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Compensation Management

Compensation Management






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    Compensation Management Compensation Management Presentation Transcript

    • Submitted to: Mr. Ubaidullah Memon Presenters: Mr. Adeel Ahmed Mr. Arif Taj Mr. Muhammad Farhan COMPENSATION MANAGEMENT & ITS IMPACTS ON EMPLOYEES
          • What is compensation?
          • Compensation equity issues
          • Compensation system
          • HR Management Strategy Module
          • Employee compensation
          • Reward strategy
          • Consequences of pay dissatisfaction
          • Phases of compensation management
          • Objective of effective compensation management
          • Steps for establishing pay rates
          • What determines how much you pay?
          • Equity theory
          • Equity theory predictions
          • Packages Private Limited
          • Management of compensation and benefits at Packages
          • Establishing pay rates at Packages
          • Incentive or variable pay plan at Packages
          • Short-term incentives at Packages
          • Direct and indirect rewards at Packages
          • Benefits at Packages
          • Employees welfare schemes.
      Compensation Management Packages Pvt. Limited
    • In Simple words Compensation is...
      • Compensation is a reward, incentive or pay for what an employee does in an organization
      • It refers to a methods of maintaining balance between interest of company & attracting, developing, retaining and rewarding high quality staff through wages and salaries
    • Compensation System Components Pay Benefits
      • Compensation equity: Is compensation judged to be fair?
    • Three Compensation Equity Issues
      • First
      • Individual Equity: compare the pay of individuals who do the same job in the same organization and judge if it is fair
        • Example: A retail store has 2 Assistant Store Managers (2 people doing the same job in the same organization)
          • If they are paid the same, is that perceived as being fair?
          • If they are paid differently, is the pay difference perceived as being fair?
    • Compensation Equity Issues cont…
      • Second
      • Internal Equity: compare the pay of different jobs in the same organization and judge if it is fair
        • Example: A retail store has an Assistant Store Manager and a Store Manager (2 different jobs in the same organization)
          • If they are paid the same, is that perceived as being fair?
          • If they are paid differently, is the pay difference perceived as being fair?
    • Compensation Equity Issues cont…
      • Third
      • External equity: compare the pay of the same job in different organizations and judge if it is fair
        • Example: Retail store X has a Store Manager and retail store Y has a store manager (the same job in two different organizations)
          • Do the two stores pay their store managers the same or not?
      • Pay is a statement of an employee’s worth by an employer.
      • Pay is a perception of worth by an employee.
    • HR Management Strategy Model HR Strategy Desired Results Attract Retain Engage Select Develop Rewards
      • Employee compensation refers to all forms of pay or rewards going to employees and arising from their employment.
    • Compensation system consist of following elements:
    • Compensation of Employees Extrinsic Rewards Hourly Wages Salary Monetary Bonuses Rewards Commissions Pay Incentives Insurance Retirement Paid Vacations Benefits Food Services Credit Union Recreation Recognition Intrinsic Promotion Opportunities Rewards Working Conditions Interesting Work
    • Effective Reward Strategy
    • Balanced, Practical Reward Strategy Model EMPLOYER’S PERSPECTIVE EMPLOYEE’S PERSPECTIVE Organization Capabilities Business Strategy Organization Structure Competencies Demographics Values Improved Business Results & Aligned Employee Behaviours Employment Deal Total Reward Strategy Pay Benefit Learning & Work Development Environment
    • Performance Strikes Grievances Search for job Absenteeism Turnover Absenteeism Psychological Withdrawal Dispensary Visits Poor Mental Health Desire for more Pay Pay Dissatisfaction Lower Attractiveness of job Job Dissatisfaction
      • Compensation System
        • A total reward system includes both monetary and nonmonetary compensation.
      • Phase # 1
      • Evaluate every job to ensure internal equity based on each job’s relative worth.
      • Phase # 2
      • Conduct wage and salary surveys to find the rates paid in the labour market.
      • Phase # 3
      • Price each job to determine the rate of pay based.
    • Objectives:
      • Attract qualified employment applicants
      • Retain qualified employees, while discouraging retention of low performing
      • Motivate employee behavior toward organization objectives
      • Ensure Equity
      • Reward Desired Behavior
      • Control Costs
    • Cont...
