Download - SCM Lecture 1
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Strategic Compensation Management
Week 1
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Todays Plan !!
1) Introductions
2) Self assessment
3) Course outline
4) Administrative points
5) Introductory lecture
6) Exercise and discussion
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Introductions !!
Your name
City and educational background
Your goals and ambitions
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Self Assessment
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Course Objectives
The theoretical approach to strategic compensationmanagement
The various internal and external factors influencingcompensation strategy
The impact compensation systems have on employees
and organizations performance
Impact of legislation and unions on salary administration The strategic compensation management on
international level
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Course Outline
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Course Outline
Week 1: Introduction
Week 2: The strategic and tactical compensation issues
Week 3 & 4: The internal alignment
Week 5: The external competitiveness
Week 6: Designing pay structures
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Course Outline
Week 7: Case study presentations
Week 8: Mid Term Exams
Week 9 &10: Pay for performance
Week 11: Guest Speaker
Week 12: Pay as an incentive
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Course Outline
Week 13: Extending the system
Week 14: International pay systems
Week 15 & 16: Project presentations
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Teaching Methods
Lectures and class discussions
Simulation and exercises
Case studies and real life examples
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Assessment
Class Participation and Group discussion 5%
Surprise Quizzes (2 in semester) 5%
Assignments (2 in semester) 10% Case study and presentation(2 in semester) 15%
Mid Terms 25%
Final Paper 40%
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Administrative Points
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Administrative Points
Lecture:
Tuesday 10:30 pm 1:30 pm
Course Instructor:
Miss. Sana Ahmed Email: [email protected]
mailto:[email protected]:[email protected] -
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Administrative Points
Class attendance - Late comers/ absence lectures,presentations, guest lecture(s)
Class participation and discussions
Text Book
Written work submission (Questions, due date, format,plagiarism)
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Administrative Points
Assessment
Use of mobile phones
General conduct
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Introductory Lecture
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Without work all life goes rotten. Butwhen work is soulless life stifles and
dies
Albert Camus
(French Philosopher)
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What is Compensation?
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Compensation?
Represents the both intrinsic and extrinsic rewards
employees receive for performing their jobs
Does not operate in isolation
Component of companys human resources system
Compensation professionals
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Compensation?
Allocation, conversion and transfer of portionof orgs income to its employees
Individual perception (demographics)
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Historical Perspective
Turn of 20th century industrial revolution
Large scale manufacturing and HR systems
Factory system division of labor Scientific management practices labor cost control by
promoting efficiency
Piecework plans - individual incentive system
Welfare practices
Birth of relevant laws
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Wage and Salary
Important components of compensation and rewardprocess
Aimed at reimbursing employees for their work andmotivating them to perform to the best of theirabilities
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Wage and Salary
Wage
Hourly rate of pay frequently used for production andmaintenance employees (blue collar workers)
Paid for actual hours worked
Salary
Weekly, monthly or yearly rate of pay. Clerical, professional,
sales and management employees (white collar workers)
Paid same amount regardless of increase or decrease innumber of working hours
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The New Perspective
HR as an administrative system
Competitive advantage maintain market share and
profitability over period of time
Changing business environment technology,competition (internal, external) response to
change
Employees key resource
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Changes in work place
Greater autonomy process control, broader
responsibilities
Acquisition and application of higher level skills
Well compensated employees more likely tocontribute to organizations success
Operation in cost effective manner- labor costs
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Compensation and other HRfunctions
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Compensation and other HRfunctions
Human resources practices do not operate inisolation!!
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The Microsoft View
Weve said this for years, and its still as true as it ever
was: our employees are our greatest assets. And as
such, we believe in making long term investment inyou. That includes your financial well being and your
progress within our company
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Compensation and
Recruitment and Selection
Sparking candidates interests
Performance Appraisal
Performance management/ merit pay
Training
Acquisition of skills
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Compensation and
Career development
Incentive for progression
Labor- management relations
Negotiations
Employee Termination
Severance pay , golden shake hand , pension plans
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The Rewards System
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Reward System
Organizations are formed to accomplish specific
mission
It must attract and hire appropriate workforce
Retain precious employees
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Reward System
To focus employee attention on specific behaviordeemed necessary to achieve orgs goals
They must meet demand of employees
Motivating employees and modifying behaviors
What employees value and what org can provide
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Being strategic !!
