The compensation strategy is derived from the HR
Strategy and it defines the position of the organization on
the job market, the level of the total cash, the main bonus
principles in the organization and rules for the base
I. Following tasks are performed-
•Model the changes from a proposed salary or compensation
reorganization, based on market values, to evaluate the cost of
moving the workforce up to market levels.
•Create new types of variable compensation to help motivate the
workforce, and evaluate the cost impact.
•Target special compensation plans for specific groups of employees,
such as executives, salespeople, or workers with mission-critical job
II. Following tasks are performed:
•Model compensation cost changes
based on forecasted workforce growth
•Establish a merit matrix or other rules for pay out of annual base
•Determine what types of performance goals or related pay out
rules we need for any base compensation or variable compensation
types in the compensation plan.
•Examine the compensation cost effects based on organizational
performance indicators, for periodic bonuses and so on.
•Set proposed compensation budgets for
departments or business units.
•Allocate compensation pools across
organizations, special classifications, groups, and individuals.
Compensation Strategy Importance
•Manage the personnel expenses of the
•Gives the certainty to the HR employees
and HR managers
•Acts as the basic document
POSITION BASED MODEL
Fixed pay model
Compensation based on attributes and
challenges of position
Based on grade structure and
Motivation through high compensation
Encourage a bureaucratic orientation.
Entails top-down decision making and
Costly and time consuming
May not reward desired behaviour
PERSON BASED MODEL
Personal and professional attributes
necessary for for effective performance
Based on individual’s skills, knowledge and
Pay for what employee is capable of
doing and not what he actually
Retain competent employees
Difficult to determine market
PERFORMANCE BASED MODEL
To develop a Productive, Efficient, and Effective organization
to increase employee Motivation and Performance.
To keep Employee engaged throughout their work as they
are rewarded based on the outcome of their work.
ESSENTIALS FOR EFFECTIVE PAY
VISION- Organization must have a clear purpose for
establishing pay for performance programme.
ALIGNMENT- Organization should consider that compensation level
should match with the level of performance desired or achieved.
HOLISTIC APPROACH- Human Resource create competitive
advantage for their organization, as a result integrated compensation
strategy should be formulated.
TOP MANAGEMENT COMMITMENT- The words and action of top
management is essential for success of pay for performance ,so that
people may not lose confidence and belief while at work.
Its difficult to successfully implement in
It induces the employees to manipulate the
compensation system, as only those aspects of the
job will be seen which can directly be rewarded,
instead of seeing the other equally valuable tasks.
Inculcate a habit of looking at short- term goals for
making more money.
Often they doubt against the fairness and sensitivity
of pay as they feel personal biasness.
Highly dependent upon having enough money to
The use of extrinsic motivation may
erode intrinsic motivation which
COMPENSATION STRATEGIES IN
India maintains its Labour
India continues to maintain its labour cost
advantage relative to the US, with fixed
compensation levels for entry-level and
mid-career professionals ranging between
15% and 25% of US base salaries.
INDIA IS DIVERSE, SO ARE ITS
Just as India is a highly diverse nation-made up of
multiple languages, religions, ethnic groups, and
custom spread across a tremendous geographic
range- so too are its compensation practices
Double digit fixed compensation increases
As overall economic growth moderates in India, fixed
compensation(salary) increase budgets are slowing down
Increasingly, compensation professionals will need to
reconcile between specific cases where practices might
differ widely from macro trends.
For ex-offering 25%annual increase to a group of key
employees in India, while others in the same location
receive 5% to 10% increases.
Tackle work avoidance(position based model)
Inducing greater effort(performance based
Performance based model best because it
controls not only the type but also rate at which
activities are performed.