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7/30/2019 Chap01-1st Comp & Pay Model
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COMPENSATION MANAGEMENT
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Please elaborate on following ..
Compensation is the major motivator while attracting?
Compensation is also one of the major motivator in retaining andmotivating existing talent?
Research shows that compensation represents 50% to 60% of allexpenses in most of the service organizations?
The War for Talent Is Still Here This category of worker is alwaysscarce And in demand?
If Performance Levels Differ, Why Shouldnt Compensation?
Two to Three Important Points on Future of Compensation?
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COMPENSATION
What is Compensation ?
What Importance it has ?
Who all are the Stake holders in Compensation?
What Do you suggest as Various forms of
Compensation ?
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VARIOUS PERSPECTIVESOF COMPENSATION
SocietysViews
StockholdersViews
Employees
Views
Managers
Views
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COMPENSATION: DEFINITION
Society
Pay as a measure of justice
Benefits as a reflection of justice in society
Job losses (or gains) attributed to differences in
compensation
Belief that pay increases lead to price increases
Stockholders
Using stock to pay employees creates a sense of
ownership
Linking executive pay to company performance
supposedly increases stockholders' returns Managers
A major expense
Used to influence employee behaviors and to improve
the organization's performance
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COMPENSATION: DEFINITION (CONT.)
Employees Major source of financial security Return in an exchangebetween employer and
themselves Entitlementfor being an employee of the
company Rewardfor a job well done
Global ViewsVive la diffrence China: Traditional meaning of compensation
providing necessities of life replaced with dai yu Japan: Traditional word kyuyoreplaced with hou-
syu;very recently the phrase used is teate
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Compensation refers to allforms of financial returns
and tangible services and
benefits employees
receive as part of an
employment relationship
DEFINATION WHAT IS COMPENSATION ?
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CURRENT CHALLENGES
One of the greatest challenges companies facing today
is retaining top talent.
The expense to an organisation of replacing an employee
(including separation, replacement, training and lost
performance costs) can be as much as that employeessalary for a year.
Turnover further erodes morale among those who stay
and harms customer retention.
Changing workforce challenges , with Millennial being
majority.
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CHANGING REWARD TRENDS
From Narrowly-defined jobs
and job standards
Inflexible job-evaluation
systems sizing tasks,
rewarding non-adaptive
behaviour and empire-building, encouraging
point-grabbing
To
Broad, generic roles -
emphasis on competence
and continuous
development
Flexible job evaluation
processes assessing the
value added by people in
roles, often within jobfamilies
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REWARD TRENDS (CONT.)
From Hierarchical and rigid pay
structures - only way to geton, is to move up. Focus onnext promotion.
Emphasis on individualperformance-related pay(PRP)
Consolidation of rewards intobase pay
To Broad-banded and job family
pay structures emphasisingflexibility, career developmentpay and continuousimprovement. Focus on nextchallenge.
More focus on teamperformance, team-basedpay; contribution-related pay
More emphasis on at riskpay
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Discussion
Transactional Returns
Relational Returns
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What are the Kind of Returns , Employee Gets fromthe Organization
-Total Compensation
- Cash Compensation
- Benefits
-Relational Returns
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FRAMEWORKFOR ANALYZING
DIFFERENT DEALS
HIGH PAY LOW COMMITMENT
Hired Guns(Stockbrokers)
HIGH PAY HIGH COMMITMENT
Cult - like(Microsoft)
LOW PAY LOW COMMITMENT
Workers as Commodity(Employers of Migrant
Farm Workers)
LOW PAY HIGH COMMITMENT
Family(Starbucks)
Low High
RELATIONAL
Low
TRANSACTIONA
L
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: TOTAL RETURNSFOR WORK
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FORMS OF PAY
Relational returns Psychological in nature
Total compensation Cash Compensation/ transactional
Base wages
Difference between wage and salary
Merit pay/cost-of-living adjustments
Merit increases given in recognition of past work behavior
Cost-of-living adjustmentssame increases to everyone,regardless of performance
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FORMS OF PAY (CONT.)
Cash Compensation/ transactional (cont.) Incentives/ Variable pay tie pay increases directly to
performance
Does not increase base wage; must be re earned each pay
period
Potential size generally known beforehand Long-term (stockoptions), and short-term
Benefits
Income protection
Work/life balance
Allowances
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FORMS OF PAY (CONT.)
Total earnings opportunities: Present value of astream of earnings
Shifts comparison of today's initial offers toconsideration of future bonuses, merit increases, andpromotions
Relational returns from work Nonfinancial returns
Organization as a network of returns
Created by different forms of pay, including totalcompensation and relational returns
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A PAY MODEL
Three basic building blocks:
Compensation objectives
Policies that form the foundation of the compensation
system
Techniques that make up the compensation system
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: THE PAY MODEL
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COMPENSATION OBJECTIVES (CONT.)