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Being strategic !!
Internal consistency
Equity theory
Job analysis and job evaluation
Market Competitiveness
Strategic Analysis external market and internal
factors Market surveys
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Being strategic !!
Recognizing individual Contributions
Pay structures and recognizing employeedifferences
Pay grades and pay ranges
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Being strategic !!
Must support orgs strategic plans andactions
How??
Work to be performed
Level of knowledge and skills required Quality of people needed to promote success
The rewards org can offer org culture
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Back to compensation !!
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Elements
Intrinsic
Extrinsic
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Intrinsic Compensation
Reflects employees psychological mind sets that
result from performing their jobs
The role of OD professionals effective job design
Example..
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Intrinsic Compensation
Job Characteristics Theory (JCT)
Employees experience enhanced psychological states
when their jobs rate high on five core job dimensions:
Skill Variety
Task identity
Task significance Autonomy
Feedback
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Intrinsic CompensationJob Characteristics Theory (JCT)
Skill Variety the degree to which the job requires theperson to perform different tasks using various skills,abilities and talents.
Task identity- the degree to which job enables a person tocomplete the entire job, from start to finish
Task significance the degree to which the job has animpact on the lives or work of others
Autonomy freedom, independence and discretion
Feedback information about job outcomes and
performance
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Intrinsic CompensationJob Characteristics Theory (JCT)
Skill Variety Autonomy Feedback
Task Identity
Task Significance
Meaningfulness Experienced Gained
of work Responsibility Experience
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Intrinsic CompensationJob Characteristics Theory (JCT)
Outcomes :
Lower turnover
Lower absenteeism
Enhanced job performance
Greater job satisfaction
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Extrinsic Compensation
Monetary
Non-monetary (fringe benefits like paidvacation , facilities etc)
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Monetary Compensation
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Monetary Compensation
The Base Pay (basic pay)
Money for performing their jobs
Continue to receive as long as they remain on jobs
Set according to the level of effort and responsibilityrequired to perform job, skills of employee and
severity of working conditions (compensable factors)
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Monetary Compensation
Compensable factors(as discussed earlier)
Legal requirements to establish pay equality
Internal consistency
Market competitiveness
Recognition of individual contributions
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Monetary Compensation
Core elements of Base Pay :
Hourly
Daily
Weekly Monthly
Yearly
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Monetary Compensation
Adjustments of base pay
Costof- living adjustments
Seniority pay
Merit pay
Incentive pay
Pay for knowledge and skill based pay
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Adjustments of base pay
Costof- living adjustments (COLAs)
Periodic base pay increases that are based on changed in
the prices as indexed by the consumer price index (CPI)
Enable workers to maintain their purchasing power andstandard of living
Unions
Newly hired, CPI and base pay adjustment
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Adjustments of base pay
Seniority Pay
Periodic additions to base pay according to length of
service
Way of making employees feel valuable and fosterloyalty
Based on human capital theory
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Adjustments of base pay
Merit Pay
Permanent increases in base pay according toperformance
Rewards excellent efforts or results
Motivates future performance
Helps in retaining employees
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Adjustments of base pay
Incentive Pay
Rewards employees for partially or completely
attaining a predetermined job objective
Fluctuates according to employees attainment ofsome standard based on pre-established formula,
individual or group goals or company earnings
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Adjustments of base pay
Pay for knowledge and Skill-based pay
Rewards managerial, service or professionalworkers for successfully learning specific curricula
Skill based pay mastering new skills, mostly forphysical work
Reward employees for the range, depth and typesof skills or knowledge they are capable of applyingproductively to their jobs
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Non-monetary Benefits
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Non-monetary Benefits
Fringe benefits
Paid time-off
Employee services
Protections programs
Two types legally required benefits anddiscretionary
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Non-monetary Benefits
Legally required benefits
Protection of employees against disability andunemployment
Safety and health
Assistance in crisis
