaries

or salary levels at the expense of satisfaction and mor ale. Conversely, an employer wishing to

r educe employee tur nover may seek to incr ease salaries and salary levels.

Compensation may also be used as a r ewar d for exceptional job per for mance. Examples of such

plans include: bonuses, commissions, stock , and pr of it sharing, gain sharing.

What are the components of a compensation system?

Compensation will be perceived by employees as fair if based on systematic components.

Various compensation systems have developed to deter mine the value of positions. These

systems utilize many similar components including job descri ptions, salary r anges/str uctur es, and

written pr ocedur es.

The components of a compensation system include:

y Job Descriptions A critical component of both compensation and selection systems, job

descri ptions def ine in writing the r es ponsi bilities, r equir ements, functions, duties,

location, envir onment, conditions, and other as pects of jobs. Descri ptions may be

developed for jobs individually or for entir e job families.

y Job Analysis The pr ocess of analyzing jobs f r om which job descri ptions ar e developed.

Job analysis techniques include the use of inter views, questionnair es, and obser vation.

y Job Evaluation A system for comparing jobs for the pur pose of deter mining appr opriate

compensation levels for individual jobs or job elements. Ther e ar e four main techniques:

Rank ing, Classif ication, Factor Comparison, and Point Method.

y Pay Structures Useful for standar dizing compensation pr actices. Most pay str uctur es

include sever al gr ades with each gr ade containing a minimum salary/wage and either step

incr ements or gr ade r ange. Step incr ements ar e common with union positions wher e the

pay for each job is pr e-deter mined thr ough collective bar gaining.

y Salary Surveys Collections of salary and mar ket data. May include aver age salaries,

inflation indicators, cost of living indicators, salary budget aver ages. Companies may

purchase r esults of sur veys conducted by sur vey vendors or may conduct their own salary

sur veys. When purchasing the r esults of salary sur veys conducted by other vendors, note



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that sur veys may be conducted within a s pecif ic industry or acr oss industries as well as

within one geogr aphical r egion or acr oss differ ent geogr aphical r egions. Know which

industry or geogr aphic location the salary r esults pertain to befor e comparing the r esults

to your company.

Compensation Management:

Compensation is the r emuner ation r eceived by an employee in r etur n for his/her contri bution to

the or ganization. It is an or ganized pr actice that involves balancing the wor k-employee r elation by pr oviding monetary and non-monetary benef its to employees.

Compensation is an integr al part of human r esource management which helps in motivating theemployees and impr oving or ganizational effectiveness.

Components of Compensation System

Compensation systems ar e designed keeping in minds the str ategic goals and business objectives.

Compensation system is designed on the basis of certain factors af ter analyzing the job wor k andr es ponsi bilities. Components of a compensation system ar e as follows:

Job analysis Salary str uctur es

Pay str uctur e



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Types of Compensation

Compensation pr ovided to employees can dir ect in the for m of monetary benef its and/or indir ect

in the for m of non-monetary benef its known as per k s, time off , etc. Compensation does not include only salary but it is the sum total of all r ewar ds and allowances pr ovided to the

employees in r etur n for their ser vices. If the compensation offer ed is effectively managed, it contri butes to high or ganizational pr oductivity.

y Direct Compensation

y Indirect Compensation

Direct CompensationDir ect compensation r efers to monetary benef its offer ed and pr ovided to employees in r etur n of

the ser vices they pr ovide to the or ganization. The monetary benef its include basic salary, houser ent allowance, conveyance, leave tr avel allowance, medical r eimbursements, s pecial

allowances, bonus, Pf/Gr atuity, etc. They ar e given at a r egular inter val at a def inite time.



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Retirement Benefits Or ganizations pr ovide for pension plans and other benef its for their employees which benef its them af ter they r etir e f r om the or ganization at the pr escri bed age.

Holiday Homes Or ganizations pr ovide for holiday homes and guest house for their employees at differ ent

locations. These holiday homes ar e usually located in hill station and other most wanted holiday s pots. The or ganizations make sur e that the employees do not face any k ind of diff iculties during

their stay in the guest house.

Flexible Timings Or ganizations pr ovide for flexi ble timings to the employees who cannot come to wor k during

nor mal shif ts due to their personal pr oblems and valid r easons.