Efficiency
Improving performance, increasing quality, delightingcustomers and stockholders
Controlling labor costs
Fairness
Fundamental objective of pay systems Fair treatment by recognizing both employee
contributions, and employee needs
Procedural fairness
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COMPENSATION OBJECTIVES (CONT.)
Compliance Conformance to Government and State
compensation laws and regulations
Ethics Organizations care about how its results are
achieved
Objectives Guide the design of the pay system Serve as the standards for judging success of the
pay system
Policies and techniques are means to reachobjectives
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Suggest . Your Thoughts on .
Objectives of Compensation System
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Internal alignment
Focus - Comparisons among jobs or skill levels inside asingle organization
Pay relationships within an organization affect employeedecisions to: Stay with the organization Become more flexible by investing in additional training Seek greater responsibility
External competitiveness
Focus - Compensation relationships external to theorganization: comparison with competitors
Pay is market driven
FOUR POLICY CHOICES
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FOUR POLICY CHOICES (CONT.)
External competitiveness (cont.) Effects of decisions regarding how much and what
forms: To ensure that pay is sufficient to attract and retain
employees
To control labor costs to ensure competitive pricing ofproducts/ services
Employee contributions Focus- Relation emphasis placed on employee
performance Performance based pay affects fairness
Management Focus- Policies ensuring the right people get the
right pay for achieving the right objectives in the rightway
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REWARD MANAGEMENT
Definition: RM is concerned with the formulation andimplementation of strategies and policies that aim toreward employees fairly, equitably and consistently inaccordance with their value to the organisation(Armstrong, 2003).
Strategic aims: to develop and implement the rewardpolicies, processes and practices required to supportthe achievement of the organisations goals by helping
to ensure that it has the skilled, competent, wellmotivated and committed people it needs.
total reward defined Michael Armstrong
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total reward defined- Michael Armstrong
Total reward includes all types of reward
non-financial as well as financial, indirectas well as direct, intrinsic as well asintrinsic. It is a value proposition whichembraces everything that people value inthe employment relationship and isdeveloped and implemented as anintegrated and coherent whole.
ti l f t t l d
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rationale for total reward
Creating a fun, challenging, and
empowered work environment in whichindividuals are able to use their abilities todo meaningful jobs for which they areshown appreciation is likely to be a morecertain way to enhance motivation andperformance even though creating such
an environment may be more difficult andtake more time than simply turning thereward lever.Jeffrey Pfeffer Stanford University
Characteristics of a total reward strategy (CIPD)
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Holistic- focuses on how organisations attract, retain andmotivate employees to contribute to success using an array
of financial and non-financial rewards.
Best fittailored to the organisations culture and workprocesses.
Integrativethe reward system is integrated with HRpolicies and practices.
Strategicaligns reward and business strategies.
People centred- focuses on employee needs and wants.
Customisedprovides a flexible mix of reward that offerschoice.
Distinctive- uses rewards to create a distinctive employer
brand.
Characteristics of a total reward strategy (CIPD)
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models of total reward
total reward (engaged performance) model Hay Group
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total reward (engaged performance) model Hay Group
quality of work
work/life balance
inspiration/values
enablingenvironment
tangible rewards
futuregrowth/opportunity
engagedperformance
total reward model - WorldatWork
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organisationalculture
business strategy
HR strategy
total
rewards strategy compensation
benefits work/life
performance andrecognition
development andcareer opportunities
attractmotivate
retain
employeesatisfaction
andengagement
businessperformanceand results
total reward model - WorldatWork
Total rewards are all the tools available to the employer that may be used toattract, motivate and retain employees. Total rewards include everything the
employee perceives to be of value resulting from the employment relationship
total reward model Watson Wyatt
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total reward model Watson Wyatt
business strategy
human capital strategy
total reward strategy
fixed reward costs performance-based rewards environment-based rewards
fixed costs of employment
value of role to organization
variable costs of employment
contribution made by individual
intrinsic rewards
employment deal
effective delivery through focused communication, greater flexibility and use of technology
total reward model - Towers Perrin
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PAY/REWARD
base pay
contribution pay
shares/profit sharing
recognition
TRANSACTIONAL(TANGIBLE)
RELATIONAL(INTANGIBLE)
total reward model Towers Perrin
BENEFITS
pensions
health care
perks
flexible benefits
LEARNING AND DEVELOPMENT
workplace learning
training
performance management
career development
WORK ENVIRONMENT
core values
leadership
employee voice job/work design
total reward model - Michael Armstrong
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transactionalrewards
relationalrewards
base pay
contingent pay
employee benefits
learning and development
the work experience
totalremuneration
non-financialrewards
recognition, achievement, growth
total reward
total reward model Michael Armstrong
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conductdiagnostic
reviewdefine
objectives
developapproach
(involve)
design
prioritise
implementprogressively
(encourage/guide)
communicate
monitor andevaluate
making totalrewardhappen