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Non-monetary Benefits
Discretionary Benefits
Protection programs
Paid- time off
Services
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Eight Dimensions
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Dimension 1:
Pay for work and performance
Money provided in the short term (bonuses, cash
rewards)
Amount of money depends on the specified job
requirements, output, quality, innovations etc
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Dimension 2:
Pay for time not worked
Increase in number of paid vacations in past 40
years
Increase labor costs
Quality of work life
Example (rigs)
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Dimension 3:
Loss of job Income Continuation
Loss of Job security and retirement
Accidents, sickness
Layoffs and terminations
Economic conditions and technology factor
Examples:severance pay, unemployment insurance,supplemental unemployment benefits
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Dimension 4:
Disability Income Continuation
Inability to perform routine work due to sickness or
accidents
Sick leave, long/short tem disability plans, insurance
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Dimension 5:
Deferred Income
Employer provided programs for income
continuation after retirement
Example: pension, annuities, gratuity fund, stock
purchase plans etc
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Dimension 6:
Spouse/ family income continuation
Death of employee
Total or permanent disability
Allows family to receive employees salary (often forlimited time period)
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Dimension 7:
Health, Accident and Liability protection
Expenses and Insurance (medical, hospital surgical,
dental)
Liability related insurance plans (automobile, legal
etc)
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Dimension 8:
Income equivalent Payments
Perks (company car, credit card, payment forprofessional meetings, food, child care, traveling,
laptop, mobiles)
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The Motivation Factor!!
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Motivation Factor
Components of Work situation
Physical and psychological well being
The behavioral scientists
Seven interrelated elements of motivation
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Factor 1:
Enhanced dignity and satisfaction from workperformed
Recognizing employees as valuable contributor-powerful reward
Enhanced feelings of self worth and pride
Expectancy theory
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Factor 2:
Enhanced physiological health, Intellectual growth, andEmotional maturity
Physical risk
Psychological stress
Efforts taken by the org (gym, pool, suana, rest rooms, games
area)
Counseling services
Development opportunities
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Factor 3:
Promoting social relationships with coworkers
Opportunity to interact in a socially constructive manner
(social events)
Role of reward system (revisiting equity theory)
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Factor 4:
Job Design
Scientific management (boredom and
dissatisfaction)
Behavioral scientists new approaches to improvethe quality of work life
As jobs became enriched , reward structure becamemore sophisticated
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Factor 5:
Resources to perform assignments
Reason for employee failure
Challenging work and sense of accomplishment
Performance management
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Factor 6:
Enhanced control over job
Employee participation choosing location of
assignments
Flexible working hours
Part- time/ contractual workers and their
compensation package
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Factor 7:
Leadership and Management
Mentoring and coaching
Faith, trust and respect
The process of making future leaders by investing inpeople
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Compensation professionals
Designing and redesigning pay structure
What else ??
Merging jobs
Incompetent, obsolete or unneeded employees
Outsourcing
Unneeded jobs
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Sum- up
Concept of compensation management
Intrinsic and extrinsic
Monetary and non- monetary Monetary definition, types of adjustments
Non-monetary definition, types
Compensation professionals
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Sum- up
An adequate and fair pay system in motivating andsatisfying workers, retaining valuable employees andremaining competitive with other organizations thatprovide similar goods and services
Pay increases can reward merit (quality of performance,length of service or both
The basis for increase should be standardized for allemployees doing similar jobs in particular organization
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A job is a job; if you dont pay enoughits a lousy job
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Discussion Questions
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Discussion Questions
Q1: What is the greatest force for continuation of povertyin our society?
Q2: Why should managers be concerned with setting upa reward system?
Q3: What are the changes occurring in the workforce
relative of the kinds of work they do?
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Next Week !!
Organizational structures
Compensations decisions
The pay model