1. Compensation & Rewards
Strategic HRM
Compensation & Rewards

2. 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.

3. 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

4. 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.

5. 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

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

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

8. 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.

9. 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.

10. 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.

11. 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

12. 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

13. Questions