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
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
Attracts talent Motivates
Employees
3
Rewards
Performance
4
Reduces
Turnover
5
Manages
Compensation
Budget
Consequences of Pay Dissatisfaction
performance
Desire for
more pay
strikes
absenteeism
grievances
Search for
new job
turnover
Psychological
withdrawal
Pay
dissatisfaction
Lower
attractiveness
of job
Job
dissatisfaction
Poor health
absenteeism
Visits to the
doctors
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289
Concepts of Wages
1
Minimum Wage
2
Fair Wage
3
Living Wage
4
Team based Pay
5
Remunerating Professionals
6
Contract Employees
7
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
Remuneration
Financial
Wages and
Salary
Hourly
wages and
monthly
rates salary
Incentives
Individual
plans
Group plans
Non Financial
Fringe
benefits
CPF
Gratuity
Medical
etc.
Perquisites
Job content
Company
car
Club
membership
Furnished
house
Stock option
schemes
etc.
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
Internal
equity
External
equity
Motivation
Perception of
fairness
Commitment
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