Reward Systems By H.V.Kothari

Total Compensation System MonetaryNonmonetary OrganizationMembership Individual or Team Attributes Job or Position Mandatory & voluntary insurance Mandatory & voluntary insurance Company status Alt. work arrangements Company status Alt. work arrangements Performance-, skill- or tenure- based pay Performance-, skill- or tenure- based pay Recognition Career opportunities Recognition Career opportunities Wages, salary or shift pay Wages, salary or shift pay Status, task enjoyment, social rewards Status, task enjoyment, social rewards

Compensation within the HR System Other HR Activities FairnessFairness Job AnalysisJob Analysis RecruitmentRecruitment Global Environment Organizational Environment Objectives for Total Compensation Communicate ValuesCommunicate Values Support ObjectivesSupport Objectives Attract, retain, motivateAttract, retain, motivate Contain costsContain costs Total Compensation: Base pay – Performance-based pay - Benefits Key Design Choices for Base Pay Pay mixPay mix Job vs skill- basedJob vs skill- based How involve mgrs, employeesHow involve mgrs, employees Relevant labor marketRelevant labor marketOutcomes AttitudesAttitudes SkillsSkills BehaviorBehavior PerformancePerformance AdvancementAdvancement RetentionRetention Evaluate and Revise

The Strategic Importance of Total Compensation Three important objectives: – Attracting and retaining the talent required for sustainable competitive advantage – Focusing the energy of employees on implementing the organization’s competitive strategy – Controlling costs

Issues in Reward Management Pay fairness – What people believe they deserve to be paid in relation to what others deserve to be paid. Low pay Pay Secrecy Pay Gaps Equity – Perceptions based on comparisons between an individual’s ratio of inputs and outcomes and the ratios of others doing similar work. Inputs: What an employee gives to the job Outcomes: What people get out of doing the job

Equity Perceptions

Role of the External Environment LaborMarketLaborMarket Legal and Social Considerations Considerations Labor Unions Pay levelPay level Pay mixPay mix LegislationLegislation Comparable worthComparable worth Wage clausesWage clauses

Developing a Base Pay System Job Analysis Job Evaluation Pay Surveys Pay Structure Pay Policies Individual Pay Implementation, Communication, Monitoring Performance Appraisal

Job Evaluation Methods Ranking method Job classification method Point rating (aka point factor) method Competency-based job evaluation

Job-Based Pay Policy Three decisions: – Single plan or multiple plans – Job evaluation method – Process to drive the plan

Skill-Based Pay Pay based on: – What skills the employee has – What skills could be used, if needed – People are paid according to capabilities, not job assignment

Using Market Data to Set Pay Rates To achieve external equity in pay: – Conduct a compensation survey – Set overall market pay policy – Establish an organizational pay policy

Conducting a Survey to Assess External Market Rates Define relevant labor market Identify benchmark jobs: – Jobs that are similar across range of organizations Collect survey data

Establishing the Market Pay Policy Line ,000 Job Evaluation Points * Programmer-Micro Subsystems * Sr. Analyst * SD Engineer $25,000 $50,000 $75,000 $100,000 Average Annual Pay * Sr. Programmer *Intermediate Programmer Based on Exhibit in text

Designing the Internal Pay Structure Job-Based Pay Grades and Ranges – Pay line is midpoint Common ranges: – Laborers: Up to 25% – Clerical, technical, paraprofessional: 15-50% – First-level managers. and professionals: 30-50% – Middle and Sr. managers: %

Designing the Internal Pay Structure (cont’d) Competency-Based: – Points assigned to jobs based on competencies required Skill-Based – Base pay equal regardless of job assignment – Additional pay earned by increasing skills

Pay Grade Structure for Job-Based System $3,000 $4,000 $5,000 Corporate Policy Line Midpoint Job Evaluation Points Maximums Pay Grade Width Monthly Pay

Balancing Internal and External Equity InternalExternal Pay Equity Pay Differentials Market Shift Pay Compression