COMPENSATION MANAGEMENT

& JOB EVALUATION

Human Resource ManagementTerm II

It is all about ‘people’…

■ Our Assets walk out of the door each evening. We have to make sure that they come back the next morning.

-Narayan A Murthy (Chief Mentor Infosys)

■ Take our 20 Best people and virtually overnight, we become a mediocre company. -Bill Gates

Microsoft

■ Take my assets, leave my people, and in five years I will have it all back. -Alfred Sloan

General Motors

What We Shall Be Covering in Next 1 Hr?I. Concept of Compensation Management?

II. Concept of Incentive?

III. Concept of Strategic Benefit Planning?

IV. Conclusion

Concept of Compensation Management ?■ Compensation is a blend of 3

components: – Direct Components

– Indirect Components

– Non-Financial Components

■ It is given to employees to increase Loyalty.

■ If used Strategically, it becomes a tool to secure a Competitive Advantage.

Compensation Design : ‘Pay Mix’

Internal Factors• Compensation Strategy• Worth of Job• Employee’s Relative Worth• Employer’s Ability to Pay

External Factors• Labor Market Conditions• Area Pay Rates• Cost of Living• Collective Bargaining• Legal Requirements

Pay Mix

Job Evaluation System

Job Ranking System

• Ranking of Jobs on Relative Worth• Listing Duties & Responsibilities

Job Classification System

• Classification & Grouping of Jobs• Series of Predetermined Grades

Point System • Quantitative Job Evaluation• Compensable Factor Basis

Work Valuation • Measuring Job’s Worth• Value to Organization Basis

Hay Profile Method(Job Evaluation For Management Positions)

• Knowledge• Mental

Activity• Accountabilit

y

Profile factors- Hay’s

Guide Chart

• Determination of percentage value assigned

Profile Developme

nt

• Factor Based Ranking

• Point Value Assignment

Job Ranking

Hay Job Evaluation Factors

Knowledge / Know-how

Technical/ Specialized

Skills

Managerial Skills

Human Relations

Skills

Mental Activity / Problem Solving

Thinking Environmen

t

Thinking Challenge

Accountability

Freedom to Act

Scope

Impact

Application of Hay Job Evaluation

Organizational Design & Analysis• Common Framework &

language• Strategic Goals

Objectives Specification

Job Design and Analysis• Determination of

Doable Jobs• Relationship between

Organization’s Requirement & Job Positions

Job/ Person Matching• Job Shape Sampling• Matching Nature of Job

and Competencies Required

Chevron■ Manjit Lakhmana: General Manager HRM and Country HR Head, India■ June 1997 – March 2001 (3 years 10 months)

Training for Representatives

Creation of Job Evaluation Board

Revision of all Job DescriptionsOrganization Map and Banding Proposal

Board Review and Job matching

Compensation System

Indirect Compensation

Protection Programs

1. Medical Insurance2. Life Insurance3. Disability Income4. Pension5. Social Security

Pay for Time Not Worked

1. Vacations2. Holidays3. Sick leave4. Jury duty

Services and Perquisites

1.Recreational Facility2. Car3. Financial Planning4. Low-cost or free meals

Direct Compensation

Base Pay

Salary Wage

Merit Pay

Incentive Pay

1.Bonus2. Commission3.Piece rate4.Profit Sharing5.Stock option6.Shift differential

Deferred Pay

1.Savings plan2.Stock

purchase3.Annuity

Sample Compensation ScorecardFunction Average Performance

Rating (1-5)Average Merit

Increase (4% Budget) Grade Inflation Compa Ratio Anuual Incentive (% of Target)

Marketing 3.4 4.30% -3% 101% 100%

R&D 3.2 4.40% 0% 98% 102%

Production 4 4.20% 12% 96% 105%

Sales 4.1 3.40% 8% 99% 100%

Customer Service 3.6 3.60% 17% 88% 110%

Grade Inflation is determined by calculating the percentage change in the number of employees in each grade in comparison to the year before

Compa Ratio is actual salary divided by the midpoint of the salary range. It is a guage of the appropriateness of the organization's salary range

The Direct Correlation between profit growth over a three-year period relative to LTI expense

Salary Levels for Different Jobs

Source : http://www.payscale.com/research/IN/Job=General_%2f_Operations_Manager/Salary

Pay By Experience Level

Stats For Different Countries

Source : http://www.gapminder.org/world/#$

Government Regulatory Acts for EmployeesThe following acts are the part of Government Rules and Regulation for the benefits of Employees:■ The Payment of Wages Act, 1936■ The Equal Remuneration Act, 1938■ The Industrial Disputes Act, 1947■ The Employee State Insurance Act, 1948■ The Factory’s Act, 1948■ The Minimum Wages Act, 1948■ The Employee’s Provident Fund and Miscellaneous Provisions Act, 1952■ The Payment of Bonus Act, 1965■ The Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972■ Act applies to every establishment in which 10 or more person are employed or were

employed on any day of preceding 12 months ■ Once covered will continue to be under coverage even if the employee number goes

down■ Gratuity is payable to an employee on

– Termination of his employment after he has rendered continuous service for not less than 5 years.