Need of Compensation Management

A good compensation package is important to motivate the employees to incr ease the

or ganizational pr oductivity.

Unless compensation is pr ovided no one will come and wor k for the or ganization. Thus, compensation helps in r unning an or ganization effectively and accomplishing its goals.

Salary is just a part of the compensation system, the employees have other psychologicaland self-actualization needs to fulf ill. Thus, compensation ser ves the pur pose.

The most competitive compensation will help the or ganization to attr act and sustain the

best talent. The compensation package should be as per industry standar ds.



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Strategic Compensation Str ategic compensation is deter mining and pr oviding the compensation packages to theemployees that ar e aligned with the business goals and objectives. In today¶s competitive

scenario or ganizations have to take s pecial measur es r egar ding compensation of the employees

so that the or ganizations r etain the valuable employees. The compensation systems have changedf r om tr aditional ones to str ategic compensation systems.

Employee CompensationCompensating an employee is not simply a pr ocess of settling upon a mutually agr eeable salary.Ther e ar e a number of r egulations and r eporting r equir ements that need to be met. Her e is some

infor mation a variety of issues surr ounding compensation that you need to be awar e of.

Compensation & Benefits Practices, Programs and Policies

Employee Benefits:

Benef it Plan Costs

Health Car e Plans (PPO, POS, HMO, HSA)

Dental Car e Plans

Retir ement Plans

Flexi ble Benef it Plans

Disability Benef it Plans

Gr oup Life & AD&D Insur ance Plans

Benef its for Part-Time Employees

Domestic Partner Benef its

Employee Policies and Programs:

Paid-Time Off (PTO)

Alter native Wor k Schedules (including Telecommuting)

Recr uiting and Hiring

Hiring Bonuses

Referr al Bonuses

Retention Bonuses

Sever ance Pr actices

Wor kplace Envir onment

Car eer Planning & Pr ofessional

Development

Military Leave Policy



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Employee Benefits

Benefit Plan Costs

y Benef it Costs as Percent of Payr oll

o Medical, Dental, Vision, Disability, Life, AD&D Plans

o Retir ement Plans

y Benef its Costs as a Monthly Amount Per Employee

o Medical, Dental, Vision, Disability, Life, AD&D Plans

o Retir ement Plans

Health Care Plans (PPO, HMO, POS)

y Monthly Pr emiums

o Pr emium Cost

o Pr emiums Paid by Company

y Deducti bles

o Percent of Plans with Deducti bles

o Annual Deducti ble Amounts

y Coinsur ance

o Percent of Expense Cover ed by Plan

y Out-of-Pocket Maximums (OOP)

o Percent of Plans with OOP Maximums

o Annual OOP Amounts

y Lifetime Reimbursement Limits

o Percent of Plans with Lifetime Limits

y Off ice Visit and Pr escri ption Co-Payments

y Domestic Partner Medical Benef its



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HSA Qualified Health Plans

y Impact on Other Healthcar e Options

y

Monthly Pr emium Costs y Percent of Pr emiums Paid by Company

y Annual Deducti bles

y Out-of-Pocket Maximums (OOP)

y Lifetime Reimbursement Limits

y Pr escri ption Expense Cover age

y Company Contri butions

Dental Care Plans

y Ty pes of Dental Plans Offer ed

y Timing of Employee Eligi bility to Enr oll

y Expenses Cover ed

y Costs of Monthly Pr emiums

y Percent of Monthly Pr emium Paid by Company

y Deducti bles and Co-Insur ance

y Out-of-Pocket (OOP) Maximums

y Orthodontic Expense Cover age

y Orthodontic Reimbursement Limits

Retirement Plans

y Ty pes of Retir ement Plans Available to Employees o Def ined Benef it Plan

o 401(k )

o Simple-IRA

o Pr of it Sharing Plan

o ESOP



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o SEP-IRA

o Salary Reduction SEP

y Eligi bility Requir ements

y When do Employee Contri butions Fully Vest

y Retir ement Plan Costs

o as a Percentage of Payr oll

o per Employee

y 401(k ) Matching Policy

Flexible Benefit Plans

y Pr emium Conversion/Pr emium Only Plan (POP)

