Compensation & benefits


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Compensation & benefits

  1. 1. Compensation and Benefits ( Session 2) Source : Personnel Management by C.B.Memoria & Strategic human resource management (publisher prentice hall)
  2. 2. Employee Compensation The term employee compensation includes remuneration, incentives, fringe benefits and retirement benefits The term employee remuneration includes both wages and salaries.  Wages are commonly considered as the price of labour paid to the workers for the services renderd to the organisation employing them. Where the quantum of services rendered is difficult to measure the payment is called salary. Generally the wage period is shorter that the salary period.
  3. 3. Definitions : Compensation, wage & salary Compensation : money received in the performance of work plus benefits and services that organization provide. Money comes under direct compensation Benefits are indirect compensation Salary refers to the weekly / monthly rates paid to clerical, administrative & professional employees (White collar workers) Wage (pay) : is the remuneration paid for the service of labor in production, periodically to an employee/ worker Wages usually refer to the hourly rate paid to such group as production and maintenance employees (Blue collar employees)
  4. 4. Definitions : Wage levels & structure Wage levels represent the money an average worker makes in a geographic area or in his organization Wage levels are only a average: specific markets or firms and individual wages can vary wildly from the average Wage structure is used to describe wage / salary relationships within a particular grouping The grouping can be according to occupation or organization
  5. 5. Three Concepts of Wages 1) Minimum Wage – A Minimum wage which is sufficient tosatisfy at least the minimum needs of a worker 2) Fair Wage – Fair wage are equal to that received by workers performing work of equal skill, difficulty or unpleasantness. 3) Living Wage – Is the highest amount of remunrationa dn it would includes the amenities which a citizen living in a modern civilised socially is entitled to expect, when tha econmoy of the country is sufficiently advance and the employer is able to meet the expanding aspirations of his workers.
  6. 6. Purpose of Compensation Ensure Equity Contribution based Remuneration Attract talent Effective Compensation Administratively Efficient Institutionalized Processes Motivate & Retain Staff Reward Valued Behavior Legal Compliance
  7. 7. Factors influencing wage & salary structure The organizations ability to pay Profits Economic conditions sector Supply & demand of labor The prevailing market rate What competitors pay Laws Trade unions want parity irrespective of geographies Functionally related firms need to pay same pay for same skills Quantity & quality gets affected if prevailing market rate is not given
  8. 8. Cost of living Minimum pay criterion Escalator clauses Living wage Higher than minimum wages Based on opinion on how much needed to sustain worker & family Sore point in negotiations Productivity Difficult to pinpoint who / what is responsible
  9. 9. Trade union’s bargaining power Stronger unions force high hikes If subsequent productivity rise is not enough, company will lose our Job requirements Difficult jobs pay better Skill, effort, responsibility & job conditions help to grade jobs Managerial attitudes What the CEO desires Psychological and sociological factors Wage levels are equated with success
  10. 10. Goals of Compensation Plans • Employers are able to attract and retain employees who will contribute to the organization’s success • Employees feel they are compensated/rewarded fairly/equitably for their efforts and contributions to an organization’s success
  11. 11. Human Resource Services Total Compensation Employee Benefits 3770 Beardshear Hall Employee Satisfaction Supportive Corporate Culture Executive Sponsorship Rewards Benefits • Bonus • Health Plans • Salary Increases • Retirement Plans • Promotions • Vacation/ time off Salary • Equity Offerings • Awards • Pay • Recognition • Overtime (if in non-exempt • New job assignments classification) • Paid Training • Working Hours
  12. 12. What Factors Determines Pay • Employer considerations – Where employers compete for talent – local or national – What talents an employer competes for – the skill/knowledge level – How strongly the employer wants to compete • Lead the market • Meet the market • Lag the market
  13. 13. Employer Challenges • Structuring employee benefit packages that meet the needs of • • • • • a diverse workforce – one size does not fit all Helping existing employees understanding the “value” of their benefits Administering benefit programs – costly and timeconsuming. Not a profit-making venture! Continued rising health care costs Limited budgets – Benefits average 25% - 40% of Payroll in most organizations Government restrictions/legislation/public policy
  14. 14. General Concepts • Publicly traded companies will tend to structure pay/benefits that incorporate more equity (stock options, savings match in company stock, bonus tied to company performance, etc) • Non-publicly traded companies/organizations will spend more on non-cash incentives • Governmental organizations will on average spend more on benefits in lieu of salary
  15. 15. Fringe Benefits The term fringe benefits refers to various extra benefits provided to the employees, in addition to the compensation paid in the form of wage or salary.