– Reaching age of superannuation. – Retirement/resignation or. – Death or disablement due to accident or disease

■ Gratuity is calculated on Basic Rate plus Dearness Allowance. Does not include any bonus, commission, house rent allowance, overtime wages and any other allowance

■ Formula: (Number of yrs of service x Last salary drawn X 15 days salary) / 26– Here,

■ 26 = No. of Working Days ■ Last Drawn Salary = Basic Salary + D.A.

■ Maximum limit Rs 10,00,000

Violations Of Acts : SuBWAY■ About 17,000 Fair Labor Standards Act violations and resulted in franchisees having

to reimburse Subway workers more than $3.8 million over the years.■ It's a significant sum considering many Subway "sandwich artists" earn at or just

above the minimum wage of $7.25 an hour.

■ The next most frequent wage violators in the industry are McDonald's (MCD)and Dunkin' Donuts(DNKN) stores.

■ That said, Subway's problems were considered serious enough to prompt the Department of Labor (DOL) to partner with the company's headquarters to boost compliance efforts last year.

■ "It's no coincidence that we approached Subway because we saw a significant number of violations," a Department of Labor spokesperson said.

The franchise model impact■ In cases like these, the corporate parents like to draw a distinction between

themselves and their independently operated stores. While Subway declined to comment for this article, both McDonald's and Dunkin' Donuts submitted comments to that effect.

Violations Of Acts : Reliance

Concept of Incentive ?■ Incentive in Common Language means ‘extra financial reward given for

encouraging work”.■ Incentive are basically a performance-link reward to improve motivation and

productivity of employees. ■ It includes any kind of remuneration that is provided for extra performance in

addition to regular wages for job. ■ These are considered as beneficial to both employers as well as employees:

– Workers are likely to work at their best when offered for monetary rewards for their performance.

– Opportunity for hard working employees to earn more. – Improves productivity – Helpful in obtaining desired result as it improves discipline and commitment

towards work. ■ Strategic reason for Incentive Plans is “Variable Pay”, also known as ‘Performance

Pay’; It is used to recognize employee contribution above and beyond normal job requirements, like ‘Productivity’, ‘Profitability’, and ‘Quality’.

Incentive Plan■ Employee incentive programs are a very powerful concept when employees can

understand and see the connection between their performance and their rewards. ■ Which motivate employees to exceed expectations and grow the business. Such

plans promote exceptional behavior during a specific period. ■ It implies monetary inducements offered to employees to perform beyond

acceptance standards. Incentive Plans

Individual

Time Based

Output Based

Organization-Wide

Profit Sharing Co-PartnershipGain-Sharing

ESOP’s

Group

Time Based

Design Related Issues■ Employee Eligibility: Incentive plan allows for an incentive to be paid to eligible

staff based on the following factors: – Achievement of Personal Goals – Achievement of Divisional Goals– The Profit achievement of the Organization in which they work.

■ Medium Of Payment: How the bonus should be paid ? Such as: – Money– Fringe Benefits, Recognition/Appreciation– Flexibility at work – Holidays, etc..

■ Frequency of Payment: How often should we pay?

Incentive PlansShort Term Incentives ■ Merit Pay

■ Lump-Sum Bonuses

■ Individual Spot Awards

■ Individual Incentives

Long Term Incentives ■ Employee Stock

Ownership Plans (ESOPs)

■ Performance Plans (Performance Share and Performance Unit)

■ Broad-Based Option Plans (BBOP)

Team / Group Incentives ■ Gain-Sharing Plans

■ Profit Sharing Plans

■ Earnings-at-Risk Plans

Enterprise Incentive Plans

Profit Sharing– Any procedure by which an employer pays, or makes available to

all regular employees, in addition to their base pay, current or deferred sums based upon the profits of the enterprise.

– Challenges: Agreement over the percentages of shared of profits and the

forms of distribution (cash or deferred) of profits between company and employees

Annual variations and possibility of no payout due to financial condition of company

Maintaining motivational connection of profit-sharing to performance of employees

Employee Stock ownership Plans (ESOP’s)STOCK OPTIONS ■ Granting employees the right to purchase a specific number of shares of the

company’s stock at a guaranteed price (the option price) during a designated time period.

■ The value of an option is subject to stock market conditions at the time that option is exercised.

ESOP’s■ Stock plans in which an organization contributes shares of its stock to an

established trust for the purpose of stock purchases by its employees.– The employer establishes an ESOP trust that qualifies as a tax-exempt employee

trust under Section 401(a) of the Internal Revenue Code– Stock bonus plans are funded by direct employer contributions of its stock or cash

to purchase its stock.– Leveraged plans are funded by employer borrowing to purchase its stock for the

ESOP.

