COMPENSATION MANAGEMENT

Session Overview Benefits of Proper Compensation Consequences of Inadequate Compensation Concepts of Wages Components of Remuneration Theories of Remuneration Factors Influencing Remuneration Remuneration Model Challenges of Remuneration Skill based and Job based Pay

Session Overview Incentive Payments Prerequisites of Effective Incentive System Types of Incentive System Group Incentive Plans Incentives for Indirect Workers Nature of Benefits and Services Benefits as Incentive Types of Employee Benefits and Services Principles of Fringes

Session Overview Significant Benefits and Service Programs Common Benefits in Pakistan Advantages and Disadvantages of Long Term Benefits Administration of Fringe Benefits Remunerating Top Executives Components of Executive Remuneration Issues in Executive Remuneration

MANAGING BASIC REMUNERATION Chapter 11 MANAGING BASIC REMUNERATION

Benefits of Proper Compensation Compensation policy aims to attract talented employees and motivate them to put their efforts and commitment to work that increase job satisfaction work performance Benefits of Proper Compensation Administration 1 2 3 4 5 Attracts talent Motivates Employees Rewards Performance Reduces Turnover Manages Compensation Budget

Consequences of Pay Dissatisfaction performance Desire for more pay strikes absenteeism grievances turnover Search for new job Psychological withdrawal Job dissatisfaction Pay dissatisfaction Lower attractiveness of job Poor health absenteeism Visits to the doctors Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289

Concepts of Wages Minimum Wage Fair Wage Living Wage Team based Pay Remunerating Professionals Contract Employees Expatriates and Executives

Components of Remuneration Benefits include both financial and non financial Wages and Salary Incentives Fringe Benefits Perquisites Non Monetary Benefits

Components of Remuneration Financial Non Financial Wages and Salary Hourly wages and monthly rates salary Incentives Individual plans Group plans Fringe benefits CPF Gratuity Medical etc. Perquisites Company car Club membership Furnished house Stock option schemes etc. Job content Challenging job responsibilities Supervision Growth prospects Working conditions Etc. Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286

Theories of Remuneration Feedback to employee Employee set expectations and goals Performance is rewarded Employee consider equity of reward and performance Employee sets new goals and expectations based on experience

Theories of Remuneration Reinforcement Theory Behavior rewarded Positive Experience Behavior is repeated

Theories of Remuneration Equity Theory Adam’s equity theory emphasizes to have equity in pay structure of employee If employee feel that their efforts are well rewarded they will put more efforts and will be satisfied with their job In case of inequity feeling they will be de moralized and dissatisfied resulting into low productivity Individual equity Motivation Internal equity Perception of fairness Commitment External equity Performance Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 287

Theories of Remuneration Agency Theory In the organizations employer and employees are two main stakeholders Employer act as principals and employees assume the role of agent The remuneration of employee is agency cost Principal tries to agency cost and agent expect to have more agency cost The principal (Employer) should try to choose remunerating schemes that align its own interest with expectation of agents (employees) Behavior oriented (merit based pay) Outcome oriented (profit sharing, commission)

Factors Influencing Remuneration Internal Factors External Factors Organization Strategy Economy Employee Society Job Evaluation Labour Market Performance Appraisal Cost of Living Labor Unions Legislation

Factors Influencing Remuneration Business Strategy Market Position Remuneration Strategy Blend of Remuneration Invest to grow Merging or grow rapidly Encourage innovation and entrepreneurship High cash and incentives for performance. Modest benefits Manage earning Protect Markets Normal growth to maturity Reward management skills Average incentives with average cash on unit and individual performance. Standard benefits Harvest earnings invest somewhere else Maturity or decline Focus on cost control Below average cash with few incentives that too tied with cost control efforts. Standard benefits Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Remuneration Model Job description Job evaluation Job hierarchy Pay survey Pay levels Pricing Jobs Pay grades Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Challenges of Remuneration Skill based pay Monetary and non monetary rewards Salary Reviews Employee participation Remuneration Pay Secrecy Below market or above market pay Comparable worth Eliticism or Egalitarianism Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300

Skill Based and Job Based Pay Factors Skill based Job based Pay structure Based on ability to perform Based on job performance Employer’s focus Employee carriers wages, Employee linked to skills Job carries wages. Employee linked to job Employee focus Skill acquisition for more pay Job promotion for better pay Procedures required Skills assessment, Value skills Job content assessment, Value jobs Advantages Flexibility, Reduced workforce Pay based on value of job and work performed Disadvantages Cost controls Inflexibility Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 301.

Summary Benefits of Proper Compensation Consequences of Inadequate Compensation Concepts of Wages Components of Remuneration Theories of Remuneration Factors Influencing Remuneration Remuneration Model Challenges of Remuneration