y Unr eimbursed Medical Expenses (UME)

y Dependent Child Car e Expenses (DCC)

y Dependent Adult Car e Expenses (DAC)

y Adoption Assistance Expenses (AAE)

y Cafeteria Plan

y Tr ans portation Benef it Plan

Disability Benefit Plans (Short- and Long-Term)

y Who Pays the Pr emium

y Eligi bility for Disability Benef its

y Waiting Periods

y Dur ation of Plans

y Setting Amount of Disability Benef its

y Disability Payouts

Group Life & AD&D Insurance Plans

y Gr oup Life Plans



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o Benef it Amounts

o Cost Cover age

o Supplemental Life Insur ance

y Accidental Death & Dismember ment (AD&D) Insur ance

o Benef it Amounts

Benefits for Part-Time Employees

y Benef its Available

y Wor k Requir ements for Eligi bility

y Covering the Costs

Domestic Partner Benefits

y Domestic Partner Healthcar e Benef its: Cover age

y Eligi bility Requir ements

Employee Policies and Programs covered:

Paid-Time off Policies

y Number of Days Paid Time Off Pr ovided by Ty pe of Day:

o Holidays

o Floating Holidays

o Sick Days

o Vacation Days

o Personal Days

o Annual Leave Pool

o Other Paid Time Off

y Number of Days Paid Time Off Pr ovided by Ty pe of Model:

o Tr aditional Model with S pecif ied Sick Leave



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y Pr e-Employment Testing

y Pr e-Employment Scr eening

Referral Bonuses

y Referr al Bonus Eligi bility by Employee Ty pe and Level

y Referr al Bonuses Awar ded by Ty pe of New Hir e

y Referr al Bonus Payments by Ty pe of Hir e

y Amount of Referr al Bonus

y Timing of Referr al Bonus Payouts

Hiring Bonuses

y Hiring Bonus Eligi bility by Employee Ty pe and Level

y Calculating Hiring Bonuses

y Hiring Bonus Amounts by Employee Ty pe and Level

y Timing of Hiring Bonus Payouts

y Hiring Bonus For feitur e and Repayment Policies

Retention Bonuses

y Retention Bonus Eligi bility by Employee Ty pe and Level

y Calculating Retention Bonuses

y Retention Bonus Amounts by Employee Ty pe and Level

y Payment of Retention Bonuses

Severance Practices

y Sever ance Pr actices by Company Size

y Calculation of Sever ance

y Sever ance Pay Amounts



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y Placement Ser vices Offer ed

y Release Agr eements

y Tr ends in Sever ance Amounts

Workplace Environment

y Dr ess Codes

y Wor k S pace Allocation

y Company S ponsor ed Events and Activities

Career Planning and Professional Development Programs

y Car eer Planning Pr ogr ams

o Confer ence Attendance

o Pr ofessional Membershi ps

o Tuition Reimbursement

o Tr ade Jour nal Subscri ptions

o Technical Car eer Ladders

o Job Rotation / Cr oss Tr ainingo Management Succession Planning

o For mal Mentoring

y Tuition Reimbursement

o Course Requir ements to Receive Tuition Reimbursement

o Conditions of Tuition Reimbursement

y Pr ofessional Development Pr ogr ams

o Management or Super visory Sk ills

o Leadershi p Development

o Pr oject Management

o Inter personal Communication

o Team Building

o Conflict Management



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y Tr aining Budgets

Military Leave Policy

y Military Leave Policy

Component and Objective of Organization Reward System

At a br oad level, an or ganizational r ewar d system includes anything an employee values and

desir es mat an employer is able and willing to offer in exchange for employee contri butions,

mor e s pecif ically, me r ewar d system includes both compensation and no compensation r ewar ds.