  16. 16. Types of Fringe Benefits For Employment Security – Unemployment insurance, technological adjustment pay, leave travel pay, over time pay, maternity leave, holidays, jobs to sons / daughters etc. For Health Protection – Accident Insurance, Disability Insurance, Health Insurance, Hospitalisation, Life Insurance, Medical care, Sick Benefits, Sick Leave etc. For Old Age & Retirement – Deferred Income plans, Pension, Gratuity, Provident Fund, Old Age Assistance, Medical for retired employees, travelling concessions to retired, jobs to children of the deceased etc. For Personal Identification , Participation & Stimulation – Anniversary Awards, Attendance bonus, canteen, Co-op Credit Societies, Educational facilities, housing, recreational , safety measures etc.
  17. 17. Laws Affecting Employee Benefits and Compensation • Fair Labor Standards Act (FLSA) • Employee Income Retirement Security Act of 1974 (ERISA) • Age Discrimination and Employment Act (ADEA) • Family Medical Leave Act (FMLA) of 1996 • Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 • Health Insurance Portability and Accountability Act of 1996 (HIPAA) (and amendments) • Pension Protection Act of 2006 • many, many others
  18. 18. Evolution of Industrial Policy  Industrial Policy Resolution 1948 Outlined the approach to industrial growth and development Emphasized the importance of securing a continuous increase in production and ensuring its equitable distribution.  active role for the State in the development of Industries. State monopoly: Arms and ammunition, atomic energy and railway transport State exclusively responsible for the establishment of new undertakings in six basic industries-except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise.  Industrial Policy Resolution 1948 Rest of the industrial field open to private enterprise though the State would also progressively participate in this field.
  19. 19.  Industrial Policy Resolution 1956 - Objectives: Improvement in living standards and working conditions for the mass of the people. Reduction in income and wealth disparities Prevention of private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals.  Industrial Policy 1973 - Certain structural distortions called for policy changes in IPR 1956. Compulsory export obligations, merely for ensuring the foreign exchange   Industrial Policy 1977 - Emphasis on developing smalll scale industries and making adequate marketing arrangements. upgrading the technology of small units. Promoting the development of a system of linkages between nucleus large plants and the satellite ancillaries 
  20. 20.  The Industrial Policy Statement 1980 - Formulated wrt the Industrial Policy Resolution of 1956 to provide for (i) Optimum utilization of installed capacity; (ii) Maximum production and achieving higher productivity; (iii) Higher employment generation; (iv) Correction of regional imbalances; (v) Strengthening of the agricultural base through agro based industries and promotion of optimum intersectoral relationship; (vi) Promotion of export-oriented industries  INDUSTRIAL POLICY 1991 - Govt . recognizes the need for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India India to grow as part of the world economy and not in isolation Greater emphasis placed on building up ability to pay for imports through our own foreign exchange earnings development and utilization of indigenous capabilities in technology and manufacturing as well as its up gradation to world standards.
  21. 21. Reward Management Definition - Reward Management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization”(Armstrong and Murlis 2004)
  22. 22. Objectives of Reward Management Support the organisation’s strategy Recruit & retain Motivate employees Internal & external equity Strengthen psychological contract Financially sustainable Comply with legislation Efficiently administered
  23. 23. Basic Types of Reward Extrinsic rewards satisfy basic needs: survival, security Pay, conditions, treatment Intrinsic rewards satisfy higher needs: esteem,development
  24. 24. Reward Options Base pay--fixed or minimum wage/salary Plussage--capability, qualification Premia/Overtime Performance related pay Indirect pay--benefits, non-cash, shares Non-monetary: recognition, advancement “Total Reward” Pay, non-pay, flexible hours, cafeteria benefits
  25. 25. Rewards by Individual, Team, Organisation Individual: base pay, incentives, benefits rewards attendance, performance, competence Team team bonus, rewards group cooperation Organisation profit-sharing, shares, gain-sharing
  26. 26. Closing Thoughts • How employees are “compensated” takes many forms – salary, benefits, working conditions, challenging/stimulating work, co-workers, etc. The right “mix” for each person is different • Pay policies will differ for every employer – some will focus on cash compensation and some will focus on Total Compensation • The employer’s main goal is structuring compensation and benefit programs is to be able to attract and retain the right employees needed to help the employer be competitive
  27. 27. Closing Thoughts • Employee benefits have huge budget impacts to employers • Benefits are the “hidden paycheck” for employees • Employees need to understand the “total compensation” an employer provides – not just the “salary.” Employers need to sell Total Compensation – not just salary • Employees need to be “educated consumers” of benefit programs – especially health care and retirement programs • Employees should take advantage of retirement plan offerings and save early (time value of $$) – and always save enough to at least take advantage of employer’s matching contribution