1st comp & pay model

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COMPENSATION & PAY

MODEL


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COMPENSATION

What is Compensation ?

What Importance it has ?

Stake holders

Various forms of Compensation


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CONTRASTING PERSPECTIVES OFCOMPENSATION


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COMPENSATION: DEFINITION

Society Pay as a measure of justice

Benefits as a reflection of justice in society

Job losses (or gains) attributed to differences incompensation

Belief that pay increases lead to price increases

StockholdersUsing stock to pay employees creates a sense of

ownership

Linking executive pay to company performancesupposedly increases stockholders' returns

Managers A major expense

Used to influence employee behaviors and toimprove the organization's performance


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COMPENSATION: DEFINITION (CONT.)EmployeesMajor source of financial securityReturn in an exchangebetween employer

and themselvesEntitlementfor being an employee of the

companyRewardfor a job well done

Global Views Vive la diffrenceChina: Traditional meaning of

compensation providing necessities of life

replaced with dai yuJapan: Traditional word kyuyo replaced

with hou-syu; very recently the phraseused is teate


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Compensation refers toall forms of financial

returns and tangible

services and benefits

employees receive as

part of an employment

relationship

WHAT IS COMPENSATION?


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CURRENT CHALLENGES

One of the greatest challenges companiesfacing today is retaining top talent.

The expense to an organisation of replacing anemployee (including separation, replacement,training and lost performance costs) can be asmuch as that employees salary for a year.

Turnover further erodes morale among thosewho stay and harms customer retention.


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REWARD TRENDS

From

Narrowly-defined jobsand job standards

Inflexible job-evaluation systemssizing tasks,rewarding non-adaptive behaviourand empire-building,encouraging point-grabbing

To

Broad, generic roles-emphasis oncompetence and

continuousdevelopment

Flexible job

evaluation processesassessing the valueadded by people inroles, often within job

families


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REWARD TRENDS (CONT.)

From Hierarchical and rigid pay

structures - only way toget on, is to move up.Focus on next promotion.

Emphasis on individualperformance-related pay(PRP)

Consolidation of rewardsinto base pay

To Broad-banded and job

family pay structuresemphasising flexibility,career development payand continuousimprovement. Focus onnext challenge.

More focus on team

performance, team-basedpay; contribution-relatedpay

More emphasis on atrisk pay


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iscussion iscussion

ransactional Returnsransactional Returns

elational Returnselational Returns


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What are the Kind of Returns , EmployeeWhat are the Kind of Returns , EmployeeGets from the OrganizationGets from the Organization

-Total CompensationTotal Compensation

- Cash CompensationCash Compensation

- BenefitsBenefits

-Relational ReturnsRelational Returns


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FRAMEWORK FOR ANALYZINGDIFFERENT DEALS

HIGH PAY LOW COMMITMENT

Hired Guns(Stockbrokers)

HIGH PAY HIGH COMMITMENT

Cult - like(Microsoft)

LOW PAY LOW COMMITMENT

Workers as Commodity(Employers of Migrant

Farm Workers)

LOW PAY HIGH COMMITMENT

Family(Starbucks)

LowLow HighHigh

RELATIONALRELATIONAL

Low

Low

High

High

TRANS

ACTI ONA

L

TRANS

ACTIONA

L


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: TOTAL RETURNS FOR WORK


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FORMS OF PAY

Relational returns Psychological in nature

Total compensation Cash Compensation/ transactional

Base wages

Difference between wage and salary

Merit pay/cost-of-living adjustments

Merit increases given in recognition of past workbehavior

Cost-of-living adjustments same increases to everyone,regardless of performance


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FORMS OF PAY (CONT.)

Cash Compensation/ transactional (cont.) Incentives/ Variable pay tie pay increases directly to

performance

Does not increase base wage; must be re earned eachpay period

Potential size generally known beforehand Long-term(stock options), and short-term

Benefits

Income protection

Work/life balance

Allowances


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FORMS OF PAY (CONT.)

Total earnings opportunities: Present value ofa stream of earnings

Shifts comparison of today's initial offers toconsideration of future bonuses, merit increases,and promotions

Relational returns from workNonfinancial returns

Organization as a network of returns

Created by different forms of pay, including totalcompensation and relational returns


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A PAY MODEL

Three basic building blocks:Compensation objectives

Policies that form the foundation of the

compensation system

Techniques that make up the compensationsystem


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: THE PAY MODEL


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COMPENSATION OBJECTIVES (CONT.)

