compensation and employee behaviour part i
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Compensation and Employee Behaviour Part ITRANSCRIPT
Compensation and Employee Behaviour: Part I
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
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Bases for Traditional Pay SystemBased on cost of living and labour marketBase wage or salaryEvenly distributed between employeesCorrelated with seniorityBased on individual performance daily,
weekly, monthly
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Bases for Modern Pay SystemVariable payBased on business performanceDifferentiatedBased on individual performanceBased on team and organisational
performanceUsed as a means of communicating values
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Traditional Pay SystemSets pay levels in a narrow band with regular
increase May be 3 to 4 percent pay increase annuallyIncreases meant for promotions, merit, cost of living Less distinction betn. merit & cost of living increase Most merit raises perceived as little more than cost
of living increases due to low levels (3 to 4 percent)Often, it includes a set salary or wage, a set
schedule for merit increases, and a set benefits package
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Modern Pay SystemIt pays greater emphasis on variable payBase wage seen as job worth in open market,
merit pay - reward for results by employee each year
An employee can get a raise either by increasing his job's value or by performing well
Some companies use three-way system to determine annual increases:
- Did the employee accomplish his goals? - Did the company reach its targets? - Did the employee act in accordance with
established competencies for his job? 5
Modern Pay SystemSome companies create broader bands in
salary structures In past, large companies had many salary
levels in each department, making it difficult for employees to move to different jobs
Employees can seek more opportunities now without penalty with 5 large bands, instead of 25 narrow bands
Incentives available, like bonuses, team based incentives/gain sharing, profit sharing, quality awards, stock purchase options, etc.
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Purpose of Compensation
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Motivate & Retain Staff
Attract talent
Contribution based Remuneration
Administratively Efficient
Reward Valued Behavior
Effective Compensation
Ensure Equity
Institutionalized Processes
Legal Compliance
Establishing Pay Plans
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Business GoalsBusiness Goals
Business Strategy
Business Strategy
CE
OC
EO
Compensation Philosophy/ activities
serve Business Objectives
Compensation Philosophy/ activities
serve Business Objectives
Business Strategy – This defines the direction in which organization is going in relation to its environment in order to achieve its objectives.
Compensation Philosophy – Consists of a set of beliefs which underpin the reward/compensation strategy of the organization and govern the reward policies that determine how reward processes operate
Establishing Pay Plans
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Business GoalsBusiness Goals
Business Strategy
Business Strategy
Compensation Plan
Compensation Plan
CompensationStrategy
CompensationStrategy
Non-FinancialRewards
Non-FinancialRewards
Org.StructureOrg.Structure
CE
OC
EO
HR
Hea
dH
R H
ead
Compensation activities serve Business Objectives
Compensation activities serve Business Objectives
Compensation strategy is periodically reevaluated and
the Compensation plan periodically developed
Compensation strategy is periodically reevaluated and
the Compensation plan periodically developed
Compensation Strategy – defines the intentions of the organization on reward policies, processes and practices required to ensure that it has the skilled, competent and well-motivated workforce it needs to achieve its business goals
Establishing Pay Plans
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Business GoalsBusiness Goals
Business Strategy
Business Strategy
Compensation Plan
Compensation Plan
CompensationStrategy
CompensationStrategy
Non-FinancialRewards
Non-FinancialRewards
Org.StructureOrg.Structure
CE
OC
EO
HR
Hea
dH
R H
ead
Compensation activities serve
Business Objectives
Compensation activities serve
Business Objectives
Compensation strategy is periodically
reevaluated and the Compensation plan
periodically developed
Compensation strategy is periodically
reevaluated and the Compensation plan
periodically developed
A strategic perspective on compensation takes the position that how employees are compensated can be a source of sustainable competitive advantage
Establishing Pay Plans
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Business GoalsBusiness Goals
Business Strategy
Business Strategy
Compensation Plan
Compensation Plan
Market SurveysMarket Surveys
CompensationStrategy
CompensationStrategy
Job EvaluationJob Evaluation
Unit InputsUnit Inputs
Total remuneration
Total remuneration
Performance ManagementPerformance Management
Non-FinancialRewards
Non-FinancialRewards
Org.StructureOrg.Structure
Performance linked Pay
Performance linked Pay
Individual PayIndividual Pay
Contribution/outputs
Contribution/outputs
Internal EquityInternal Equity External EquityExternal Equity
CE
OC
EO
HR
Hea
dH
R H
ead
Em
plo
yee
Em
plo
yee
C &
B/S
MC
& B
/S M
Pay levels /structures
Pay levels /structures
Compensation activities serve
Business Objectives
Compensation activities serve
