compensation mgt -job evaluation

7/31/2019 Compensation Mgt -Job Evaluation

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COMPENSATION MGT JOB EVALUTION: TECH, WAGES & SALARY

ADMINISTRATION, INCENTIVE PAYMENT

If you pick the right people and give them the opportunity to spread their wings - andput compensation and rewards as a carrier behind it - you almost dont have to

manage them.

Jack Welch

Definition: It is the process of providing adequate equitable and fair remuneration

to the employee. Its include job evaluation wage and salary administration and

bonus security measures etc.

(a) Job evaluation

(b) Wage and salary administration

(c) Incentive

(d) Bonus(e) Fringe benefits

(f) Social security measures

Most of us would have heard the term compensation in the context of getting paidfor the work that we do. The work can be as part of full time engagement or part timein nature. What is common to them is that the reward that we get for expending ourenergy not to mention the time is that we are compensated for it.

From the perspective of the employers, the money that they pay to the employees inreturn for the work that they do is something that they need to plan for in anelaborate and systematic manner. Unless the employer and the employee are inbroad agreement the net result is dissatisfaction from the employees perspectiveand friction in the relationship.

It can be said that compensation is the glue that binds the employee and theemployer together and in the organized sector, this is further codified in the form ofa contract or a mutually binding legal document that spells out exactly how muchshould be paid to the employee and the components of the compensation package.In compensation management, the art and science of arriving at the rightcompensation makes all the difference between a satisfied employee and adisgruntled employee.

Though Maslows Need Hierarchy Theory talks about compensation being at themiddle to lower rung of the pyramid and the other factors like job satisfaction andfulfilment being at the top, for a majority of employees, getting the rightcompensation is by itself a motivating factor. Hence, employers need to quantify theemployees contribution in a proper manner if they are to get the best out of theemployee. The provision of monetary value in exchange for work performed formsthe basis of compensation and how this is managed using processes, proceduresand systems form the basis of compensation management.

Compensation is important as studies have shown that a majority of the employees

who quit companies give inadequate or skewed compensation as the reason for theirexit. Hence, compensation management is something that companies must


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take seriously if they are to achieve a competitive advantage in the market fortalent.

Considering that the current trend in many sectors (particularly the knowledgeintensive sectors like IT and Services) is to t reat the employees as creators and

drivers of value rather than one more factor of production, companies around theworld are paying close attention to how much they pay, the kind of components thatthis pay includes and whether they are offering competitive compensation to attractthe best talent. In concluding this article, it is pertinent to take a look at what JackWelch had to say in this regard: As the quote (mentioned at the beginning of thisarticle) says, if the right compensation along with the right kind of opportunities aremade available to people by the firms in which they work, then work becomes apleasure and the managers task made simpler leading to all round benefits for theemployee as well as the employer.

In the previous article (Part I) we looked at some of the components of compensation

that are paid out to employees and the way in which these components are fixed byHR managers and companies. In this article (Part II), we shall look at somecomponents of compensation like Basic and Variable Pay (including the sub-components of variable pay) and discuss how these are fixed by the firms when theysign off on the compensation packages to their employees.

To take the first component that is common to all packages at all levels.

Basic pay is the base on which the compensation package rests. Thisis the equivalent of the base of the pyramid and the other components areusually fixed as a percentage of the basic pay. It is common to findcomponents like HRA (House Rental Allowance) and Additional Pay as a

certain percentage (say 20% or 30%) of the Basic.

There are many companies that have introduced the concept ofVariable Pay where this particular component of the compensation is notfixed, but is a percentage of the Basic that is paid out according to theperformance of the company, group and the individual. Hence, the termperformance linked pay is also used for variable pay.

If we take the three sub-components of the Variable Pay -

The company performance linked pay is as the term implies paidout as a percentage of the Basic that is tied to the performance of

the company as a whole. So, if a company performs exceedingly wellin the given quarter, then the employee might get a large percentage(say 100% or 150%) of the base of the component. If a companydoes do not well or does only moderately better, then the employeemight get a lower percentage of the base (say 50% or 75%).

The group performance linked pay is paid out in a similar mannerbut the point of reference in this case is the performance of the groupor the division in which the employee works.

Finally, the most important sub-component is the IndividualPerformance Linked Pay that is paid out according to theperformance of the employee and hence is entirely tied to the way inwhich the employee performs as determined by the rating that he orshe gets at the end of the performance cycle.


