establishing strategic pay plans (2)

7/28/2019 Establishing Strategic Pay Plans (2)

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Establishing strategic payplans


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Corporate policies andcompetitive strategy

Aligned reward strategy:

1.What are the orgs key comp. Success factors?

2.What are the behaviors or actions necessary to

successfully implement this competitivestrategy?

3.What compensation program should we use toreinforce these behaviors?

4.What requirements should each pay elementmeet to fulfill its purpose?

How well do the current reward programs matchthese requirements?


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Issues:

Will the firm be a leader or followerregarding pay.

To emphasise seniority or performance

Salary compression-raises based onlongevity(plus skills?)/aggressive merit

pay system/equity adjustments Geographical differences leading to cost

of living differentials


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Compensation Policiesshould address..

Ability to pay

Demand and supply

Bargaining power Cost of living

Comparative wages

Job requirement Govt policy

Goodwill of the company


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Establishing pay rates

Salary survey formal or informal

Job Evaluation

Group similar jobs into pay grades

Price each pay grade

Fine tune pay rates


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Job Evaluation Methods


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INTRODUCTION

Job evaluation is the process of analyzing andassessing the various jobs systematically toascertain their relative worth in anorganization. jobs are evaluated on the basisof their content and are placed in the order oftheir performance.

Job evaluation seeks to determine the relativeworth of each job so that salary differential canbe established.

Each job should be paid according to its realvalue.


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Objectives of Job Evaluation

Value of work. External and internal consistency. Fixation of wages.

Provides a basis for recruitment, Selection, Training,Promotion and Transfer of an employee. Helps in removing grievances arising out of wages. It

improves labour- management relationship. The technique of job evaluation can also be used to

determine not only what the job is worth, also the

value of each of the aspects such as the skill andresponsibility levels.


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Principles of Job Evaluation Rating of the job should be done rather

than the rating of man doing the job. The elements selected for rating

purposes should be easily explainable in

terms. Each factor should be definedand properly selected. The job evaluation plan must be

acceptable to employees.

The value or weight age given to thefactors should not be disclosed toforeman or supervisors while discussingwith them job evaluation.


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Principles of Job Evaluation

There should be limited number of occupationalwages i.e. there should be few categories of joband they should be arranged in terms of their

value to the firm. Any discussion of money value with the

employees should be avoided.

Maximum co-operation can be obtained from

employees when they themselves have anopportunity to discuss job rating


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Methods of Job Evaluation

Job Evaluation methods are of 2Categories Non Analytical Analytical

Non Analytical Methods include: Ranking Method Grading or Job Classification system

Analytical Methods include: Point System Factor Comparison method


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Ranking Method

This is the simplest method andinexpensive method of evaluation.

Under this system, all jobs arearranged/ranked in the order of theirimportance from simplest to hardest orin reverse order.

The job is not broken down into

elements or factors. Each job is compared with other and

its place is determined.


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Ranking Method

The evaluation method has 5 steps:i. Preparation of Job Description

ii. Selection of raters Job may be usually ranked by the department or

in clusters (factory workers, clerical workers etc.)

iii. Selection of rates and key jobs Usually a benchmark job are firstly rate then the

other jobs are roughly compared with these jobs

to establish a rough rating.

iv. Ranking of all jobs Each job is then compared in detail with other

similar job to establish its exact rank in the scale.


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Ranking Method

v. Preparation of Job Classificationfrom the rating:

The total ranking is divided in total no.of groups.

All the jobs with in a single groupreceive the same wage or range ofrates.


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Merits of Ranking Method

This system is easy to understand, easy toexplain to the employees.

The organization does not face any difficulty in

installing this method. This method does not involve any expenses. This method is suitable for those organizations

involving lesser no. of jobs to be evaluated. It requires less time and less work unless it is

carried to a detailed point used by company.


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Demerits of RankingMethod

There is no yardstick for measuring the value. It is least used method. It is not useful to large organizations.

Specific job requirements are not analyzedseparately.

A raters judgment is strongly influenced bywage rate.