Business Objectives
Compensation strategy is periodically
reevaluated and the Compensation plan
periodically developed
Compensation strategy is periodically
reevaluated and the Compensation plan
periodically developed
Compensation Manager, along with
team is responsible for carrying out
compensation related activities
Compensation Manager, along with
team is responsible for carrying out
compensation related activities
Establishing Pay Plans
Compensation Plan Design
Job Analysis
Job Description
Market Wage Survey
Job Evaluation
Pay Structure
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Job Analysis• Process to identify & determine particular job duties and requirements • Relative importance of duties• Judgments are made about data collected on job • Used in compensation to identify or determine:
•skill levels •compensable job factors •work environment•responsibilities•required level of education
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Job Description
- Output from job analysis used to develop job description and its specification- Summarize job analysis information in readable format - Provide basis for job-related actions - Identify individual jobs by providing documentation- Identify tasks, duties and responsibilities of a job- Describes what is done, why it is done , where it is done, and how it is done .
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Job Evaluation
The methods and practices of ordering jobs or positions with respect to their value or worth to the organization.
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Market Wage Surveys
- Goal of market wage surveys is to find data from employers with whom organization competes for employees - Data collected & analyzed - Simplest analysis involves comparing going market rate & approximating this rate within organization's own pay structure
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Methods of Wage SurveysGenerally three methods are
employed for wage surveys;• Personal Interviews• Mailed Questionnaires• Telephone Inquiries
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Pay Structure
-Basis for establishing pay plan is pay structure - Hierarchy of jobs with pay ranges and/or rates assigned - Pay structures designed so that greater the worth of a job, higher the pay grade and range
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Objectives of Pay Plans• Internal equity. • External equity (or competitiveness), • Individual equity, • Process equity, • Performance or productivity incentives, • Maximum use of financial resources, • Compliance with laws and regulations,
and • Administrative efficiency
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Aligning Compensation Strategy with HR Strategy
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HR Strategy Compensation Strategy– Attract staff– Retain effective performers – Support change management process– Establish positive corporate reputation – Administer reward management to maximise positive impact – Enhance purchasing power of employees– Make Compensation package simple – Develop human resources
– Total reward approaches that help to make the organisation a great place to work – Competitive pay structure that helps to retain high quality employee – Variable pay schemes that contributes to the motivation of the people – Performance management process that promotes continuous improvement – Performance management processes that identify learning needs and how they can be satisfied – Career family structure that defines knowledge and skills requirement – Total reward approaches that emphasize the importance of enhancing the work environment
Aligning Compensation Strategy with Business Strategy
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Business Strategy Compensation Strategy
– Achieving competitive advantage through innovation – Achieving competitive advantage through quality – Achieving competitive advantage through low costs
– Provide financial incentive/reward and recognition for innovation– Link reward to quality performance
– Review all reward practices to ensure they provide value for money
Seniority & Longevity PaySalary or wages based on seniority or length
of service with an organization The greater the length of service, the greater
the longevity payIt may also be used as a bonus for remaining
on a job beyond a certain periodThese systems reward employees with
periodic additions to base pay according to employees’ length of service in performing their jobs
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Design of Seniority Pay and Longevity Pay Plans
Seniority Pay Longevity PayTo reward job tenure
or employees’ time as members of a company explicitly through permanent increases to base pay
To reward employees who have reached pay grade maximum and who are not likely to move into higher grades
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Advantages of Seniority PayTo Employees To Employers
Perceive they are treated fairly because they earn pay increases according to seniority, which is an objective standard
It facilitates the administration of pay programs
Employers are less likely to offend employees by showing favouritism to others
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Fitting Seniority Pay with Competitive Strategy
Seniority pay does not fit well with the imperatives of competitive strategies because employees can count on receiving same pay raises for average and exemplary performance
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Thank you