PERSONNEL
MANAGEMENT
- IES MCRC,
Bandra.
Compensation PlansPerquisites & Bonus
- Lecture 5A
Compensation Plans
Components of Remuneration
 Extent of pay
 Justification for Paying More
 Remedials

Components of Remuneration

Salary


Bonus


based on its profits
Long-term incentives


based on performance
Commission


determined by job evaluation
stock options
Perquisites

Club memberships, medical expense reimbursement
Extent of Pay
It depends on employer’s ability &
employee’s bargaining strength
 Salaries are subject to annual reviews &
hikes
 Salaries are linked to performance
 Secrecy is maintained in respect of
executive remuneration.

Justification for paying more
They matter much in organizations
 They are in short supply
 Retaining them is difficult
 They need to be motivated
 If executives elsewhere are paid more,
why not Indian executives.

Remedial
Income beyond a certain limit must be
subject to higher taxation
 Executives, on their own, must take up
more socially responsive actions
 Conscious efforts must be made to
increase the supply of managers &
technicians
 Participative management needs to be
encouraged.

Job Status, Grade and
Salary and Wage Structure
- Lecture 5B
What does
compensation
(what you receive for
your services)
mean to you?
A Definition . . .

All forms of




financial return,
tangible services and
benefits
that employees receive as part of their
employment relationship
Components of a Total
Compensation Program - 1
Financial
 Direct



wages, salaries, commissions, bonuses
Indirect

insurance plans


social assistance benefits


life, health, dental, disability
retirement plans, social security, workers’ comp
paid absences

vacations, holidays, sick leave
Components of a Total
Compensation Program - 2
Non-Financial
 The Job





interesting, challenging, responsible
opportunity for recognition, advancement
feeling of achievement
Job Environment

policies, supervision, co-workers, status
symbols, working conditions, flextime,
compressed work week, job sharing,
telecommuting, flexible benefits programs
Factors that Influence
Wage Levels
Conditions of
Labor Market
Compensation
Policy of
Organization
Area Wage
Rates
Cost of
Living
Worth of
Job
WAGE
MIX
Employee’s
Relative Worth
Collective
Bargaining
Legal
Requirements
Employer’s
Ability to Pay
Designing a
Compensation System
Steps in the Decision Process
Step 1 - Establish General Wage
Level for Organization
Factors to consider:
 Other firm’s rates
 Union demands
 Cost-of-living changes
 Firm’s ability to pay

Step 2 - Establish Wage Structure
(The Pay for Each Job)

Employ a job evaluation system



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
Ranking
Job Classification
Point System
Factor Comparison
Results:


pay grades
rate ranges
Step 3 - Establish Pay for Each
Individual on Each Job
Inputs:
 Performance appraisal information
 Seniority system

A Pay Model -- 3 Basic Components
I. Compensation Objectives
 II. Foundation Concepts
 III. Techniques for Management

A Pay Model
I. Compensation Objectives - 1
Organization Performance
 Labor Costs
 Attitudes and Behaviors
 Laws and Regulations

A Pay Model
I. Compensation Objectives - 2
Influence forms & procedures
 For example:



if objective is pay for performance, emphasize
incentives, merit pay plans
if objective is stable, experienced workforce,
emphasize seniority-based pay
A Pay Model
II. Foundation Concepts
Equity
 External Equity
 Comparison: outside organization
 Internal Equity
 Comparison: inside organization,
among jobs
 Employee Equity
 Comparison: individuals doing same
job for same organization

Equity Theory
Equity
Op/Ip = Oo/Io
Under-reward Inequity
Op/Ip < Oo/Io
Over-reward Inequity
Op/Ip > Oo/Io
p = personal, o = comparison other
I = Inputs
effort, ability, experience
O = Outcomes
pay, benefits, perks
Why does Equity Matter?
What Behaviors are Likely
to Occur when Inequity is
Felt?
A Pay Model
III. Techniques for Management
A. Pay Level
 B. Pay Structure
 C. Individual Pay Rates

