Amity Business School INTRODUCTION TOCOMPENSATION & REWARD MANAGEMENT
Amity Business SchoolTopics covered after the learning:1. Concept of Compensation,2. System of Compensating,3. Concept of Reward and Reward System,4. Economic Theory of Wages,5. Limitations of Economic Theories,6. Wage and Salary Administration at micro level,7. Wage concepts,8. Role of various parties – Employees, Employers, Unions & Government,9. Overview of Legislations affecting Compensation
Amity Business SchoolCONCEPT OF COMPENSATION Compensation is what employees receivein exchange for their contribution to theorganization An employee’s standard of living, statusin the society, Motivation, Loyalty andProductivity depend upon thecompensation he/she receives For the employer to employeeremuneration is significant because of it’scontribution to cost of production
Amity Business SchoolNATURE OF COMPENSATION Compensation can be offered by anorganization both directly( Base Pay &Variable Pay) and Indirectly (Benefits)1. Base Pay -Basic compensation anemployee gets usually as a wage or salary2 Variable Pay -Compensation linkeddirectly to the performance3. Benefits- Indirect rewards given as apart of organizational membership.
Amity Business SchoolMAIN OBJECTIVES OF COMPENSATION1. Internal Equity- Ensures that more difficult jobs are paid more.2. External Parity- Aims to compensate fairly in comparison to similar jobs in labor market.3. Individual Equity-Equal Pay for equal work.
Amity Business SchoolSOME OTHER OBJECTIVES To attract talent To retain talent Ensure equity To motivate new & desired behavior Control cost Comply with legal rules Ease of operation
Amity Business SchoolFACTORS INFLUENCING EMPLOYEECOMPENSATIONI. External Factors i. Labor Market ii. Cost of Living iii. Labor Laws iv. Society v. Economy
Amity Business SchoolContd./II. Internal Factors: i. Business Strategyii. Job Evaluation & Performance Appraisaliii. Employee
Amity Business School SYSTEM OFCOMPENSATING
Amity Business Dimensions School• Pay for Work & Performance• Pay for Time not Work• Disability Income Continuation• Deferred Income• Spouse (Family) Income Continuation• Health, Accident & Liability Protection• Income Equivalent Payments – Perks• Organizations Develop Compensation Policy
Amity Business SchoolHOW IS COMPENSATION USED?Compensation may be adjusted according thebusiness needs, goals, and available resourcesCompensation may be used to: recruit and retain qualified employees. increase or maintain morale/satisfaction. reward and encourage peak performance. achieve internal and external equity. reduce turnover and encourage company loyalty. modify (through negotiations) practices of unions.
Amity Business SchoolWHAT ARE THE COMPONENTS OF ACOMPENSATION SYSTEM?The components of a compensation systeminclude: Job Descriptions Job Analysis Job Evaluation Pay Structures Salary Surveys Policies and Regulations
Amity Business SchoolWHAT ARE DIFFERENT TYPES OFCOMPENSATION?Different types of compensation include: Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical,vacation, leaves, retirement, taxes...
Amity Business SchoolCOMPENSATION PLANDevelop a program outlineDesignate an individual to overseeDevelop a compensation philosophyConduct a job analysis of all positionsEvaluate jobsDetermine gradesEstablish grade pricing and salary rangeDetermine an appropriate salary structureDevelop a salary administration policyObtain top executives approval of the basic salary programCommunicate the final program to employees and managersMonitor the program
Amity Business SchoolCONCEPT OFREWARD
Amity Business SchoolReward is a composite of allorganizational mechanism andstrategies used to finally acknowledgeemployees behavior and performance.
Amity Business SchoolOBJECTIVE OF REWARDTo motivate employees to perform effectivelyTo motivate employees to join the organizationTo motivate employees to continue to workEnhance LoyaltySatisfaction
Amity Business School Financial Rewards +Non Financial Rewards = Total Reward
Amity Business School FINANCIAL REWARDS A number of monetary benefits offered toemployees to obtain short term and long termcommitment. Types of financial rewards given are; basepay, variable pay, share ownership, bonus, etc.
Amity Business School NON FINANCIAL REWARDS Non-financial rewards cater mainly to fulfillthe psychological needs of the employees Types of non financial rewards given toemployees are; recognition, opportunities todevelop skills, quality of work life, etc.