Compensation r ewar ds include dir ect f inancial payments plus indir ect payments in the for m of

employee benef its. No compensation r ewar ds include everything in a wor k envir onment mat

enhances a wor ker 's sense of self-r es pect and esteem by others (e.g., wor k envir onments mat ar e

physically, socially, and mentally healthy; tr aining impr ove job sk ills; and status symbols to

enhance individual perceptions of self-worth), r ewar ds bridge the gap between or ganizational

objectives and individual expectations and as pir ations. To be effective, or ganizational r ewar d

systems should pr ovide four things: (1) a suff icient level of r ewar ds to fulf ill basic needs, (2)

equity with the exter nal labor mar ket, (3) equity within the or ganization, and (4) tr eatment of

each member of the or ganization in ter ms of his or her individual needs. Mor e br oadly, pay

systems ar e designed to attr act, r etain, and motivate employees. Indeed, much of the design of

compensation systems involves wor k ing out tr adeoff s among mor e or less seriously conflicting

objectives.

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Perhaps the most important objective of any pay system is fair ness or equity.y Equity can be assessed on at least thr ee dimensions:

y Inter nal equity (i.e., in ter ms of the r elative worth of individual jobs to an or ganization, ar e pay r ates fair?), Exter nal equity (i.e., ar e the wages paid by an or ganization "fair " in

ter ms of competitive mar ket r ates outside the or ganization?) y Individual equity (i.e., is each individual's pay "fair " r elative to other individual doing the

same or similar jobs?)



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Sever al theories for deter mining equitable payment for wor k have been pr oposed. They have

thr ee points in common. One, each assumes that employees perceive a fair r etur n for what they

contri bute to their jobs, Two, all include the concept of social comparison, wher eby employees

deter mine what their equitable r etur n should be af ter comparing their inputs (sk ills, education,

effort, etc.) and outcomes (pay, pr omotion, job status, etc.) with those of their cowor kers

(comparison persons). Thir d, the theories assume that employees who perceive themselves to be

in an inequitable situation will seek to r educe that inequity. They may do so by mentally

distorting inputs or outcomes, by dir ectly altering inputs or outcomes, or by leaving the

or ganization. Reviews of both labor atory and f ield tests of equity theory ar e quite consistent:

Individuals tend to follow the equity nor m and to use it as a basis for distri buting r ewar ds. They

r eport inequitable conditions as distr essing, although ther e may be individual differ ences in the

r elative sensitivity to equity.

Determinants of Pay Structure andLevel

In simplest ter ms, mar ginal r evenue pr oduct theory in labor economics holds that the value of a

person's labor is what someone is willing to pay for it. In pr actice a number of factors inter act to

deter mine wage levels. Some of the most influential of these ar e labor mar ket conditions,

legislation, collective bar gaining, management attitudes, and an or ganization's ability to pay.



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Labor Market Conditions

"Tight" for certain sk ills is high while the supply is low (a "tight" mar ket), ther e tends to be an

incr ease in the price paid for these sk ills. Conversely, if the supply of labor is plentiful, versus

"loose" labor mar kets have a major impact on wage str uctur es and levels. Thus if the demand

r elative to the demand for it, wages tend to decr ease.

Legislation

As in other ar eas, legislation r elated to pay plays a vital r ole in deter mining inter nal or ganization

pr actices. Wage-hour laws set limits on minimum wages to be paid and maximum hours to be

wor ked.

Minimum Wages Rates

Regional minimum wages.

The minimum wage r ates for agricultur al and non-agricultur al employees and wor kers in each

and every r egion of the country shall be those pr escri bed by the Regional Tri partite Wages and

Pr oductivity Boar ds.



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Prohibition against elimination or diminution of benefits.

Nothing in this Book shall be constr ued to eliminate or in any way diminish supplements, or

other employee benef its being enjoyed at the time of pr omulgation of this Code.chan r obles

virtual law li br ary

Payment by results

TheS

ecr etary of Labor and Employment shall r egulate the payment of wages by r esults,

including payee, piecewor k , and other non-time wor k , in or der to ensur e the payment of fair and

r easonable wage r ates, pr efer ably thr ough time and motion studies or in consultation with

r epr esentatives of wor kers¶ and employers¶ or ganizations.

Payment of Wages

Forms of payment

No employer shall pay the wages of an employee by means of pr omissory notes, vouchers,

coupons, tokens, tickets, chits, or any object other than legal tender, even when expr essly

r equested by the employee. Payment of wages by check or money or der shall be allowed when

such manner of payment is customary on the date of affectivity of this Code, or is necessary

because of s pecial circumstances as s pecif ied in appr opriate r egulations to be issued by the

Secr etary of Labor and Employment or as sti pulated in a collective bar gaining agr eement.



