Introduction Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The good compensation will also serve the need for attracting and retaining the best employees.
CompensationCompensation is the remuneration received by an employee inreturn for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetarybenefits to employees.
Needs For Compensation When managed correctly, it helps the organization achieve its objectives and obtain, maintain, and retain a productive workforce. Compensation is a key factor in attracting and keeping the best employees and ensuring that your organization has the competitive edge in an increasingly competitive world. Without adequate compensation, current employees are likely to leave and replacements will be difficult to recruit. The outcomes of pay dissatisfaction harm productivity and affect the quality of work life.
Compensation System Indirect Direct Protection Programs Base Pay Medical Insurance Salary Life Insurance Wage Disability Income Merit Pay Pension Social security
Cont.. Indirect Direct Pay For Time Not Incentive Pay Worked Bonus Vacations Commission Holidays Piece Rate Sick Leave Profit Sharing Jury Duty Stock Option Shift Differential
Cont.. Indirect Direct Services And Deferred Pay Perquisites Savings Plan Recreational Stock Purchase Facilities Annuity Car Financial Planning Low-Cost or Free Meals
Employee Satisfaction And Motivation IssuesIn Compensation Design People have no basic or Instinctive need for money, A commodity that is important only if it can satisfy others needs. Organization frequently overestimate the value workers place on monetary reward. For example : If money were the primary motivation for working why would hourly employees object to over time, given the premium rate of pay associated with it??? The EQUITY and EXPECTANCY theories can help explain employees reaction to compensation systems
Equity Theory Equity is balance between the inputs an individual brings to a job & the outcomes he or she receives from it. Employees inputs includes experience, education, special skills, efforts and time worked. Outcomes includes pay, benefits, achievement, recognitions, and any other rewards. Inputs and outcomes are in different units, and are hard to compare to each other directly. Equity theory suggest that individuals determine whether they are being fairly treated by comparing their own inputs/outcomes ratio to the input/outcome ratio of others.
Cont…Person Comparison OthersMy Rewards(outcomes) Other’s Rewards EquityMy Contributions(inputs) Other’s ContributionMy Rewards(outcomes) Other’s Rewards InequityMy Contributions(inputs) Other’s Contribution (under reward) Action to restore equity from Under – reward Inequity Person could ask for a raise in salary. Person could reduce contributions (work less hard) Person could try to get others to increase contribution(work harder) Last resorts : quit or choose another comparison other.
Cont..My Rewards(outcomes) Other’s RewardsMy Contributions(inputs) Other’s Contribution Inequity(over reward) Action to restore equity from Over –Reward Equity Person could increase contribution Person could ask for a pay cut Person could attempt to get other a raise Person could attempt to get other to reduce his or her contribution Last restore quit the job or choose another comparison
Designing equitable compensationsystem Three element of equity can be distinguished as external, internal and individual. External equity refers to comparison of similar jobs in different organizations. Internal equity refers to the relationship among the jobs within a single organization. Individual equity refers to comparison among the individual in the same job with the same organization
Internal equity To measure the value of jobs in relation to organizational objectives rewards are usually based on important components to make one job worth more than other these aspects called compensable factors. The five most frequently used job evaluation methods are: Job ranking Job grading The points method and Factor comparison
Job evaluation methods..The major purpose of job evaluation is to determine relative worth of the jobs within an organization.Basis for job hierarchy Non quantitative QuantitativeJob v/s job Job ranking Factor comparisonJob v/s scale Job grading Point method
External equity There is no absolute way to rate pay for a job Setting pay rates, organization seek to integrate the external information with what they have learnt through internal evaluation of jobs this process is called pricing the wage structure. Wage and salary surveys Identifying key jobs Selecting organization to survey Collecting data Pay level policy
Individual equity Wage grades are established and all the jobs within the grade are paid identically. Designing pay ranges Establishing pay ranges Broad branding Above and below range employees Setting individual pay Seniority Merit pay Skilled based pay
Linking pay to performance“Employers believes that reward in general and incentives in particular influence performance.” Reason to link pay to performance Motivation Expectancy Instrumentality Valence Retention Productivity Cost savings Organizational objectives
Benefits The major reason for the increased attention in benefits is costs. Role of benefits: To attract new employees To retain the customers Types of benefits: Mandatory protection programs Social security Unemployment compensation Workers compensation
Cont.. Types of benefits Compensation for time not work Holidays Vacations Sick leave Personal days Other leave
Other benefits Child care assistance Wellness program Educational assistance Insurance benefits Workers Retirement benefits Social security Pension plan Cash balance pension plan Early retirement plan
Examples of different organizationscompensation and benefits plan Google Procter & Gamble Apollo Wipro
Google Health care , plus on-site physician and dental care Vacation days and holidays, and flexible work hours Maternity and parental leave Adoption assistance Google Child Care Center Fuel Efficiency Vehicle Incentive Program Employee discounts Onsite dry cleaning
Procter & Gamble Financial Benefits & Compensation Health & Family-Friendly Benefits Vacation & Personal Time-Off Employee Engagement. Community Involvement
Apollo Hospitals Benefits include the traditional medical and dental. 401k, company-paid life insurance. Child care subsidies Flex time Educational assistance and Professional development programs.
Wipro Flexible Benefits. Medical Assistance Plan and Medical claim benefits. Group Life Insurance Program and Employee Deposit Linked Insurance (EDLI) Program. Wipro Cares “Mitr” Kids @ Wipro (fun way of learning) Fit for Life. Eco Eye.