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Compensation and employee behaviour Part I

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Compensation and Employee Behaviour Part I

Compensation and Employee Behaviour Part I

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  • 1. Compensation and Employee Behaviour: Part IDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 1
  • 2. Bases for Traditional Pay SystemBased on cost of living and labour marketBase wage or salaryEvenly distributed between employeesCorrelated with seniorityBased on individual performance daily, weekly, monthly 2
  • 3. Bases for Modern Pay SystemVariable payBased on business performanceDifferentiatedBased on individual performanceBased on team and organisational performanceUsed as a means of communicating values 3
  • 4. Traditional Pay SystemSets pay levels in a narrow band with regular increaseMay be 3 to 4 percent pay increase annuallyIncreases 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 4
  • 5. Modern Pay SystemIt pays greater emphasis on variable payBase 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 jobs 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
  • 6. Modern Pay SystemSome 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. 6
  • 7. Purpose of Compensation Contribution based Ensure Equity Remuneration Attract talent Co Effec Administratively m Efficient Legal pe tiveInstitutionalized Compliance ns Processes ati on Motivate & Retain Staff Reward Valued Behavior Thursday, September 20, 2012 7
  • 8. Establishing Pay Plans Business Goals Compensation Compensation Philosophy/ activities Philosophy/ activitiesCEO serve Business Business serve Business Objectives Strategy 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 Thursday, September 20, 2012 8
  • 9. Establishing Pay Plans Compensation activities Compensation activities Business Goals serve Business Objectives serve Business ObjectivesCEO Business Compensation strategy is Compensation strategy is Strategy periodically reevaluated and periodically reevaluated and the Compensation plan the Compensation plan periodically developed periodically developed CompensationHR Head Strategy Org.Structure Non-Financial Rewards Compensation Plan 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 Thursday, September 20, 2012 9
  • 10. Establishing Pay Plans Business Goals Compensation Compensation activities serve activities serveCEO Business Objectives Business Business Objectives Strategy Compensation strategy Compensation Compensation strategyHR Head is periodically Strategy is periodically reevaluated and the reevaluated and the Non-Financial Org.Structure Compensation plan Rewards Compensation plan periodically developed periodically developed Compensation Plan  A strategic perspective on compensation takes the position that how employees are compensated can be a source of sustainable competitive advantage Thursday, September 20, 2012 10
  • 11. Establishing Pay Plans Business Goals Compensation Compensation activities serve activities serveCEO Business Objectives Business Business Objectives Strategy Compensation strategy Compensation Compensation strategyHR Head is periodically Strategy is periodically reevaluated and the reevaluated and the Non-Financial Org.Structure Compensation plan Rewards Compensation plan periodically developed periodically developed Compensation PlanC & B/S M Performance Job Evaluation Market Surveys Management Unit Inputs Pay levels / structures Compensation Contribution Compensation Manager, along withEmployee /outputs Manager, along with team is responsible for Total team is responsible for carrying out remuneration carrying out compensation related compensation related activities Performance activities linked Pay Individual Pay Internal Equity External Equity Thursday, September 20, 2012 11
  • 12. Establishing Pay Plans Compensation Plan Design Job Analysis Job DescriptionMarket Wage Job Survey Evaluation Pay Structure 12
  • 13. Job Analysis• Process to identify & determine particular job duties andrequirements• 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 13
  • 14. Job Description- Output from job analysis used to develop jobdescription and its specification- Summarize job analysis information in readableformat- Provide basis for job-related actions- Identify individual jobs by providingdocumentation- Identify tasks, duties and responsibilities of a job- Describes what is done, why it is done , where it isdone, and how it is done . 14
  • 15. Job EvaluationThe methods and practices of ordering jobs or positions with respect to their value or worth to the organization. 15
  • 16. Market Wage Surveys- Goal of market wage surveys is to find data fromemployers with whom organization competes foremployees- Data collected & analyzed- Simplest analysis involves comparing going marketrate & approximating this rate within organizationsown pay structure 16
  • 17. Methods of Wage SurveysGenerally three methods are employed for wage surveys; • Personal Interviews • Mailed Questionnaires • Telephone Inquiries 17
  • 18. Pay Structure-Basis for establishing pay plan is paystructure- Hierarchy of jobs with pay ranges and/orrates assigned- Pay structures designed so that greater theworth of a job, higher the pay grade and range 18
  • 19. 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 19
  • 20. Aligning Compensation Strategy with HR Strategy HR Strategy Compensation Strategy– Attract staff – Total reward approaches that help to make the– Retain effective organisation a great place to workperformers –– Support change Competitive pay structure that helps to retain highmanagement process quality employee– Establish positive – Variable pay schemes thatcorporate reputation contributes to the motivation of the people– Administer rewardmanagement to maximise – Performance management process thatpositive impact promotes continuous improvement– Enhance purchasing –power of employees Performance management processes that identify– Make Compensation learning needs and how they can be satisfiedpackage simple– Develop human resources – Career family structure that defines knowledge and skills 20
  • 21. Aligning Compensation Strategy with Business Strategy Business Strategy Compensation Strategy– Achieving competitive advantage – Provide financial incentive/reward andthrough innovation recognition for innovation– Achieving competitive advantage – Link reward to quality performancethrough quality– Achieving competitive advantage – Review all reward practices to ensurethrough low costs they provide value for money 21
  • 22. Seniority & Longevity PaySalary or wages based on seniority or length of service with an organizationThe greater the length of service, the greater the longevity payIt may also be used as a bonus for remaining on a job beyond a certain periodThese systems reward employees with periodic additions to base pay according to employees’ length of service in performing their jobs 22
  • 23. Design of Seniority Pay and Longevity Pay Plans Seniority Pay Longevity PayTo reward job tenure or To reward employees who employees’ time as have reached pay grade members of a company maximum and who are not explicitly through likely to move into higher permanent increases to grades base pay 23
  • 24. Advantages of Seniority Pay To Employees To EmployersPerceive they are treated It facilitates the fairly because they earn administration of pay pay increases according to programs seniority, which is an Employers are less likely objective standard to offend employees by showing favouritism to others 24
  • 25. 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 25
  • 26. Thank you