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Time of payment

Wages shall be paid at least once every two (2) week s or twice a month at inter vals not

exceeding sixteen (16) days. If on account of force majeur e or circumstances beyond the

employer¶s contr ol, payment of wages on or within the time her ein pr ovided cannot be made, the

employer shall pay the wages immediately af ter such force majeur e or circumstances have

ceased. No employer shall make payment with less f r equency than once a month. The payment

of wages of employees engaged to per for m a task which cannot be completed in two (2) week s

shall be subject to the following conditions, in the absence of a collective bar gaining agr eement

or ar bitr ation awar d:

y That payments ar e made at inter vals not exceeding sixteen (16) days, in pr oportion to the

amount of wor k completed.

y That f inal settlement is made upon completion of the wor k.

Place of payment.

Payment of wages shall be made at or near the place of undertak ing, except as other wise

pr ovided by such r egulations as the Secr etary of Labor and Employment may pr escri be under

conditions to ensur e gr eater pr otection of wages.

Direct payment of wages

Wages shall be paid dir ectly to the worker s, to whom they ar e due, except:



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y In cases of force majeur e r endering such payment impossi ble or under other s pecial

circumstances to be deter mined by the Secr etary of Labor and Employment in

appr opriate r egulations, in which case, the wor ker may be paid thr ough another person

under written authority given by the wor ker for the pur pose

y Wher e the wor ker has died, in which case, the employer may pay the wages of the

deceased wor ker to the heirs of the latter without the necessity of intestate pr oceedings.

The claimants, if they ar e all of age, shall execute an aff idavit attesting to their

r elationshi p to the deceased and the fact that they ar e his heirs, to the exclusion of all

other persons. If any of the heirs is a minor, the aff idavit shall be executed on his behalf

by his natur al guar dian or next-of-k in. The aff idavit shall be pr esented to the employer

who shall make payment thr ough the Secr etary of Labor and Employment or his

r epr esentative. The r epr esentative of the Secr etary of Labor and Employment shall act as

r efer ee in dividing the amount paid among the heirs. The payment of wages under this

Article shall absolve the employer of any further liability with r es pect to the amount paid.

Policy Issues in Pay Planning and Administration

Comparable Worth

When women dominate an occupational f ield (such as nursing or secr etarial wor k ), the r ate of

pay for Jobs 111 that f ield tends to be lower than the pay that men r eceive when they ar e the

.dominant incumbents (e.g., constr uction, sk illed tr ades).



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Job evaluation schemes ar e ty pically used to assess "worth" to an employer . Jobs with r oughly

equal point totals ar e consider ed to be of "compar able worth.´. While it is r eassuring to note that

r esearch on alter native job evaluation methods has found them gener ally to be r eliable, to yield

compar able r esults, and to be f r ee of systematic bias for or against jobs dominated by one sexes

pay levels of jobs can influence judgments of job content. This means that biased mar ket pay

str uctur es could wor k backwar d thr ough the job evaluation pr ocess to pr oduce r elatively deflated

evaluations for jobs held pr edominately by women without the need for any dir ect bias based on

sex.

Pay Secrecy

The extent to which infor mation on pay is public or private is a basic issue that needs to be

addr essed by management. Legally, the U.S. courts have gener ally supported companies in their

view that salary infor mation, like a pr oduct for mula or a mar keting str ategy, is conf idential and

the pr operty of management. An employee who ferr ets our and r eleases such data can be

dischar ged for "willful misconduct.´On the other hand, consider that pay secr ecy is becoming an

incr easingly diff icult policy to maintain, particular ly as companies look to str engthen the link

between pay and per for mance. For example, r esearch with bank managers found that when pay

systems ar e open, managers tend to awar d higher pay r aises to subor dinates on whom they

depend heavily. Appar ently they do so because they need the subor dinates' cooper ation, and

subor dinates can check on pay allocations.



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The Effect of Inflation

All or ganizations must make some allowance in their salary pr ogr ams. Given an inflation r ate of

8 percent, for example the f ir m that fails to incr ease its salary r anges at all over a 2-year period

will be 16 percent behind its competitors.