      • Comply With Legal Regulations
      • Facilitate Understanding
      • Achieve external competitiveness
      • Support organization priorities
        • Strategy and goals
        • Culture and values
      • Easy to administer
    • Steps
      • Conduct a salary survey of what other employers are paying for comparable jobs
      • Employee committee determines the worth of each job in your organization through job evaluation
      • Group similar jobs into pay grades
      • Price each pay grade by using wage curves
      • Fine-tune pay rates
    • Pay Grade Structure for Job-Based System Rs 10,000 Rs 30,000 Rs 50,000 Corporate Policy Line Midpoint 250 350 450 550 650 Job Evaluation Points Maximums Pay Grade Width Monthly Pay
      • Prevailing Wages
      • Ability to Pay
      • Cost of Living
      • Productivity
      • Bargaining Power
      • Job Requirements
      • Government Laws
      • Equity theory describes how an employee determines if his or her pay is fair
        • An employee judges if his or her pay is fair by examining 4 factors:
          • The employee’s pay (and other rewards)
          • The employee’s contributions
          • Other employees’ pay (and other rewards)
          • Other employees’ contributions
    • Equity Perceptions Self Other
      • Description
        • Pay should be based upon contributions made by the Employees. Higher effort should be rewarded with higher pay.
      • Application to Compensation
        • Pay should be tied to the performance level of individual Employee
    • Outputs Inputs < Outputs Inputs Outputs Inputs = Outputs Inputs Outputs Inputs > Outputs Inputs Under-reward Equity Over-reward Person B Person A
    • Pay above Market rate
      • Advantages
        • Attracts better employees
        • Minimizes voluntary turnover
        • Fosters strong culture and competitive superiority
      • Disadvantages
        • Additional compensation costs
        • Sense of entitlement
    • Pay at Market Rate
      • Advantages
        • Higher quality of human resources at midrange of market-driven compensation costs
      • Disadvantages
        • Does not attract higher performers
        • Turnover will vary with labor demands of competing firms
    • Pay below Market Rate
      • Advantages
        • Lower compensation costs
        • Useful in labor markets where unemployment is high
      • Disadvantages
        • Lower-quality employees
        • Low morale/job satisfaction
        • Higher turnover; especially among high performers
    • Conditions Necessary for Perceptions of Pay Fairness
      • Internal consistency
      • External competitiveness
      • Employee cont
    • Line Managers and Compensation
      • Evaluate the worth of jobs.
      • Negotiate starting salaries.
      • Recommend pay raises and promotions.
      • Notify HRM department of job changes.
    • The HRM Department and Compensation
      • Establish rates of pay.
      • Oversee job evaluation process.
      • Conduct salary surveys.
      • Establish procedures for administering pay plans.
      • Ensure compliance with antidiscrimination laws.
      • Communicate benefits information
    • Company Profile
      • Established in 1956.
      • Provides premium packaging solutions for exceptional value to individuals and businesses.
      • Employ over 3000 people and had sales of over US $ 100 million in 2004.
    • Products
      • PAPER & BOARD
    • Business Alliances
      • Nestle Pakistan Ltd.
      • Tetra Pak Pakistan Ltd.
      • Tri-pack Films Ltd.
      • DIC Pakistan Ltd.
      • Packages Lanka Pvt. Ltd.
      • IGI Insurance Ltd.
      • IGl Investment Bank Ltd.
      • Coca-Cola Beverages Pakistan Ltd.
    • Manpower
      • Less Than 10 Years Service 1,358
      •   Between 11 And 20 Years 582
      •   Between 21 And 30 Years 512
      •   Above 30 Years 439
      • Executive And Management Staff 506
      • Supervisors 246
      • Workers 2,139
      • TOTAL 2,891
    • Mission Statement of HR department
      • Attracts and retains outstanding people by creating a culture that fosters openness and innovation, promotes individual growth, and rewards initiative and performance.
      • To develop a duality work force & to keep them with the company
      • Every body works deliberately towards the environment for getting the reward.
      • Different things motivates different sort of people.
      • For some people money matters
      • On the other hand for others verbal appraisal is of great importance.
      • One of the most important thing which motivates majority of people is “money”.
      • “ Pay” in the other words.
    • Cont....
      • Managing of benefits and compensation is a very essential and important both for the employees and employer.
      • Its not an easy task to retain and maintain the skilled and capable employees.