Incentive For Professional Employees These includes Engineers ,scientists ,attorneys

In some organizations professionals employees cannot advance beyond certain point in salaries

Hence they are provided with cash bonuses, profit sharing , or stock owner ship on completing the project on or before deadline dates

In addition to this they allotted with simple rules to keep them motivated such as :1. Provide clear goals 2. Reward performance quickly 3. Involve in decision making

Incentive For Executives Short Term Incentives ■ Plans that are designed to motivate short-

term performance of managers and are tied to company profitability

■ Eligibility – Fund Size – Individual Awards

Long term Incentives■ The right to purchase a specific number of

shares of company stock at a specific price during a specific period of time

■ Stock Option Problems – Broad Based Stock Options – Other Plans

Concept of Strategic Benefit Planning ?■ Benefits represent a major proportion of the Total Pay; so are termed as ‘Expensive’ by

the companies; Hence need to be taken special care of.■ Some benefits are legally required, whereas some are voluntarily granted by the

employers. ■ Benefits Plan must be drafted in such a way that it must take care of:

– Employee’s needs – Organization’s strategic compensation plan, including it Total reward Strategy.

■ Employee needs are taken care of by:– Consultation – Opinion Surveys– Involving Employees in making of Benefits Plan

■ Communication of Benefits is done by Employer by various methods (few of them are):– Social Media – In-House Publications – Employee Meetings and Information Sessions – Emails with Benefit Info.

Employee Benefits Required By Law

TCS Example:

Major Discretionary Employee BenefitsBy Various Companies

Tuition Assistance ProgramProfessional Counseling & Support ServicesRelocation FacilitiesPerformance BonusesTransportation Benefits

One Share ProgramFlexible Work Hours

Group InsuranceFully Paid LeavesUtilities Reimbursement

Gym & Recreation CentersSportsEducational Tie-Ups

Free & Healthy BreakfastsTie- Up Day Care

Long Service AwardsWelfare TrustsBusiness FundsEmergency Assistance

Example Case :

Work Life Balance

Company Culture • Fast Paced, High Energy Work

Environment• Creativity & Innovation Extolled• College like Campus Environment at

California office• Non hierarchical Structure• Non dress codes & formal meetings• Freedom to play.• Credo : To engage employees in

teamwork and creative involvement.• Chief Cultural Officer

Costs

Not So Perfect Structur

e

Benefits

Company

Culture

Source :http://www.aabri.com/manuscripts/09429.pdf

Googler’s Benefit

Free Food Numerous Holidays &

Leaves

Transportation Services

Pets Allowed rule

Onsite ChildcareFacilities

Laundry & Dry Cleaning

Services

20% Creative Program

HealthCareServices

Sports Facilities

Environmentalism

Source :http://www.aabri.com/manuscripts/09429.pdf

Google Issues In Employee Retention

Long Working Hours

Low PayUnstructured Work

Environment

Lost in the crowd

Poor Manageme

nt

Source :http://www.aabri.com/manuscripts/09429.pdf

Cost Implication

50% revenue as

Payroll benefits

Performance

Higher per employee profits as per industry average

Higher Employee & Customer Satisfaction

High Employee Productivity

$37000 per child in childcare

$63 million food costs a year for US Employee

Source :http://www.aabri.com/manuscripts/09429.pdf

Conclusion1. Compensation Management:

– Hay Job Evaluation method is the most effective in the modern era due to its systematic framework.

– Compensation Assessment tool can be used to maintain transparency, increase decision making and helping to detect potential compensation problem

2. Incentive: – Incentive for the Employees, is the easiest way to retain Employees (ESOP’s)– So, we can say that from varied kind of incentives, company should choose

according to its capital equity which is best.3. Strategic Benefit Planning:

– It leads to higher employee satisfaction, thus increasing employee retention and attraction

Group –

■ Prachi Sharma

■ Pranali Baxi

■ PratipalSinh Jadeja

■ Priyank Thakkr

■ Raj Vadukul

■ RajdeepSinh Parmar

■ RajveerSinh Chauhan

■ Riddhima Kartik

20151030

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20151034

20151035

20151036

20151037

Time To Test Learnings..??

Rules: ■ Only one person shall answer for the question; by raising his/her

hand. ■ Quiz Consist of 7 questions. ■ Question are both Descriptive and MCQ

Question 1 ..??

Q: What are the Factors under Hay Job Evaluation Method?

Question 3 ..??

Q: Out of these four Job Evaluation System, which one is through the “Modern Approach” ?

A: (a) Job ranking System(b) Job Classification System(c) Point System(d) Work Valuation

Question 2 ..??

Q: In which Industry does Incentive Plans play an important role to the employees?

A: (a) Banking and Insurance (b) Automobile (c) Retail(d) IT Industry

Question 4 ..??

Q: Of the Group Incentive Plan, which plan is the Financially suitable for the company?

A: (a) Gain-Sharing Plans (b) Profit Sharing Plans (c) Earning at Risk Plans (d) Non of the Above

Question 5 ..??

Question 6 ..??

Q: Which company has come up with a unique designation of Chief Culture Officer and why?

A: Google

Question 7 ..??

Q: What is “BoB”?

A: Bouquet of Benefits