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Compensation
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Compensation Management
If you pick the right people and give them theopportunity to spread their wings - and putcompensation and rewards as a carrier behind it -you almost dont have to manage them.
Jack Welch
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Overview
The total of all rewards provided to employees
in return for their services.
It is the package of quantifiable rewards an
employee receives for his or her labors.
It includes three components:
Base compensation
Pay incentives
Indirect compensation/Benefits
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Base compensation is the fixed pay an employee
receives on a regular basis, either in the form of a
salary or as an hourly wage.
Pay incentive is a program designed to reward
employees for good performance.(bonus, profit
sharing)
Benefits includes health insurance ,medical care ,Pf,gratuity,uniform,recreation,etc. A special
category of benefit is called perquisites or perks.
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Remuneration
Financial Non Financial
Hourly and
monthly
rates
wagesSalaries
Incentives
Individual
Plans
Group
Plans
Fringe Benefits
PF
Gratuity
Medical Care
Accident Relief
Health &
Group
Insurance etc.
Prerequisites
Company Car
Club
Membership
Paid HolidaysFurnished
House
Stock OptionScheme etc.
Job Context
Challenging Job
Responsibilities
Recognition
Growth Prospects
SupervisionWorking Conditions
Job Sharing etc.
Direct Indirect
Environment
Components of Remuneration
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Factors influencing compensation
External Factors Labour market
Going rate system
Cost of living
Labour unions Labour laws
Society
The economy
Internal Factors Business strategy
Job evaluation
Performance appraisal
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Objectives of compensation planning
Equity: (fairness)
Internal equity: The perceived fairness of the pay
structure within a firm.(more difficult jobs are
paid more)
External equity: The perceived fairness in pay
relative to what other employers are paying for
the same type of labor. Individual equity: The perceived fairness of
individual pay decisions.
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Consequence of Pay Dissatisfaction
Desire for More
Pay
Pay
Dissatisfaction
Performance
Strikes
Grievances
Search For Higher
Paying Jobs
Lower Attractiveness
of Jobs
Job
Dissatisfaction
Absenteeism
PsychologicalWithdrawal
Visits to the
Doctor
Visits to the
Doctor
Absenteeism
Turnover
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Motivation & Performance Model
Employee Sets
Expectations and
Goals
Performance is
Rewarded
Employee considersequity of
Performance
Rewards
Feedback toEmployees
Rewards
Are Given
Employee Sets New Goals And
Expectations Based on Prior Experiences
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The Wage Determination Process
Job Analysis
Job Description& Specification
Performance
Standards
Job Evaluation WageSurveys
Wage Legislation
Wage Structure
Rules of
Administration
Differential
Employee
Appraisal
Wage Payments
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Job evaluation
A job is rated in order to determine its value
relative to all other jobs in the organisation
which are subject to evaluation
The relative job value is then converted into
money value to translate the job classes into
rate ranges.
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Methods of job evaluation
Non-quantitative methods: here a job is comparedas a whole with other jobs.
Ranking or job comparison
Grading or job classification
Quantitative methods: Key factors of the jobs areselected and measured
Point rating
Factor comparison
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Point method
Determine the job to be evaluated.(benchmark jobs)
Select the factors. (measurable)
Define the factors
Determine the degrees Determine relative values of job factors
Assign point values to degrees
Find point value of the job
Assign money values.
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Example:
Factors: skill, effort, responsibility & job
conditions
Factors Sub Factors
SkillEducation,
Experience &
Training
Effort Physical &
MEntal
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Degrees
Education:
Graduation Inermediate School Read & Write
4 3 2 1
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Factors No. of
Points
1s t
Degree
2nd
Degree
3rd
Degree
4h
degree
Skill 148
Education 40 10 20 30 40
Experience 88 22 44 66 88
Training 20 5 10 15 20
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Assigned Money Value
Point Range Daily Wage Rate Job Grade
100-150 Rs. 15-25 1
150-200 Rs. 25 -35 2
200-250 Rs. 35-45 3
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Wage & salary surveys: It ensures external
equity.
Determine pay grades: (Job evaluation)
Price each pay grade or Rate ranges: (Wage
curve)
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Plotting a Wage Curve
0 100 200 300 400 500
5
6
7
8
9
10
Wage Curve
Points For Jobs
WageRates
(InRs.)
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From above fig (example):
Grade I = 50-100points = Rs. 2,000- Rs. 5,500
Grade II = 100- 150 points =Rs. 2,800- Rs. 6,500
Grade III = 150 points-200 points = Rs. 5,800- Rs. 7,500
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Broadbanding
It means collapsing salary grades and ranges
into just a few wide levels or bands, each of
which contains a relatively wide range of jobs
and salary levels.
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Wage policy in India
Minimum wage
It is the wage which provides not only for bare sustenanceof life, but also for preservation of efficiency of worker.
Need based minimum wage-
Fair wage
Equal to the rate prevailing in the same trade and in theneighborhood, or equal to the predominant rate forsimilar work through out the country.
Living wage Higher than fair wage, provides for bare essential plus
frugal comforts.
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State Regulation of Wages
Employer
Collective Bargaining
Legislation Minimum Wages Act
Payment of Wages Act
Adjudication Machinery
Wage Boards
Pay Commissions
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Types of Fringe Benefits
Payment for Time
Not WorkedEmployee Security Safety & Health
Welfare
Recreational
Facilities
Old Age &
Retirement
Benefits
Hrs of
Work
Paid
Holidays
Shift
Premium
Holiday
Pay
Paid
Vacation
Retrenchment
Compensation
Lay off
Compensation
Safety Measures
Workmens
Compensation
Health Benefits
Canteens
Consumer
Societies
Credit
Societies
Housing
Legal Aid
Employee
Counseling
Welfare Orgns.
Holiday Homes
Educational
Facilities
Transportation
EducationalFacilities
Parties &
Picnics
Miscellaneous
Provident Fund
Deposit Linked
Insurance
Gratuity
Medical Benefits
Pension
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