Compensation management


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Compensation management

  1. 1. Compensation Management <ul><li>Payroll involves large sums of money </li></ul><ul><li>Pays systems are therefore an integral part of the business strategy </li></ul><ul><li>The pay debate as to whether the best way of rewarding service is through pay is far from settled. </li></ul>
  2. 2. Objectives of Compensation System <ul><li>A large sum of money is invested in people </li></ul><ul><li>Design rests on what must the company achieve. </li></ul><ul><li>System therefore needs to attract good employees by structuring packages that tempt people to do the job </li></ul>
  3. 3. Achievement of the Objectives are Determined By : <ul><li>Top managements willingness to recognise ability and effort of individual employees </li></ul><ul><li>Top managements Commitment and philosophy regarding pay </li></ul><ul><li>Operating Labour markets forces </li></ul><ul><li>Collective bargaining Process </li></ul><ul><li>Government legislation and rules </li></ul>
  4. 4. Designing a Compensation System <ul><li>Traditional way of paying was done by ignoring the interaction of organizational members and buying employees time by the hour. </li></ul><ul><li>No Incentives, rewards etc </li></ul><ul><li>In a rewarding environment , people work hard. </li></ul><ul><li>Today we value employees. </li></ul>
  5. 5. The Rewarding Environment Includes <ul><li>How does this benefit practice benefit the organization ? </li></ul><ul><li>Does the benefit offset the administrative costs? </li></ul><ul><li>If we discontinued this practice, would that adversely affect the organization’s performance? </li></ul><ul><ul><li>This gives off a holistic picture of the organization. </li></ul></ul>
  6. 6. Elements of Total Compensation <ul><li>Direct compensation is the fixed pay an employee receives on a regular basis, either in the form of a salary or as an hourly wage. </li></ul><ul><li>It includes cash incentives and various share offers from employers. </li></ul><ul><li>The defining factor is that it has a cash value. </li></ul><ul><li>Designed to reward employees for good performance. </li></ul><ul><li>Can be monetary or non-monetary. </li></ul><ul><li>Can also include medial aid, pension, provident fund etc. </li></ul><ul><li>Perquisites or perks are a special category of benefits and are only available only to employees with some special status, such as upper – level managers. </li></ul>
  7. 7. Principles of Value-Chain Compensation <ul><li>Companies need to look at compensation as a value-creating function. </li></ul><ul><li>It creates value for the organisation and employees. </li></ul><ul><li>Balances the four major compensation objectives which include: </li></ul><ul><ul><li>Sustaining management </li></ul></ul><ul><ul><li>Motivating performance </li></ul></ul><ul><ul><li>Building employee commitment </li></ul></ul><ul><ul><li>Encouraging growth in employee’s skills </li></ul></ul>
  8. 8. Principles of Reward Strategy <ul><li>Pay for performance </li></ul><ul><li>Links to other levers of organisational change such as providing recognition when deserved </li></ul><ul><li>Reward measurable competencies </li></ul><ul><li>Match incentives to the company culture </li></ul><ul><li>Keep incentives clear and simple </li></ul><ul><li>Over-communicate the reward strategy for the best results </li></ul><ul><li>The greatest incentive is the work itself as employees want to be recognised for the work they do and the contributions they make </li></ul>
  9. 9. Model for Compensation System
  10. 10. Job- Based Compensation Plan Route
  11. 11. Traditional Pay Systems <ul><li>Traditionally people were paid primarily through base (basic) salaries determined by specific job, the need to maintain a certain level of internal pay equity an the need to pay externally competitive salaries. </li></ul><ul><li>Employees were not encouraged to develop skills. </li></ul><ul><li>Most of salary structures had various other components. </li></ul>
  12. 12. Emerging Pay Systems <ul><li>Pay for knowledge and skills </li></ul><ul><li>Pay for competencies </li></ul><ul><li>Performance based pay </li></ul><ul><li>Incentive pay systems </li></ul><ul><li>Broadbanding = rather than climb up through a series of grades, employees might spend most of their careers in a single band moving laterally and acquiring new knowledge and competence. Useful in ‘boundaryless’ organisation. </li></ul>
  13. 13. Employee Benefits <ul><li>Items in the total package offered to employees over and above salary which increase their wealth or well-being at some cost to the employer </li></ul>
  14. 14. Voluntary Benefits <ul><li>Most of these benefits have certain legislative minimums. </li></ul><ul><li>Vacation leave </li></ul><ul><li>Paid public holidays </li></ul><ul><li>Time for personal matters </li></ul><ul><li>Sick leave </li></ul><ul><li>Maternity leave </li></ul><ul><li>Health and life insurance </li></ul><ul><li>Medical Aid Schemes </li></ul><ul><li>Pension Funds </li></ul><ul><li>Employee Services e.g. Canteens, social, and recreational services </li></ul>
  15. 15. Benefit Planning and Flexible Benefit Plans <ul><li>Establish objectives </li></ul><ul><li>Collect complete descriptive data on the current workforce </li></ul><ul><li>Determine how much money is available in the budget </li></ul><ul><li>Determine what programmes fit your objectives, your workforce and your budget </li></ul><ul><li>Determine what your employees need and want </li></ul><ul><li>Decide what you will provide and what you will actually spend in total </li></ul><ul><li>Determine options and costs, of admin, management and communication </li></ul><ul><li>Plan how the above will be accomplished </li></ul><ul><li>Implement the above </li></ul>
  16. 16. Advantages of Flexible Benefits Programme <ul><li>The company can set the sum total of benefits for each employee </li></ul><ul><li>The changing needs of the workforce are catered for </li></ul><ul><li>Employees take ownership for their choice of benefits by satisfying their own unique needs </li></ul><ul><li>It is less costly for the organisation when an employee adds a new benefit </li></ul>
  17. 17. Disadvantages of Flexible Benefits <ul><li>Without proper assistance employees can make bad choices and find themselves not covered for emergencies </li></ul><ul><li>Company administrative costs increase </li></ul><ul><li>The cost of some benefits may increase as a result of a majority of employees choosing the benefit </li></ul>
  18. 18. Calculating the Costs of Employee Benefits <ul><li>The total annual costs of benefits for all employees </li></ul><ul><li>Cost of benefits per employee per annum </li></ul><ul><li>Percentage of the payroll (total costs of benefits divided by the annual wage) </li></ul><ul><li>Costs per employee per hour </li></ul><ul><li>Other Benefits </li></ul>
  19. 19. What to Consider when Considering Costs <ul><li>There is little evidence that benefits really encourage improved performance, or increase employees’ job satisfaction </li></ul><ul><li>Costs of employee benefits and services have increased dramatically </li></ul><ul><li>Employers are required by law to introduce certain programmes </li></ul><ul><li>So-called voluntary programmes are constantly under pressure from labour unions, competitors and the industry to improve on employee benefits and services </li></ul>
  20. 20. Benefits Strategy <ul><li>The Trend-setter </li></ul><ul><li>Comparable Benefits </li></ul><ul><li>Minimum Benefits </li></ul>
  21. 21. Compensation Systems and Quality Assurance <ul><li>Compensation benefits will shift towards base rates with top-up incentives based on performance, such as gain share,profit share etc. </li></ul><ul><li>Increased flexibility will become evident in remuneration packages. </li></ul><ul><li>Remuneration packages will become more tax-effective. </li></ul><ul><li>Remuneration will be linked to teams rather than to individuals </li></ul>