Pay Compression

Pay compr ession is r elated to the gener al l pr oblem of inflation. It exists in many for ms,

including: (1) higher starting salaries for new hir es, ther eby leading long ter m employees to see

only a slight differ ence between their curr ent pay and that of new hir es; (2) hour ly pay incr eases

for unionized employees that exceed those of salaried and nonunion employees: (3) r ecr uitment

of new college gr aduates for management or pr ofessional jobs above those of curr ent job

holders; and (4) excessive overtime payments to some employees or payment of differ ent

overtime r ates . However, f irst-line super visors, unlike middle managers, may actually benef it

f r om pay inflation among non-management employees since companies gener ally maintain a

differ ential between the pay super visor and the pay of their highest-paid subor dinates.

Pay Raise

Coping with inflation is the biggest hur dle to overcome in a merit-pay plan. On the other hand,

the only measur e of a r aise is how much it exceeds the incr ease in the cost of living: 12.4 percent

inflation in 1980 mor e than wi ped out the aver age r aise. However, the aver age 6 percent r aise

that employees r eceived in 1989 pr ovided a r eal incr ease since inflation was only about 4



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percent.) The simplest and most effective method for dealing with inflation in a merit pay

system is to incr ease salary r anges.)? By r aising salary r anges (e.g., based on a sur vey of aver age

incr eases in starting salaries for the coming year) without giving gener al incr eases, a f ir m can

maintain competitive hiring r ates and at the same time maintain the merit concept surr ounding

salary incr eases. Since a r aise in minimum pay for each salary r ange cr eates an employee gr oup

that falls below the new minimum, it is necessary to r aise these employees to the new minimum.

Such adjustments technically, violate the merit philosophy, but the advantages gained by keeping

employees in the salary r ange and at a r ate that is suff icient to r etain them clear ly outweigh the

disadvantages. The size of the merit incr ease for a given level of per for mance should decr ease as

the employee moves farther up the salary r ange. Merit guide charts pr ovide a means for doing

this. Guide charts identif y (1) an employee's curr ent per for mance r ating and (2) his or her

location in a pay gr ade. The intersection of these two dimensions identif ies a percentage of pay

incr ease based on the per for mance level and location of the employee in the pay gr ade.

Guidelines for Effective Orient-Pay System

Those affected by the merit-pay system must support if it is to wor k as designed. This is in

addition to the r equir ements for incentive pr ogr ams. Fr om the inception of a merit-pay system it

is important that employees feel a sense of ³ownershi p´ of the system. To do this, consider

implementing a merit-pay system on a step-by-step basis (for example over a 2-year period)

coupled with continued r eview and r evision. Her e ar e the f ive steps to follow:

y Establish high standar d of per for mance

y Develop accur ate per for mance appr aisal system



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y Tr ain super visors in the mechanics of per for mance appr aisal and in the art of giving

feedback to subor dinates.

y Tie r ewar ds closely to per for mance.

y Use a wide r ange of incr ease

Compensation Module for an

organization

Effective compensation management helps you r etain employees, boost mor ale, and enforce a

per for mance-based cultur e. Now you can make compensation a key component of your talent

development str ategy with the Compensation Management module. Compensation Management module enables you to flexi bly integr ate compensation with per for mance management pr ocesses to ensur e fair and equitable employee incr eases. You¶ll also be able to:

y Eliminate costly err ors associated with s pr eadsheets and dis par ate systems

y Engage manager¶s wor ld wild with self-ser vice tools and compr ehensive support.

y Achieve faster time-to-value when you easily upload and modif y budgets, salary str uctur es, and incr ease guidelines.

y Flexi bly manage your s pecif ic needs with conf igur able compensation wor kflows andmulti-component compensation management

y Support a global wor kforce with capabilities to accommodate multi ple languages, curr encies, and cultur al r equir ements

Easy- to- use InterfaceThe Compensation Management module has an easy-to-use gr aphical inter face that makes the

pr ocess of managing compensation pr ogr ams str aightfor war d for employees, managers, andadministr ators. Intuitive featur es include:

y Ability to easily f ilter views so managers can toggle between dir ect r eports, s pecif ic departments, or everyone depending on access rights



