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Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
Designing compensation system Part IV
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Designing compensation system Part IV

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Designing compensation system Part IV

Designing compensation system Part IV

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  • 1. Designing Compensation System: Part IVDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 1
  • 2. Building Pay Structure That Recognise Individual Contributions 2
  • 3. Designing Merit Pay Systems Merit increase amounts  Diminishing marginal returns  Just-meaningful differences  Increase as substantive (equity theory) Timing  Common review date  Anniversary date Recurring vs. non-recurring merit pay increases Present level of base pay Rewarding performance: Merit pay grid  Performance and position in range 3
  • 4. Merit Pay Grid Performance Rating Above Below Excellent Average Average Average Poor Q3 $60,000 $55,000 7% 5% 3% 0% 0%Current Annual Salary $50,000 Q2 $45,000 $40,000 9% 7% 6% 2% 0% $35,000 Q1 $30,000 $25,000 12% 10% 8% 4% 0% $20,000
  • 5. Merit Pay Grid Higher Pay for PerformancePerformance (1)Well (2) (3) (4) (5) Well Above Above Average Below BelowPosition in Range Average Average Average Average High % Low %Q4(max pay) 7% 5% 3% 1% 0%Q3 Lo% 8% 6% 4% 2% 0%Q2 9% 7% 5% 3% 0%Q1(min pay) Hi% 10% 8% 6% 4% 0%Percent increase already allocated: 6.3%
  • 6. Sales Force as a Special Group High initiative needed, customer focus, feedback to company Extended periods without supervision, need to stay motivated regardless Incentives when willingness to work hard can make the difference between success and failure
  • 7. Designing Sales Incentive - Compensation Plans Alternative sales compensation plans  Salary only  Salary-plus-bonus plans  Salary-plus commission  Commission-plus-draw  Commission-only Determining fixed pay and the compensation mix  Influence of salesperson on buying decision  Competitive pay standards  Amount of non-sales activities  Noncash incentives
  • 8. Designing Pay for Knowledge Program 8
  • 9. Jobs vs Skills or Competencies Jobs  Clear expectations  Sense of progress  Pay based on value of work  Inflexible Skills or Competencies  Continuous learning  Flexibility  Lateral movement 9
  • 10. Pay for Knowledge Competency Based Pay Skill Based Pay
  • 11. Competency Based Pay Competency based pay  Where the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds Competencies  Demonstrable characteristics of a person, including knowledge, skills, and behaviours, that enable performance
  • 12. Competency Based Pay Depth of knowledge: Pay for having a deep level of knowledge within a job, e.g. teachers pay increases with amount of education: bachelors, masters, doctorate degree Breadth of knowledge: Pay for generalist knowledge 12
  • 13. Skill Based Pay Pay is tied to skills, abilities & knowledge that an employee possesses Manufacturing jobs Flexibility to reassign people to where work is needed
  • 14. Skill & Competency Analysis Skill Analysis: Systematic process to identify skills to perform work:  What does the employee know  Skills: basic unit of knowledge & expertise Competency Analysis: Systematic process to identify competencies required for success  What can the employee do  Competencies: basic units of knowledge & abilities 14
  • 15. Skill or Competency Evaluation Person centered approach rather than job centered Determine the skill blocks that are valued: skill or skill units, rather than jobs  Quantify the value  Develop certification procedures  Mastery of skill units is measured and certified Pay changes do not necessarily accompany job changes There is little emphasis on seniority in pay determination 15
  • 16. Designing Pay-for-Knowledge Programs Establishing skill blocks Transition matters  Skills assessment;  Aligning pay with knowledge structure;  Access to training Training and certification  In-house or outsourcing training  Expertise, timeliness;  Size of employee population to be trained;  Sensitivity or proprietary nature  Certification and recertification
  • 17. Top Twenty Competencies• Achievement orientation • Developing others• Concern of quality • Team leadership• Initiative • Technical expertise• Interpersonal understanding • Information seeking• Customer-service • Analytical thinking orientation • Conceptual thinking• Influence and impact • Self-control• Organization awareness• Networking • Self-confidence• Directiveness • Business orientation• Teamwork & cooperation • Flexibility 17
