PERSONNEL MANAGEMENT

- IES MCRC,Bandra.

Compensation Plans- Perquisites &

Bonus

- Lecture 5A

Compensation Plans Components of Remuneration Extent of pay Justification for Paying More Remedials

Components of Remuneration Salary

determined by job evaluation Bonus

based on performance Commission

based on its profits Long-term incentives

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

FinancialFinancial Direct

wages, salaries, commissions, bonuses Indirect

insurance plans life, health, dental, disability

social assistance benefits retirement plans, social security, workers’ comp

paid absences vacations, holidays, sick leave

Components of a Total Compensation Program - 2

Non-FinancialNon-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

WAGEMIX

Conditions ofLabor Market

Area WageRates

Cost ofLiving

CollectiveBargaining

LegalRequirements

CompensationPolicy of

Organization

Worth ofJob

Employee’sRelative Worth

Employer’sAbility to Pay

Designing a Compensation

SystemSteps in the Decision Process

Step 1 - Establish General Wage Level for Organization Factors to consider: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 systemEmploy a job evaluation system

Ranking Job Classification Point System Factor Comparison

Results:Results: pay grades rate ranges

Step 3 - Establish Pay for Each Individual on Each Job Inputs: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 EquityEquity External EquityExternal Equity Comparison: outside organization Internal EquityInternal Equity Comparison: inside organization, among

jobs Employee EquityEmployee Equity Comparison: individuals doing same job

for same organization

Equity Theory

I = InputsI = Inputseffort, ability, experienceeffort, ability, experience

O = OutcomesO = Outcomespay, benefits, perkspay, benefits, perks

EquityEquityOOpp/I/Ipp = O = Ooo/I/Ioo

Under-reward InequityUnder-reward InequityOOpp/I/Ipp < O < Ooo/I/Ioo

Over-reward InequityOver-reward InequityOOpp/I/Ipp > O > Ooo/I/Ioo

pp = personal, = personal, oo = comparison other= comparison other

Why does Equity Matter?

What Behaviors are Likely to Occur when Inequity is

Felt?

A Pay ModelIII. Techniques for Management

A. Pay Level B. Pay Structure C. Individual Pay Rates

A Pay ModelIII. Techniques for ManagementA. Pay Level Defined: average rates paid by

employer Applicable concept: External Equity 3 Pure Alternatives

lead competition match competition lag competition

Mechanism used: Market Wage Survey

Market Wage and Salary Surveys 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

Company A’s Wage Level

Company A’s Wage Level

Company B’s Wage Level

Company B’s Wage Level

Market Wage Level

Market Wage Level

•Which company is leading the market?Which company is leading the market?•Which company is lagging the market?Which company is lagging the market?•What would the wage level line look like for a company What would the wage level line look like for a company that was meeting/matching the market?that was meeting/matching the market?

A Pay ModelIII. Techniques for ManagementB. 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 ModelIII. Techniques for ManagementC. 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 Minimum

Salary Midpoint

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 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 one1. Methods of Job

Evaluation

a) factor comparison

b) ranking

c) Both the above

2. Component of remuneration

a) Supervision

b) Bonus pay

c) Co-workers

Match the term with its definition

1. Wage Curve

2. Compensation

3. Job Evaluation

A. The systematic evaluation of job descriptions

B. Curve in a scatter-gram representing the relationship between relative worth of jobs and wage rates

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