      • Compensation managers have to manage this program in such a way which makes employees not only to stay longer with the organization but also improves productivity.
    • Establishing Pay Rates
      • It is a very tricky and important phenomena.
      • Packages considered all the internal and external factors like companies Market position, its resources, company’s year performance and progress after viewing all these factors pays has been decided and they tend to satisfied every employees needs and expectations
      • Induction Salary
          • Workers Min 7000/- per month
          • Skilled workers Min 8000/- per month
          • Executive Min 20,000/- per month
    • Traditional Bases for Pay at Packages
      • There are two types of traditional bases for pay
        • Seniority pay system
        • Seniority pay system reward employees with additions to base pay periodically according to employee’s length of service performing their job.
        • Merit pay system
        • Merit pay programs assure that employees compensation over time should be determined, at least in part by differences in job performance.
    • Bases for Pay Cont....
      • Most of the firms now-a-days using merit pay system so do PACKAGES.
      • Merit pay system has many advantages
        • It rewards individual achievement
        • People motivated when they were recognized.
        • Its very good both for the employee and employers
        • People start working more effectively if they know that their pay has been decided on the bases of their performance.
        • That's why this pay system has been used in packages.
    • Bases for Pay Cont........
      • Seniority pay system has also been used in packages but only for the exceptional case who work for the organization for so many years and put extra effort and was very loyal so in those case seniority pay system can be used.
    • Incentive or Variable Pay Plans
      • Incentive pay or variable pay rewards employees for partially or completely attaining a predetermined work objective.
      • Companies use incentive pay to reward individual employees , teams of employees, or overall companies based on their performance.
      • Unfortunately in packages incentive or variable pay plans are not so developed and company only provides with bonuses to their employees on their performance.
    • Incentive cont....
      • All confirmed employees avail annual bonuses.
      • The criteria for the bonuses is that company give bonuses maximum 7 multiply with their base salary
      • The bonuses has been given twice a year in January and in august most probably.
      • Its on the base of individual incentive plans, concept of group incentive plan is not much used in packages.
    • Incentive cont....
      • For example if someone’s salary is 9000 and get bonus 6 on its base salary then
      • 9000 x 6=54000 will be the bonus of that person.
      • But again its performance base so getting the 6 or 7 is not an easy task employees performance has been observed and evaluate very keenly.
      • Many incentive plans apply to other categories of employees including sales professionals, managers, and executives
    • Incentives for Operation Employees
      • Operations employees are the people who actually do the work.
      • The most widely used incentive for operational employees plan is the PIECE WORK PLAN.
      • In this plan worker is paid a piece rate for each unit he or she produces.
      • Other is straight piecework in which a person is paid a sum for each item he or she makes or sells.
      • In packages these sort of incentives some times used but not frequently
      • Its been used when there is urgent need for more production etc.
    • Incentives for Managers and Executives
      • Managers play a central role n influencing divisional and corporate profitability
      • Most firms therefore put considerable thought into how to reward them.
      • Most managers get short-term bonuses and long-term incentives in addition to salary.
    • Short Term Incentives
      • The Annual Bonuses:
        • Packages use this incentive plan for motivating the short term performance of managers and executives.
        • There are 3 basic issues to considered where awarding short-term incentives:
          • Eligibility,
          • Fund size and
          • Individual award.
        • Packages strictly follow this pattern.
    • Short Term Incentives Cont….
      • Eligibility:
        • In packages like most other firms they include both top and lower level managers and mainly decided who’s eligible in one of two ways.
        • The size of the bonuses varies because bonuses is on your base salary so top managers who’s base salary is more than the lower will get more bonus then the lower.
        • This techniques has been used in packages.
    • Short Term Incentives Cont….
      • Fund Size
        • The firms must also decide the total amount of bonuses money to make available fund size.
        • Some use a nondeductible formula, they use the straight percentage usually of the company’s net income to create the short term incentive fund.
        • Others use a deductible formula on the assumption that the fund should start to accumulate only after a firm has met a specified level of earnings.
        • Packages uses the nondeductible formula but it has been viewed that some times bonuses has been deducted on the bases of less profit.
    • Short Term Incentives Cont….
      • Individual Award
        • After reviewing the above two factor then performance has been evaluated and then decided that which person is eligible for how much bonuses.
        • Typically a target bonus is set for each eligible position and the actual award reflects the persons performance.