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y Dynamic inter faces that give users contr ol over what data they can see and in what or der

y Flexi ble compensation templates that make it simple for administr ators to meet or ganizational needs

y Str aightfor war d compensation r ecommendation scr eens that pr ovide drill-downaccessi bility to individual pr of ile infor mation, including employee per for mance r eports

and car eer plans

Robust administrative toolsManagement module also str eamlines pr ocesses for conf iguring, uploading, and modif yingcompensation data. Administr ators can use the module¶s tools to set up all as pects of the

compensation pr ocess, including budgets, salary str uctur e, and compensation guidelines. Inaddition, the module pr ovides support for compa-r atio and position-in-r ange methodologies.

Component conf igur ation scr een lef ts you choose and r earr ange

compensations for each temple

BudgetsFor each compensation component, you can def ine budgets as a percent of salary or a s pecif ic amount per or ganizational unit (i.e., cost center).This flexi bility enables you to pr ovide, for

example, differ ent budget amounts to individual department managers. And individual awar ds can be based on business per for mance, individual per for mance, or a combination of both.

Administr ators can also def ine s pecif ic budget enforcement r ules so managers attempting to give



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compensation r ecommendations that fail to meet guidelines will either be r estricted f r omsubmitting those r ecommendations, or alerted that they ar e outside of the appr oved r ange.

Compensation templates

Administr ators can build a template for each employee ty pe that contains separ ate budgets,

guidelines, pr or ation, and r ounding r ules. In addition, they can also choose and r earr ange each template¶s compensation components such as title, pay gr ade, and starting salary.

Data import and exportTo further pr omote ease of use, administr ators can import employee salary history, salary str uctur e, compensation guidelines, employee demogr aphic data, and exchange r ates into the

system. Summary data can be exported into an exter nal payr oll system.

Proration factorsPr or ation factors allow administr ators to def ine a wor k week for hour ly or inter national

employees. Complex exter nal for mulas can also be imported to deter mine bonus payout. For example, to accommodate employees who have only wor ked at a company for six months in a

year, administr ators can set a merit incr ease at half of the nor mal r ate.

History and auditingThis module offers numer ous history and auditing capabilities, including:

y Support for position-s pecif ic pay gr ades including location-s pecif ic pay gr ades (CAsalary vs. FL salary, etc.)

y Support for def ined r anges within pay gr ades (quartiles, quintiles, etc.) y Tr ack ing and adjustment of all historical changes to pay gr ade and r ange

y Tr ack ing of all changes to employee salary components, with accessi bility to employees, managers, and administr ators

y Import or manual adjustment to the compensation history r ecor ds to support compensation changes handled outside of the system (s pot awar ds, etc

Flexible workflow capabilityDesigned to offer superior flexi bility, the Compensation Management module supports thecomplex compensation wor kflows of any or ganization. Full support for Open Wor kflow

Architectur e ensur es that steps, tr ansitions, notif ications, and appr ovals ar e completely



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conf igur able accor ding to your business needs. The system also facilitates the integr ation of per for mance r atings with compensation planning.

Openwor kflow or chitectur e integr ation lets you def ine per missions

salary components at each step in wor kflow

The module¶s flexi ble wor kflow featur es enable you to:

y Automatically tr ansfer pr eliminary and f inal per for mance r atings to compensationr ecommendations as part of the per for mance appr aisal wor kflow

y

C

onduct batch appr ovals of compensation r ecommendations y Lever age compensation wor kflows to def ine the point at which r ecommendations ar e

consider ed appr oved and f inal, and update salary histories as r equir ed

Extensive Global capabilities

The Compensation Management module contains many featur es that intuitively addr ess the

compensation needs of global employees with ease



Pay gr ades and other compensation components support multi-curr ency

For example, you can lever age the Compensation Management module to:

Accommodate salary r ecommendations acr oss curr encies Enter or import exchange r ates

Dis play budgets and compensation r ecommendations in the user¶s tar get curr ency

Toggle between curr encies, so managers can compar e all dir ect r eports on a common curr ency Accommodate wor k week differ ences acr oss countries Pr ovide language support for 11 cor e languages

Reference

www.sumtotalsystem.com/compensation-system www.business.com

www.scri bd.com

salay and om module

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