A Pay Model
III. Techniques for Management
A. Pay Level
Defined: average rates paid by
employer
 Applicable concept: External Equity
 3 Pure Alternatives

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lead competition
match competition
lag competition
Mechanism used: Market Wage Survey
Market Wage and Salary Surveys




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Select key jobs.
Determine relevant labor market.
Select organizations.
Decide on information to collect:
wages/benefits/pay policies.
Compile data received.
Determine wages and benefits to pay.
Market Wage Levels
•Which company is leading the market?
•Which company is lagging the market?
•What would the wage level line look like for a company
that was meeting/matching the market?
A Pay Model
III. Techniques for Management
B. Pay Structure
Defined: pay rates for different jobs
within a single organization
 Applicable concept: Internal Equity
 Pay more for jobs with





greater qualifications
less desirable working conditions
more valuable output
Mechanism used: Job Analysis & Job
Evaluation
Job Evaluation
defined: the systematic evaluation of
job descriptions
 outcome: a hierarchy of organizational
jobs according to their content and
value to the organization
 Methods:





ranking
classification
factor comparison
point method
Job Ranking System
Simplest and oldest system of job
evaluation by which jobs are arrayed
on the basis of their relative worth
Job Classification System
System of job evaluation by which jobs
are classified and grouped according
to a series of predetermined wage grades
Point System
Quantitative job evaluation procedure
that determines the relative value of a job
by the total points assigned to it
Factor Comparison System
Job evaluation system that permits the
evaluation process to be accomplished
on a factor-by-factor basis by developing
a factor comparison scale
Hay Profile Method
Job evaluation technique using three
factors – knowledge, mental activity,
and accountability – to evaluate
executive and managerial positions
A Pay Model
III. Techniques for Management
C. Individual Pay Rates
Defined: pay rates for different
individuals doing the same job within an
organization
 Applicable concept: Employee Equity
 2 Techniques




Flat Rate
Pay Ranges
Mechanisms used: Performance or
Seniority
Wage Curve
Curve in a scatter-gram representing
the relationship between relative worth
of jobs and wage rates
Components of the Wage Structure
Pay Grades
Groups of jobs within a particular class
that are paid the same rate or rate range
Elements of the Rate Range
Job Status, Grade and Salary and Wage
Structure
Grade Structure
 To avoid problem with grades

Grade Structure
Grade structures are the basic underlying
element of most compensation schemes.
 They are simple, easy to understand and
use, and effective.

Grade Structure



The salary range is
typically +/- 15 to 25%
percent of the midpoint.
The salary midpoint of a
grade is typically 20-30%
higher than the preceding
grades salary midpoint.
The maximum of a grade
may be higher than the
minimum of the next
higher grade (but doesn't
need to be).
Grade
Salary
Minimu
m
Salary
Midpoin
t
Salary
Maximum
1
7,500
10,000 12,500
2
9,500
12,000 14,500
3
11,500
14,000 16,500
4
14,000
17,000 20,000
To avoid problems with grades

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
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Being thoughtful when you assign jobs to grades
Following the same process for everyone
Making the process as open and transparent as is practical
Having respected people assign jobs to grades
Having some kind of appeal process (this can be informal)
When there is a dispute look for the underlying business
issue (i.e. this key employee is going to quit) rather than
focusing on the mechanics of the system (i.e. they are at
the pay maximum of the grade)
Pick the most appropriate one
1.
Methods of Job
Evaluation
2.
Component of
remuneration
a)
factor comparison
a)
Supervision
b)
ranking
b)
Bonus pay
c)
Both the above
c)
Co-workers
Match the term with its definition
1.
Wage Curve
A.
The systematic evaluation of job descriptions
2.
Compensation
B.
Curve in a scatter-gram representing the
relationship between relative worth of jobs
and wage rates
3.
Job Evaluation
C.
All forms of financial return, tangible services
and benefits that employees receive as part
of their employment relationship
Activity

Develop a pay-for-performance plan for
each of the following cases:



Staff of customer service executives in a
service business
Automobile mechanics of a large car dealership
company listed in BSE
Make suitable assumptions.
Thank You