1. Managing Compensation

2. Explain employer concerns in developing a strategic compensation program.
Indicate the various factors that influence the setting of wages.
Explain the purpose of a wage survey.
Define the wage curve, pay grades, and rate ranges as parts of the compensation structure.

3. Compensation Pay is a statement of an employee’s worth by an employer.
Pay is a perception of worth by an employee.

4. Total Compensation Direct Indirect Wages / Salaries Time Not Worked
Vacations
Breaks
Holidays
Commissions
Insurance Plans
Medical
Dental
Life
Bonuses
Gainsharing
Security Plans
Pensions
Employee Services
Educational assistance
Recreational programs 6

5. Common Strategic Compensation Goals
To reward employees’ past performance
To remain competitive in the labor market
To maintain salary equity among employees
To link employees’ future performance with organizational goals
To control the compensation budget
To attract new employees
To reduce unnecessary turnover

6. Strategic Compensation Policy Concerns
The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate.
The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities.
The pay level at which employees may be recruited and the pay differential between new and more senior employees.
The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises.

7. Designing a Pay-for-Performance System
How will performance be measured?
How will allocation be done for compensation increases.
Which employees will be eligible?
How will payouts be made?
How often will payouts occur?
How large will the payouts be?
Will employees perceive the rewards as valued?

8. The Bases for Compensation
Hourly Work
Work paid on an hourly basis.
Piecework
Work paid according to the number of units produced.
Salary Workers
Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods.

9. Factors Affecting the Wage Mix

10. The Wage Mix—Internal Factors
Employer’s Compensation Strategy
Setting organization compensation policy to lead, lag, or match competitors’ pay.
Worth of a Job
Establishing the internal wage relationship among jobs and skill levels.
Employee’s Relative Worth
Rewarding individual employee performance
Employer’s Ability-to-Pay
Having the resources and profits to pay employees.

11. The Wage Mix—External Factors
Labor Market Conditions
Availability and quality of potential employees is affected by economic conditions, government regulations and policies, and the presence of unions.
Area Wage Rates
A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs.

12. The Wage Mix—External Factors
Cost of Living
Local housing and environmental conditions can cause wide variations in the cost of living for employees.
Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.

13. Job Evaluation Systems
The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

14. Job Evaluation Systems
Job Ranking System
Oldest system of job evaluation by which jobs are arranged on the basis of their relative worth.
Disadvantages
Does not provide a precise measure of each job’s worth.
Final job rankings indicate the relative importance of jobs, not extent of differences between jobs.
Method can used to consider only a reasonably small number of jobs.

15. Job Evaluation Systems
Job Classification system
A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.
Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.

16. Point System Point System
A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.
Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors—that constitute the job.

17. The Compensation Structure
Wage and Salary survey
A survey of the wages paid to employees of other employers in the surveying organization’s relevant labor market.
Helps maintain internal and external pay equity for employees.
Labor Market
The area from which employers obtain certain types of workers.

18. Collecting Survey Data
Conducting Employer-initiated Surveys
Select key jobs.
Determine relevant labor market.
Select organizations.
Decide on information to collect: wages/ benefits/ pay policies.
Compile data received.
Determine wage structure and benefits to pay.

19. Characteristics of Key Jobs
Jobs that are important for wage-setting purposes and are widely known in the labor market.
Characteristics of Key Jobs
They are important to employees and the organization.
They contain a large number of positions.
They have relatively stable job content.
They have the same job content across many organizations.
They are acceptable to employees, management, and labor as appropriate for pay comparisons.

20. The Wage Curve Wage Curve
A curve in a scatter gram representing the relationship between relative worth of jobs and wage rates.
Pay Grades
Groups of jobs within a particular class that are paid the same rate.
Rate Ranges
A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade.
Red Circle Rates
Payment rates above the maximum of the pay range.

21. Freehand Wage Curve

22. Wage Structure with Increasing Rate Ranges

23. The Wage Curve (cont’d)
Competence-based Pay, (also skill-based pay or knowledge-based pay)
Compensation for the different skills or increased knowledge employees possess rather than for the job they hold in a designated job category.
Greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover,
Broadbanding
Collapses many traditional salary grades into a few wide salary bands.

24. Approaches of compensation management
There are 3P approach of developing a compensation policy centered on the fundamentals of paying for
Position,
Person and
Performance.

25. The management of any organization considers three parameters while deciding the salary as well as incentives
Pay for position
Broad banding
Through broad banding the traditional narrowly structured pay grades generally determined through job evaluation are replaced by fewer and wider bands, and a grading structure is created.

26. Broad Banding
It is a compensation technique that reduces many different compensation categories to several broad compensation bands. A banding procedure takes place when jobs are grouped together by common characteristics

27. Broad Banding
On recruitment or promotion, employee compensation may be set at levels in the broadband deemed to be appropriate to an employee’s qualifications, education, training and experience. Employees typically progress up through the broad band if their performance ratings are good, rather than progressing up through a grade by steps based on time in the grade.

28. Pay for Person
Pay for person takes into account a person’s capabilities and experience in setting a pay level that is both equitable and competitive. It also considers the market demand of a person’s unique skills and experience.
Pay for person is associated with competency based pay. It also incorporates market based pay approach.

29. Pay for performance
An individual’s performance is managed through a performance contract which comprises the clarification of the role, the setting up of objectives, and the review of performance. As an outcome a measure of performance at the corporate, unit and individual level becomes the basis for setting the performance pay.

30. DA forms a variable component of pay packet since rate of dearness increases more than once every year, whereas the basic pay scales are revised after long spells of time.

31. Perquisites:
These are normally provided to managerial personnel either to facilitate their job performance or to retain them in the
organization.
Such perquisites include company car, club membership, free residential accommodation, paid holiday trips, stock
options, etc.

32. Incentives:-
Incentives are paid in addition to wages and salaries and are also called ‘payments by results’. Incentives depend upon productivity, sales, profit, or cost reduction efforts. There are: (a) Individual incentive schemes, and (b) Group incentive programs.
Individual incentives are applicable to specific employee performance. Where a given task demands group efforts for completion, incentives are paid to the group as a whole. The amount is later divided among group members on an equitable basis.

33. Bonus:-
The bonus can be paid in different ways. It can be fixed percentage on the basic wage paid annually or in proportion to the profitability. The Government also prescribes a minimum statutory bonus for all employees and workers. There is also a bonus plan which compensates the Managers and employees based on the sales revenue or Profit margin achieved.

34. Separation
Employee Separation is the termination of service agreement between the employee and the employer when either of them decides to put an end to the service. Resignation Layoff Retirement Retrenchment VRS Death

35. VRS
Rule 48 A of Pension Rule Any time after completing 20 years of service -- By giving notice of not less than 3 months in writing to the appointing authority days salary(B+DA) for the remaining days of service until retirement