Efficiency

Improving performance, increasing quality,delighting customers and stockholders

Controlling labor costs

Fairness

Fundamental objective of pay systems

Fair treatment by recognizing both employeecontributions, and employee needs

Procedural fairness


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COMPENSATION OBJECTIVES (CONT.)

ComplianceConformance to Government and State

compensation laws and regulations

EthicsOrganizations care about how its results are

achieved

ObjectivesGuide the design of the pay systemServe as the standards for judging success of

the pay systemPolicies and techniques are means to reach

objectives


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Suggest . Your Thoughts on .

Objectives of Compensation System


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Internal alignment

Focus - Comparisons among jobs or skill levels insidea single organization

Pay relationships within an organization affectemployee decisions to: Stay with the organization Become more flexible by investing in additional training Seek greater responsibility

External competitiveness

Focus - Compensation relationships external to theorganization: comparison with competitors

Pay is market driven

FOUR POLICY CHOICES


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FOUR POLICY CHOICES (CONT.)

External competitiveness (cont.)Effects of decisions regarding how much and

what forms:To ensure that pay is sufficient to attract and retain

employees

To control labor costs to ensure competitive pricingof products/ services Employee contributionsFocus - Relation emphasis placed on employee

performance Performance based pay affects fairness

ManagementFocus - Policies ensuring the right people get

the right pay for achieving the right objectivesin the right way


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REWARD MANAGEMENT

Definition: RM is concerned with theformulation and implementation of strategiesand policies that aim to reward employeesfairly, equitably and consistently in accordancewith their value to the organisation (Armstrong,

2003).

Strategic aims: to develop and implement thereward policies, processes and practices

required to support the achievement of theorganisations goals by helping to ensure that ithas the skilled, competent, well motivated andcommitted people it needs.

total reward defined Michael Armstrongtotal reward defined Michael Armstrong


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total reward defined- Michael Armstrongtotal reward defined- Michael Armstrong

Total reward includes all types ofTotal reward includes all types of

reward non-financial as well asreward non-financial as well asfinancial, indirect as well as direct,financial, indirect as well as direct,

intrinsic as well as intrinsic. It is aintrinsic as well as intrinsic. It is a

value proposition which embracesvalue proposition which embraces

everything that people value in theeverything that people value in the

employment relationship and isemployment relationship and is

developed and implemented as andeveloped and implemented as an

integrated and coherent whole.integrated and coherent whole.

i l f l dti l f t t l d


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rationale for total rewardrationale for total reward

Creating a fun, challenging, andCreating a fun, challenging, and

empowered work environment inempowered work environment inwhich individuals are able to use theirwhich individuals are able to use their

abilities to do meaningful jobs forabilities to do meaningful jobs for

which they are shown appreciation iswhich they are shown appreciation is

likely to be a more certain way tolikely to be a more certain way to

enhance motivation and performanceenhance motivation and performance

even though creating such an even though creating such anenvironment may be more difficultenvironment may be more difficult

and take more time than simplyand take more time than simply

turning the reward lever.turning the reward lever.

Jeffrey Pfeffer Stanford University Jeffrey Pfeffer Stanford University

Ch t i ti f t t l d t t (CIPD)Ch t i ti f t t l d t t (CIPD)


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HolisticHolistic -- focuses on how organisations attract,focuses on how organisations attract,retain and motivate employees to contribute toretain and motivate employees to contribute to

success using an array of financial and non-financialsuccess using an array of financial and non-financialrewards.rewards.

Best fitBest fit tailored to the organisations culture andtailored to the organisations culture andwork processes.work processes.

IntegrativeIntegrative the reward system is integrated withthe reward system is integrated withHR policies and practices.HR policies and practices.

StrategicStrategic aligns reward and business strategies.aligns reward and business strategies.

People centredPeople centred-- focuses on employee needs andfocuses on employee needs andwants.wants.

CustomisedCustomised provides a flexible mix of reward thatprovides a flexible mix of reward thatoffers choice.offers choice.