    • Direct Financial Rewards
      • Salaries
        • This is the monetary reward that employees receive in return for their mental and physical services offered to the organization .
      •   Bonuses
        • Annual bonuses are given to the employees.
        • Management level staff receives performance-based bonuses. Already discussed bonuses in detail .
      •   Incentives
        • Workers are given a specific production target. If they produce beyond that target, they receive incentives for this outstanding performance.
    • Direct Rewards cont....
      • Premium Pay
        • Workers who work with machines that dissipate enormous amount of heat receive some extra amount for working in such condition. This amount falls under the category of premium pay.
    • Indirect Financial Rewards
      • Insurance Plans
        • Health, life and group insurance is provided to all employees .
      •   Social Assistance Benefits
        • Provident fund, retirement plans, employees old age benefits, welfare fund, social security benefits and pension are provided to all regular employees
      •   Ambulance and Dispensary
        • There is an ambulance facility and free dispensary for workers within the company premises.
    • Benefits at Packages
      • Benefits are indirect financial and nonfinancial payments employees receive for continuing their employment with the company.
      • Theses are an important part of just about every employee’s compensation.
      • They include things like health and life insurance , pension, time off with pay , and child care facility etc.
      • Benefits are a major expense for most employers.
    • Benefit cont....
      • Pay for Time Not Worked
        • Pay for time not worked also known as supplemental pay benefits are the employers most costly benefits because of the large amount of time off that many employees receive.
        • Common time-off-with-pay periods include holidays, vacations, personal days, sick leave, sabbatical leave, maternity leave, etc.
    • Benefit cont....
      • Vacation and Holidays
        • The number of paid employees vacation days varies considerably from employer to employer.
        • Firms have to address several holiday and vacation related policy issues.
        • They must decide how many days off employees will get, and what the paid holidays will be.
        • In Packages for executives 40 paid holidays have been given 10 casual leaves have been allocate.
    • Benefit cont....
      • Sick Leaves
        • Sick leaves provides pay to employees when they are out of work due to illness.
        • In packages usually 10 to 12 sick leaves has been given to employees
      • Severance Pay
        • Many employers provide severance pay a one time payment when terminating an employee.
        • Packages also uses golden hand shack and give pay for some lets say months or particular time period and terminate the employee.
    • Benefit cont....
      • Insurance Benefits
        • Most employers also provide a number of required or voluntary insurance benefits such as workers compensation and health insurance.
        • Health, Hospitalization & Disability Insurance
      • These insurance policies has not been use by Packages because its very costly and in countries like Pakistan such trends do not prevail.
    • Benefit cont....
      • Retirement Benefits
        • In retirement benefits come social security and pension plans .
        • Social Security do prevail in this sector but in Packages pension plan is given great importance.
        • It is a plan which provides a fix sum when employees reach a predetermine retirement age or when they no longer work due to disability.
    • Benefit cont....
      • Conveyance Allowance
        • This is also paid to all employees.
        • Employees are also offered the option of buying vehicles at reduced prices.
      •   House Rent Allowance
        • This is paid to all employees as a hefty percentage of their basic salaries.
      •   Employees' Old Age Benefit Scheme
        • The company contributes a percentage of workers' wages towards this government scheme, which ensures a reasonable pension on retirement.
    • Benefit cont....
      • Subsidized Food
        • The company has extensive cafeteria facilities which serve breakfast, lunch and dinner to all employees at highly subsidized rates.
      •   Employees' Children Education
        • The company pays an Education Cess to the government to ensure free education up to high school level of at least one child of each employee, subject to rules and regulations.
    • Benefits and welfare schemes used by packages and considered as one of the best firm for giving their employees such benefits.
          • Social Security
          • E.O.B.I.
          • Education Cess
          • Fair Price Shop
          • Canteen (Subsidy)
          • Group Life Insurance
          • Provident Fund/Gratuity/
          • Ex-Gratia/Pension
          • Medical Cover (Self & Dependents)
          • Sports Facilities
          • Children Mela
          • Long Service Award – 30 Years
            • Min Rs 20,000/-
            • Max Rs 150,000/-
          • Haj (4 Persons / Year)
          • Scholarship To Employees Children For Higher Education (42 Scholarships Per Year)
          • Free / Subsidized milk
          • Day Care Center
          • Employment For Employees Children
          • Contributory Welfare Fund