It only gives us its rank tells us that it is higheror more difficult than another but it does notindicate how much higher or difficult.


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Job Classification Method

Under this system, classification is firstestablished by a committee.

After classification various jobs are

assigned within each grade or class As in the ranking method, the job rating

method does not involve detailed analysis.

It is based on job as a whole.

The difference between the two is that ayardstick exists in the job rating method inform of grades.


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Job Classification Method

Job grades are arranged in the order of theirimportance.

The lowest job may cover jobs requiring greaterphysical work under close supervision but carrying

little responsibility. Common task, responsibility, knowledge, experience

can be identified by the process of job analysis.i. Preparation of job descriptionii. Preparation of grade description

iii. Selection of gradesiv. Grading the key jobsv. Classification of all jobs


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Merits of Job ClassificationMethod

Simplicity and inexpensive

Simple to operate and understand

It requires less time

In organizations, where no. of jobsis small, this method yield

satisfactory results.

The evaluation is more accurate.


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Demerits of Job ClassificationMethod

This system is rather rigid andunsuitable for large organization.

This system requires differentsystem for multiple type of job.

No detailed analysis of a job is done.


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Point Method

Jobs are divided into a number offactors which in turn are further subdivided into grades or degrees.

Each degree is awarded certain pointsand when such points for all thedegree are totaled they indicate theimportance of the job in the

organization A Suitable wage rate proportional to

the total points is determined.


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Point Method

Four major factors common to all point method ofrating: Skill: Education and Training

Experience

Judgment and Initiative Efforts: Physical and Mental Working conditions: High temperature, dust, smoke,

fumes and noise Responsibility: Towards material, equipment,

machinery and tools


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Merits of Point Method

Suitable for large enterprises

More effective

No bias

No resistance

Easily evaluated in terms of moneyas money values are assigned tototal points.

Objective method


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Demerits of Point Method

Expensive

Difficult to develop point for sub-

factors. Clerical work and time consuming

Jobs may be over and under valued.


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Factor Comparison Method

It is a combination of ranking and pointsystem

All jobs are compared to each other to

determine their relative importance byselection of 5 major factors:(a) mental requirement (b) Physical requirement

(c) skill (d) responsibilities (e) working

conditions Some key jobs are selected as standardjobs to compare the other jobs.


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Steps in Evaluating the Job

Various factors are selected anddefined clearly.

Select a few key jobs in the

organization and record their wages. Wages are fixed for different factors of

each key job. A comparison scale is developed Jobs are evaluated factor by factor Finally a wage structure is designed


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Merits of FCM

Flexible Once the scale are developed , they can be

used for a long time .

More accurate The workers acceptance of the system is

favorable because it is more systematicand objective than other job evaluationmethods.

It has the ability of handling a largenumber of jobs and enjoys stability as longas the factors remain relevant.


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Demerits of FCM

Costly to install

Time consuming

Build errors in the plan

It is difficult to fully comprehend themeaning of concepts and terms such

as factors, degrees, and points. Clerical work is more


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Pricing managerial andprofessional jobs

To attract and retain goodemployees

Importance of job evaluation here


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Compensating Managers

Consists of 4 main elements:

Base pay

Short term incentives

Long term incentives

Executive benefits and perks


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Compensating Professionalemployees

Use of job evaluation.

Compensable factors-problem

solving,creativity,job scope andtechnical knowledge

Market pricing approach


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Compensation trends

Skill based pay

Differences between SBP and JBP:

-Competence testing

-Effect of job change

-Seniority

-Advancement opportunities


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The compensation comprises of 5Elements:

Salary Commission

Bonus

Long term incentives Perquisites

Components of Remuneration


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Salary: Salary is the first component of Executive

Compensation Salary is supposed to be determined through Job

Evaluation but Job Evaluation may be a partial solutionbecause Executives must be paid for their Capabilities-For what they can do rather than for Job Demands

Bonus: This type of incentive is generally is based on

performance. Executives deserve bonus because they have much

more opportunity to influence organizational success.