Amity Business SchoolREWARD SYSTEM
Amity Business School Rate of Pay Level of skillAdopted from Banfield Paul and Kay Rebecca Introduction to HRM. Oxford University Press Vol. 4 Page No. 308
Amity Business SchoolWHY REWARD SYSTEMS? Attracting, retaining & motivating employees To get desired behavior To achieve stretch standards To cater individual needs
Amity Business SchoolREWARD MECHANISMS Praise/recognition from supervisors Challenging work assignments Promotions and lateral moves Paid leave to employees
Amity Business SchoolGETTING MORE OUT OF REWARDS Aligning rewards with objectives Outcome-based evaluation of employee Agreeing what behaviors and capabilitieswill be rewarded
Amity Business School Designing Reward SystemWhom to Reward?• Individual Employees• Teams• Organization• Outsiders
Amity Business School Designing Reward SystemWhat to Reward?• Performance• Organizational Level• Unit / Departmental Level• Speed and Efficiency• Loyalty• Innovation• Upholding Values
Amity Business School• Technical Solution• Learning• Good Behavior• Sense of Humor• Teaching• Publications• Event Management• Social Concern
Amity Business School Characteristics of rewardsRewards must have the following characteristics• Value• Relevant• Purpose• Behavioral effect• Recognition
Amity Business School Concept of Total Reward SystemTotal Reward Strategies should include• Direct Financial• Indirect Financial• Identification• Work Content• Career Opportunities
Amity Business SchoolRewards can fail in the form of incentives – Kohn• Pay is not a motivator• Rewards punish• Rewards rupture relationships• Rewards ignore reasons• Rewards discourage risk taking• Rewards undermine interest
Amity Business SchoolECONOMIC THEORY OF WAGES
Amity Business School ECONOMIC THEORIES1.Social Subsistence Wage fund Residual ClaimantWage Theory Theory TheoryTheories Marxian Theory2.Justification Marginal Supply and CompetitiveTheories Bargaining Productivity Demand Theory Theory Theory Theory3.Behavioral Employee’s Internal Wage Wage and Acceptance Structure MotivationTheories level
Amity Business SchoolLIMITATIONS OF ECONOMIC THEORY Wages and Prices are either fully fixed or fully flexible. Assumption of Full Employment Wages could be influenced by factors other than wages too. Wage and Benefits reflect Industry characteristics and personal characteristics. Interference by government Technology and Productivity are major determinants Pressure for linking labour standards with International Trade.
Amity Business SchoolWAGES AND SALARY ADMINISTRATION AT MICRO LEVEL
Amity Business School Policies Techniques Objectives Work Description INTERNAL EFFICIENCY ALIGNMENT analysis STRUCTURE -Performance -QualityCOMPETITVENESS Market Surveys PAY STRUCTURE -Customers -Costs Seniority Performance/ INCENTIVE CONTRIBUTION FAIRNESS Based Merit Based PROGRAMS MANAGEMENT Costs Communication EVALUATION COMPLIANCE
Amity Business SchoolINTERNAL ALIGNMENT Dependent of Internal Pay Structure Levels Differentials Criteria -Content and Value -Use Value and Exchange Value -Job and Person Based
Amity Business SchoolEXTERNAL COMPETITIVENESSFactors Shaping External CompetitivenessLabour Market•Nature of Demand•Nature of SupplyProduct Market Factors EXTERNAL•Degree of Competition COMPETITIVENESS•Level of Product DemandOrganisation Factors•Industry, Strategy, Size•Individual Manager
Amity Business SchoolCONTRIBUTION Seniority Based Performance Based Pay Merit Guidelines
Amity Business SchoolMANAGEMENTManaging Labour Cost -Controlling Employment -Controlling av. Cash CompensationCommunication -Managing the MassagePay -Change Agent in Restructuring
Amity Business SchoolWAGE CONCEPT
Amity Business SchoolWAGE AND SALARY Wage: Index of productivity Definition of Wage Wage vs Salary
Amity Business SchoolROLE OF VARIOUS PARTIES INCOMPENSATION & REWARD MANAGEMENT
Amity Business SchoolROLE OF EMPLOYERS Ability to pay Cost effect Wage costs Unit labour costs Cost reduction
Amity Business SchoolROLE OF EMPLOYEES Ability to live and work Price effect Wage levels Effort put in Wage maximization
Amity Business SchoolROLE OF THE GOVERNMENT Five Year Plans & Wage Policy Legal Framework -Payment of Wages Act 1936 -Minimum Wages Act 1948 -Payment of Bonus Act 1965 -Equal Remuneration Act 1976 Unilateral Pay Fixation Pay Commissions Wage Boards Adjudication
Amity Business SchoolROLE OF UNIONS Collective Bargaining (Levels) Sectoral Bargaining at National Level Industry-cum- Region wide Agreements Decentralized Firm/ Plant Level Agreements
Amity Business School LEGISLATIONS AFFECTINGCOMPENSATION
Amity Business SchoolACTS AFFECTING COMPENSATION Payment of Gratuity Act, 1972 The Workmen’s Compensation Act, 1923 The Contract Labor (R & A) Act, Article 43 of Constitution Of India All acts with Wage or Salary or any compensation betweenthe Employer and Employee