Compensation & Rewards Strategic HRM Compensation & Rewards

General concept Compensation & Rewards are the forms of making employees work more harder and with objective related goals to be achieved by giving optimum performance. They help in retaining & attracting employees also making the perception of the employees clear and positive towards the organization.

Objectives Pay employees fairly according to their skills, performance, effort & competencies Attract & retain employees Motivate employees for higher performance Communicate employees about their worth in the organization Align effort with achievement of objective Enhance co-operation & collaboration among employees Provide social status to employees Reinforce desirable employee behavior

Classification Financial (extrinsic rewards): Direct - wages, salaries, incentives, bonus etc. Indirect – pensions, gratuity, insurance, paid leaves etc. Non-financial (intrinsic rewards): Job satisfaction, praising, recognition, job enhancement etc.

Components of financial compensation Direct: Base pay – wages, salaries Variable pay – individual incentives, team incentives, organization incentives (branch wise) Indirect: Mandatory benefits – provident fund, gratuity, maternity leave, health plans, medical leaves Voluntary benefits – paid holidays, retirement benefits

Determinants of compensation & Rewards External determinants – Labor market conditions Economic conditions Area wise wage rates Govt. control Cost of living Union influence

Determinants of compensation & Rewards Internal determinants – Compensation policy of the organization Employer’s ability to pay Worth of the job Employee’s relative worth

Approaches to Compensation & Rewards Traditional approach: Job based pay – this system use job description to determine the relative worth of job Job evaluation based pay – this system use job evaluation to estimate the job importance and its worth This system is used more legally and in a manner by which it becomes easy for the organization to evaluate employees.

Approaches to Compensation & Rewards Contemporary approach: Skill based pay – this system lights on the pay based on the competency of the individual employee Performance based pay – it includes the process of estimating the performance of the employees for a given period of time This system has given more depth to reward strategies & is more transparent and performance driven.

Pay for performance approach Merit pay – increase in pay based on performance Variable pay – above the basic pay employees are paid extra for meeting up a given objective Skill based pay – pay given based on the competency level of the employees Competency based pay – based on the motives, traits, attitude, productivity, etc.

Steps in developing competency based reward system Step 1: Identify competencies & distinguish between proficiency levels Step 2: Assess the competency level of the job holders Step 3: Create the pay bands accordingly Step4: Develop a pay delivery system

New developments in Compensation & Rewards Broad banding – employees are rewarded according to their job struchere but not according to the traditional promotion method Profit sharing – some % of the profit made by the organization is shared among its employees ESOP – more applicable for CEOs or top mgt. employees are given options to hold shares of the company Team based rewards – each team member gets the reward based on the team performance

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