DistinctiveDistinctive -- uses rewards to create a distinctiveuses rewards to create a distinctive

Characteristics of a total reward strategy (CIPD)Characteristics of a total reward strategy (CIPD)


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models of total rewardmodels of total reward

total reward (engaged performance) model Haytotal reward (engaged performance) model Hay


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total reward (engaged performance) model Haytotal reward (engaged performance) model Hay

GroupGroup

quality of workquality of work

work/life balancework/life balance

inspiration/valuesinspiration/values

enablingenabling

environmentenvironment

tangible rewardstangible rewards

futurefuture

growth/opportunitgrowth/opportunit

yy

engagedengaged

performanceperformance

total reward model WorldatWorktotal reward model WorldatWork


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organisationalorganisational

cultureculture

business strategybusiness strategy

HR strategyHR strategy

totaltotal

rewards strategyrewards strategy compensationcompensation

benefitsbenefits work/lifework/life

performance andperformance and

recognitionrecognition development anddevelopment and

career opportunitiescareer opportunities

attractattract

motivatemotivate

retainretain

employeeemployee

satisfactionsatisfaction

andand

engagementengagement

businessbusiness

performanceperformance

and resultsand results

total reward model - WorldatWorktotal reward model - WorldatWork

Total rewards are all the tools available to the employer that may beTotal rewards are all the tools available to the employer that may be

used to attract, motivate and retain employees. Total rewards includeused to attract, motivate and retain employees. Total rewards include

everything the employee perceives to be of value resulting from theeverything the employee perceives to be of value resulting from theemployment relationshipemployment relationship

total reward model Watson Wyatttotal reward model Watson Wyatt


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total reward model Watson Wyatttotal reward model Watson Wyatt

business strategybusiness strategy

human capital strategyhuman capital strategy

total reward strategytotal reward strategy

fixed reward costsfixed reward costs performance-based rewardsperformance-based rewards environment-based rewardsenvironment-based rewards

fixed costs of employmentfixed costs of employment

value of role to organizationvalue of role to organization

variable costs ofvariable costs of

employmentemployment

contribution made bycontribution made by

individualindividual

intrinsic rewardsintrinsic rewards

employment dealemployment deal

effective delivery through focused communication, greater flexibility and use of technologyeffective delivery through focused communication, greater flexibility and use of technology

total reward model - Towers Perrintotal reward model - Towers Perrin


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PAY/REWARDPAY/REWARD

base paybase pay

ccontribution payontribution pay

shares/profit sharingshares/profit sharing

recognitionrecognition

TRANSACTIONALTRANSACTIONAL((TANGIBLE)TANGIBLE)

RELATIONALRELATIONAL(INTANGIBLE)(INTANGIBLE)

INDIVIDU

AL

INDIVIDU

AL

COMMUNAL

COMMUN

AL

total reward model - Towers Perrintotal reward model - Towers Perrin

BENEFITSBENEFITS

ppensionsensions

health carehealth care

perksperks

flexible benefitsflexible benefits

LEARNING ANDLEARNING AND

DEVELOPMENTDEVELOPMENT

wworkplace learningorkplace learning

trainingtraining

performance managementperformance management

career developmentcareer development

WORK ENVIRONMENTWORK ENVIRONMENT

ccore valuesore values

leadershipleadership

employee voiceemployee voice job/work designjob/work design

total reward model - Michael Armstrongtotal reward model - Michael Armstrong


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transactionaltransactional

rewardsrewards

relationalrelational

rewardsrewards

base paybase pay

contingent paycontingent pay

employee benefitsemployee benefits

learning and developmentlearning and development

the work experiencethe work experience

totaltotal

remunerationremuneration

non-financialnon-financial

rewardsrewards

recognition, achievement, growthrecognition, achievement, growth

total rewardtotal reward

total reward model Michael Armstrongtotal reward model Michael Armstrong


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conductconduct

diagnosticdiagnostic

reviewreviewdefinedefine

objectivesobjectives

developdevelop

approachapproach

(involve)(involve)

designdesign

prioritiseprioritise

implementimplement

progressivelyprogressively(encourage/guide)(encourage/guide)

communicacommunica

tete

monitormonitor

andand

evaluateevaluate

making totalmaking total

rewardreward

happenhappen

1st comp & pay model

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