  • 18. Steps in Developing Competency Based Compensation System1. Developing a Competency model2. Competency Mapping3. Linking Competencies to Compensating factors4. Designing compensation on the basis of actual competencies 18
  • 19. Developing Competency Model Competency model identifies various competencies required for performing a job Describe competencies in form of indicators Each competency can be quantified on a scale based on its relative importance with respect to each job Serves as a reference for all competency management activities in organization 19
  • 20. Procedure for Developing Standard Competencies Analyse job/role to identify competencies required Job descriptions & job specifications show competency required for satisfactory performance of duties & responsibilities Discuss with Job holders and immediate superiors to identify critical competencies Validate the competencies and develop a standard competency dictionary Validation can be done by opinion survey or interviewing experts in related areas Rate each competency, known as ‘Critical Rating’ , on a scale 1 to 5, based on its relative importance & contribution to performance 20
  • 21. Competency Mapping and Gap Analysis Design structured questionnaire for employee and his immediate superior Ask employee to rate his/her own competency level in the questionnaire Ask immediate superior to rate the competency level of the employee Compute weighted average rating to get final score 70% weight may be given to superior’s rating & 30% to employee’s rating Analyse Gap in each competency level of the employee 21
  • 22. Gap Analysis Using Competency MappingCompetency Criticality Employee Gap Rating RatingProduction 5 2.24 2.76Technical 4 2.1 1.9Quality 5 2.31 2.69Cost 5 2.24 2.76Organising 3.7 2.1 1.6Achievement 4 1.82 2.18Communication 3.2 1.89 1.31Maintenance 3.7 2.1 1.6Safety 2 2.1Discipline 4.6 2.1 2.5Attitude 5 1.75 3.25Reliability 5 2.1 2.9Leadership 4.3 2.1 2.2Interpersonal 4.6 1.82 2.78Processing 4.7 2.38 2.32 22
  • 23. COMPETENCY MAPPING FOR E.C.No.:878
  • 24. Compensation Factor Compensation Factor is the weighted average of competency ratings of an employee Compensation factor used - to design compensation strategies - to fine tune the policy and adjust for internal and external equities 24
  • 25. Computing Compensation Factor F Let us assume CR = Criticality Rating for each competency Cp = Summation of Criticality Ratings of all Competencies = ΣCR ER = Employee Rating WR = Weighted Rating = CR*ER Compensation Factor, F = Σ(CR*ER)/Cp 25
  • 26. Compensation Factor Computation for EmployeesCompetency CR ER1 WR1 ER2 WR2 ER3 WR3 ER4 WR4 ER5 WR5Production 5 2.24 11.2 3.46 17.3 2.9 14.5 3.61 18.05 2.83 14.15Technical 4 2.1 10.5 3.39 16.95 3.55 17.75 3.76 18.8 3.39 16.95Quality 5 2.31 11.55 3.31 16.55 2.58 12.9 3.3 16.5 2.31 11.55Cost 5 2.24 11.2 3.6 18 2.85 14.25 3.65 18.25 2.74 13.7Organising 3.7 2.1 10.5 3.09 15.45 3.25 16.25 3.15 15.75 3.01 15.05Achievement 4 1.82 9.1 3.28 16.4 2.94 14.7 2.82 14.1 3.18 15.9Communication 3.2 1.89 9.45 3.15 15.75 2.76 13.8 3.8 19 2.66 13.3Maintenance 3.7 2.1 10.5 3.16 15.8 2.85 14.25 3.3 16.5 2.7 13.5Safety 2 2.1 10.5 3.51 17.55 3.7 18.5 3.09 15.45 3.36 16.8Discipline 4.6 2.1 10.5 3.46 17.3 3.2 16 3.18 15.9 3.46 17.3Attitude 5 1.75 8.75 3.74 18.7 3.41 17.05 3.71 18.55 3.6 18Reliability 5 2.1 10.5 3.51 17.55 2.88 14.4 3.3 16.5 3.6 18Leadership 4.3 2.1 10.5 3.3 16.5 3.09 15.45 3.51 17.55 2.69 13.45Interpersonal 4.6 1.82 9.1 3.9 19.5 3.09 15.45 3.6 18 3.39 16.95Processing 4.7 2.38 11.9 3.61 18.05 3.12 15.6 3.48 17.4 3.47 17.35 Cp 63.8 F 2.441 4.034 3.618 4.017 3.636CR = Criticality Rating, ER = Employee Rating, WR = Weighted Rating= (CR * ER), F= Compensation Factor = Summation of (CR*ER)/Cp 26
  • 27. Determination of Basic Based on Percentage Increment on BasicEmp. No. Basic F F*10 Incr. New Basic [Incr.= (F*10)%] E1 8500 2.44 24.41 2075 10575 E2 8000 4.03 40.34 3227 11227 E3 8500 3.62 36.18 3075 11575 E4 8500 4.02 40.17 3414 11914 E5 8500 3.64 36.36 3091 11591 27
  • 28. Determination of Basic Based on Fixed Increment ValueEmp. Basic F F*Incr. New BasicNo. (Incr. = 500)E1 8500 2.44 1221 9721E2 8000 4.03 2017 10017E3 8500 3.62 1809 10309E4 8500 4.02 2009 10509E5 8500 3.64 1818 10318 28

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