Compensation management


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Compensation management

  1. 1. Compensation Issues and management
  2. 2. What is Compensation • Compensation is the process of directly and indirectly rewarding employees on a current or deferred basis, for their performance of assigned tasks. • Compensation is a systematic approach to providing monetary value to employees in exchange for their work performed.
  3. 3. Compensation Types • • Direct Compensation Indirect Compensation
  4. 4. • Direct Compensation • Wages and Salary • Incentives or payments by resultsIndividuals incentives schemes group incentives schemes • Fringe benefits – provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform , recreation etc.,
  5. 5. • Perquisites – allowed to executives and company car, club membership, paid holidays, furnished house, stock option schemes etc.
  6. 6. • Indirect Compensation It refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.
  7. 7. Goals of Compensation • • • • • • Acquire qualified personnel Retain current employees Ensure equity Reward desired behaviour Control costs Facilitate understanding
  8. 8. How is Compensation used? • 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.
  9. 9. Compensation Administration
  10. 10. Main Issues In Compensation • How much should companies pay to attract, retain, and motivate employees? • Should they pay salaries or variable rewards? • Should they provide benefits, and if so, to what extent? • What's an appropriate discrepancy between the pay for high and low performers?
  11. 11. Forms of Equity External Equity Internal Equity Individual Equity Procedural Equity
  12. 12. Methods to solve Equity Issues Salary Surveys Methods to Address Equity Issues Job Analysis and Job Evaluation Performance Appraisal and Incentive Pay Communications, Grievance Mechanisms, and Employees’ Participation
  13. 13. Pay-Structures • Once job analysis has been done organizations need to decide upon the pay structures. • Pay structure refers to the process of setting up the pay for a job in an organization.
  14. 14. • The process deals with internal and external analysis to estimate the compensation package for a job profile.
  15. 15. Salary-Surveys • Organizations have to bridge the gap between the industry standards and their salary packages. They cannot provide compensation packages that are either less than the industry standards or are very higher then the market rates. •
  16. 16. • For the purpose they undertake the salary survey. The Salary survey is the research done to analyze the industry standards to set up the compensation strategy for the organization.
  17. 17. Objectives of Salary Survey •To gather information regarding the industry standards • To know more about the market rate i.e. compensation offered by the competitors • To design a fair compensation system • To design and implement most competitive reward strategies • To benchmark the compensation strategies
  18. 18. Job Analysis • Job analysis is a systematic approach to defining the job role, description, requirements, responsibilities, evaluation, etc. • This is necessary to set a rationale pay structure for specific position.
  19. 19. Job Evaluation • The process of determining how much a job should be paid, balancing two goals – Internal Equity: Paying different jobs differently, based on what the job entails – External Competitiveness: Paying satisfactory performers what the market is paying
  20. 20. Methods for Evaluating Jobs Ranking Job Classification Point Method Factor Comparison
  21. 21. Recent Trends • Broad banding – Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. – Pro and Cons • More flexibility in assigning workers to different job grades.Provides support for flatter hierarchies and teams. • Promotes skills learning and mobility. • Lack of permanence in job responsibilities can be unsettling to new employees
  22. 22. • Employee Stock Ownership Plans (ESOP) • Employee Stock Ownership Plan (ESOP) is an employee benefit plan. The scheme provides employees the ownership of stocks in the company. • It is one of the profit sharing plans. Employers have the benefit to use the