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The rationale for these components is that an employee would be better motivated toperform individually, contribute to the group to which he or she belongs and finally,perform well keeping in view the overall growth of the company. Hence, these subcomponents of compensation have been designed to spur the employee to excel notonly in an individual capacity but as a team member and finally, a responsible

employee of the company. The idea here is to discourage silo based performanceand instead concentrate on all round performance.

In the articles to follow, we shall look at how employees can negotiate theircompensation by following some tips that we shall provide.

In the previous sections, we looked at the components of the compensation and howeach is used to assess the relative importance of an employee as far asremuneration is concerned. In this article, we look at some of the factors thatdetermine how much compensation is to be paid out to the employee by looking atthe issue from the perspective of the employer. The subsequent article would take a

look at how the employee can influence the compensation setting process withnegotiation and bargaining.

From the perspective of the employer, the factors that affect compensationare:

The Overall Macroeconomic situation where in the state of the economyof the country in which the firm is situated plays a major role indetermining the compensation to be paid. For instance, if an economy isbooming or is in a high growth trajectory, chances are that the employerswould pay the employees more and conversely, if the economy is in adownward trajectory, chances are that the employers would pay the

employees less. We often hear about how because of the recession,salary hikes have been deferred or cut down. This is a direct result of thelinkage between firm performance and the performance of the economy.

The Demand for a particular skill weighs heavily on the way in which theemployer fixes the compensation for the employee. For instance, premiumskills like Consulting and Accountancy are paid more as are the TechnologyProfessionals who might be experts in their chosen field. As discussed inearlier articles, it is the expertise and the relative scarcity of such expertsthat determines how much the employer is willing to pay.

The Position of the company in the Business Cycle often determines

how much the company is willing to offer to the employee. For instance, if acompany is a start-up, chances are that the company would pay morebecause of the need to get the best possible talent into the company.Further, many start-ups give their employees ESOPs or Employee StockOption Plans wherein the employees can redeem their stocks after the lock-in period.

Finally, the urgency of the firm in filling up the position plays an importantrole in determining how much the employer is willing to pay the employeeand in many cases, if the time to get on board the employee is less, staffingmanagers along with the line manager in charge of hiring the employeemight decide to pay more because they want the employee to come onboard as quickly as possible.


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These are some of the factors that determine the compensation to be paid to theemployee from the perspective of the employer. This is not an exhaustive list but anindicative one and as the module progresses, we shall be revisiting some of thesefactors along with adding additional information. The next article would talk abouthow employees can negotiate with the employer for better compensation and perks.

In the previous article, we looked at some of the factors that help the employersdetermine the level of compensation to be given to employees. In this article, we lookat the factors that affect compensation from the perspective of the employee. Whatthis means is that the employee should not be constrained by the amount ofcompensation that the employer provides him or her and can and should negotiatewith the prospective employer until he or she is satisfied with the outcome.

Of course, there are several kinds of negotiation with the employer. For instance, theemployee can negotiate at the time of the hiring process or can negotiate at the timeof the appraisal cycle. In this article, we consider the strategies available to the

employee at the time of the hiring process.There are several parts to the employees strategy to negotiate with the employer.Some of them are:

Plan and Communicate: The most important part of the employeesstrategy must be to research the compensation trends in the market andthen negotiate with the employer based on how much the othercompanies are willing to pay for a similar role combined with the fact thatthe company hiring him or her pays for the same role. Hence, it isadvisable for the employee to keep in touch with compensation trends inthe marketplace and also talk to other employees before he or she

decides to communicate his or her expectations to the prospectiveemployer.

Timing makes the difference: In any negotiation process, time is the keyelement and hence timing the negotiation process is important. The bestpossible option for the employee would be to wait for the company tomake an offer and then pitch in his or her expectations about thecompensation. There is something called overkill which must be avoidedand the employee must avoid going overboard. At the same time, theemployee must also ensure that he or she does not start the negotiationprocess early on in order not to lose out on the offer. Hence the timing of

the pitch makes all the difference. Consider the Alternatives: When you are deciding about prospective

offers, ensure that you make the pitch for your expected compensationlevel after taking into account all the alternatives and not simply rush intosomething that does not value your experience and expertise adequately.At the same time, do not harangue the prospective employers though youmight have several alternatives available to you. The point to be noted isthat different companies react to compensation negotiations in differentways and hence you must play the field according to these points.

Many a time, prospective employees lost out on compensation either because theyasked too high or asked too late. At the same time, they should also remember notto coerce the employers. The best possible strategy is where you are confident


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about yourself and your worth as measured by the employer must reflect yourown sense of self worth. When there is a meeting point between these, then youcan rest assured that you have arrived at the ideal compensation for yourself.

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