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Commission: Commission is paid to Executives as a percentage on

Profit. Commission is common in private sector

Long Term Incentive: Stock options are long term benefits offered to

Executives. Companies Allow Executives to purchase their share at

fixed price. Executives must use their own resources to exercise

their right to purchase the stock. Same risk as all other shareholders.



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Perquisites: Perks are a major source of income for executives. These take care of all possible needs Executives are rarely required to spend money

from their pocket. Ex. A manager in Kolkata, tried to reimburse

himself for his fathers funeral expenses. A company provided car, holidays, servants,

telephone bills, home entertainment allowance,

Special Dining Privileges, Use of Company CreditCard, No and Low Interest Loan, Reimbursementfor Childrencollege expenses.



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There are 2 more components ofExecutive Compensation:

Pension Retirement & Termination Benefits



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Norms of Wage & Salary Fixation such as Job evaluationand Job description are ignored. What an executivereceives depends on employers ability and executives

bargaining strength. Perks of executive are subject to annual review and hikes;

unlike the remuneration of employees which is reviewedonce in 3 years.

There is a tendency to link salaries to performance. Titan

and many others are reported to link salaries toperformance.

Important consideration in developinga Executive Compensation


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Holidaying abroad is gaining increasingacceptance. In a year a typicalexecutive works 10 months on his her

job. Holiday 1 month abroad with hisfamily and attend training classes inthe remaining one month.

For executive posted abroad, highersalaries are paid during their foreignassignment.



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Competition among companies to attractcompetent personnel results into virtualhijacking of managerial personnel.

Secrecy is maintained in respect ofexecutive compensation. What A receives

is not made known to B and what B getsC can not know.



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Why they are paid hefty remuneration????

what and how much are the executive paid?????

A Bangalore based software company was the first tointroduce ESOPs in India. Can you find the name ofcompany????can u also ascertain the number ofcompanies in India offering ESOPS???? Try

Check your memory


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There are several reasons whyexecutives are paid more.

They are worth of rupees in terms oftalent and brain power.

They matter much in org.

They are in short supply

Retaining them is difficult

If executives elsewhere are paid more, whynot Indian executives.

So their greed must be satisfied so that they

can adopt honest business practices.


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Rewarding Sales & CustomerService staff

Sales or customer service staff in retailestablishment are often paid spot ratewith a commission on sales.

The approaches to rewarding sales staff

Salary only

Basic salary + Commission

Basic Salary + Bonus Commission only

Sales incentives


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Methods of rewarding salesstaff

Salary only

Basic salary may only be paid to sales staff who work inhighly seasonal industries where sales fluctuate and inbusiness where regular order for food and otherconsumer goods that give little opportunity for creativeselling

If no commission or bonus is offered, it is necessary forcompanies to ensure that the salaries paid to their salesstaff are competitive.

They can include opportunity for promotion, learningnew skills, more stable pay and greater security.


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Basic salary + Commission

Salary plus commission plans provide for a proportionof total earning to be paid in commission; the restbeing paid in the form of a fixed salary

The commission is calculated as percentage of thevalue of sales.

the commission rate can increase at higher level ofsales on a rising scale to encourage sales

representative to make even greater efforts


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Basic Salary + Bonus Cash Bonus may be paid on top of basic salary. Bonus depends on achievement of target or sales

volume, profit or sales contribution. These may include the sales of high margin or

more profitable product or services in order toencourage staff to concentrate on them ratherthan simply earning to achieve sales with lowmargin product that are easier to sell.

The size of bonus available depends on differentlevel of performance. The Bonus Criteria: Sales revenue is often used

but some companies often use profit.


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Commission only

Sales staff who are at the hard end of selling mayreceive only a straight commission based on apercentage of the value of their sale.

No basic salary is paid

Additional Non-Cash Rewards:

Incentives

Competition

Cars as perks

Non-financial motivator


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Non-Financial Motivators:

Sales people typically have high level of

achievement, motivation but they stilllike to be recognized and given theopportunity to make even better use oftheir talent in the work. E.g. Sales

representative of the month.


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establishing strategic pay plans (2)

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