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Mohan Madgulkar
Compensation
Cash and non-cash rewards employees receive in exchange for their work Effective compensation management
Employees more likely to be satisfied and motivated
Total Reward
Base pay Recognition Total Reward
Skills
Financial rewards
NonTotal remuneration
Development
Benefits
Objectives of Compensation
Administrative efficiency Acquire personnel Retain employees
Legal compliance
Effective Compensation
Ensure equity
Control costs
Reward behaviour
Motivating development
Relating to performance
Setting goals
The concept
Wages and salaries constitute the greatest single cost of doing business. Establishing equitable and competitive pay structure is important from attracting point of view . the organization can also hold out the possibility of varying compensation, the payment of which is dependant on specific behavior. Supplementary pay plans ( fringe benefits ) can retain the employees in the organization on a long term basis
The concept
Development, implementation, maintenance , communication and evaluation of reward processes Assessment of relative job values, the design and management of pay structures, performance management, paying for performance, competence or skills , the provision of employee benefits and pensions, management of reward procedures
Mohan Madgulkar-Compensation Management/2006
Support the achievement of organizations strategic and short term objectives Support culture management and change Drive and support desired behavior Encourage value added performance Promote continuous development Compete in employment market Motivate all members of the organization Promote teamwork Promote flexibility Provide value for money Achieve fairness and equity
The organizational structure Employee relations Technology Operational processes and working methods Management practices as a function of business strategy, culture, technology and operations Employment practices External environment
Statutory minimum wage Wage determined in accordance with the provisions of the Minimum Wages Act, 1948 Minimum Wage Living Wage
Compensation issues
Wage and salary levels Wage and salary structures Individual wage determination Incentive payments Fringe benefits Compensation of mangers and professionals Control
Mclelland
Adams
Vroom
If individual believes that improved performance will lead to more pay, higher levels of motivation will result; if extra effort required to attract more pay (expectancy) individual can make a decision whether or not to work harder.
Pay has a strong impact on the employees standard of living, it is a status symbol and important in comparisons to others Employer:
Critical in attaining strategic goals
Impact on employee attitudes and behaviours Significant organisational cost
Compensation Challenges
Prevailing wage rates
Government constraints
Compensation Challenges
Union power
Productivity
Modern
Variable component added
Entitlement-base increases
Few incentive/bonus plans, restricted to executives
Performance-driven gains
Many kinds of plans, extended throughout the organization
Compensation Management
Phase I Job Analysis
Compensation Management
Phase I Job Analysis Phase II Job Evaluation
Determine relative worth or value of jobs Provides for internal equity Job evaluation methods:
Job ranking Job grading Point system
Compensation Management
Phase I Job Analysis Phase II Job Evaluation Phase III Salary Surveys
Discover what other employers are paying for specific key jobs Provides for external equity
Sources of data:
HRDC Consultants Canada HR Centres Associations Self-conducted surveys
Compensation Management
Phase I Job Analysis Phase II Job Evaluation Phase III Salary Surveys Phase IV Pricing Jobs
Match
Grouping the different pay levels into a structure that can be managed
Job classes and rate ranges
Job Evaluation
Job analysis
The process of collecting, analyzing and setting out information about jobs in order to provide the basis for a job description or role definition and the data for job evaluation , performance management and other HR management purposes Detailed and systematic study of information related to the operations and responsibilities of a particular job. Anatomy of the job
Role analysis
Role analysis covers the collection of information about the job contents and job demands as in job analysis ,but goes beyond these details to look at the part people play in carrying out their roles rather than the tasks they carry out. It is concerned not only with the job content, but also the broader aspects of behavior expected of role holders in achieving the overall purpose of their roles
Mohan Madgulkar-Compensation Management/2006
Job evaluation
The purpose of job evaluation is to
Provide a rational basis for the design and maintenance of an equitable pay structure Help in the management of existing relativities Enable consistent decisions to be made on grading and rates of pay Establish the extent to which there is comparable worth between jobs
Job evaluation
A comparative process A judgmental process An analytical process A structured process
A new paradigm
Todays business environment
Role based. Employees required to do what is needed rather that what is prescribed and to manage themselves Flatter organizational structures , little vertical advancements, need for employees to gain broader perspective Self managed teams More knowledge workers
Traditional JE
Job based. Work is valued based on narrow job descriptions which are defined and strict boundaries of authority and accountability are delineated Communicate values of hierarchy and bureaucracy by driving empire building behavior , rewarding vertical , rather than horizontal growth. Employees may be reluctant to accept new positions when the new job has fewer points Focus on individual contribution Measure task size
JE basic methodology
Benchmark jobs
For internal assessment and external matching
Job and role analysis Job evaluation process Develop a pay structure
Analytical
Factor comparison Point Factor Rating
Job-scale
Classification
Steps
Advantages
Quick and cheap
Disadvantages
Does not measure differences between jobs, not acceptable in determining equal worth in an equal value case
Job classification
Steps
Decide on number and characteristics of grades Compare whole job with grade definition and allot jobs to grades
Advantages
Easy, cheap, easily understood
Disadvantages
Cannot cope with complex jobs or borderline cases Not acceptable in equal value cases
Mohan Madgulkar-Compensation Management/2006
Point-Factor Plans
The most commonly used type of job evaluation method Make the criteria for comparisons explicit, unlike ranking and classification The criteria for classification (the compensable factors) are related to the strategy of the business; they are the factors valued by or of high worth to the firm
Mohan Madgulkar-Compensation Management/2006
Point-Factor Plans
Point factor plans all include three elements:
Compensable factors are defined Degrees or level of each factor are given numerical rankings Factors weighted as to their relative value to the organization
Job worth is measured by the total number of points The steps to follow:
Job analysis Determine compensable factors Scale the factors Weight the factors Communications and documentation Apply the plan
Compensable Factors Characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives
Based on the work performed Based on the strategy and values of the organization Acceptable and considered to be fair by all concerned parties
As a result, compensable factors should be developed by each organization, rather than using an off-the-shelf plan Basic group of compensable factors:
Skill Effort Responsibility Working conditions
Contacts
25
50
75
100
125
150
Officially known as the Hay Guide Chart-Profile Method of Job Evaluation, this system utilizes three factors to arrive at a jobs evaluation. The jobs content is the sole basis for the job evaluation. The Hay method of job evaluation is generally understood to be a point plan, although Hay itself does not define the guide chart-profile method as a variation of the point method. The Hay guide charts have been in existence since 1951 and have been used in over 5,000 different organizations worldwide.
Mohan Madgulkar-Compensation Management/2006
Therefore, the job holder To achieve this end requires a level of knowledge result, job holders must and experience commensurate address problems, create, with the scale and complexity analyse and apply of the deliverable judgement
Accountability
KNOW-HOW
ACCOUNTABILITY
Thinking Environment
Freedom to Act
Thinking Challenge
Area of Impact
Nature of Impact
A guide chart is used for each of the three factors containing descriptive scales for each element and a numbering pattern based on a 15 % step difference , which is an important building block in making comparisons between jobs. Job size is the sum of the results from the three factors. In addition , an explicit judgment is made about the balance between the factors in each job the profile which provides a valuable consistency check.
Mohan Madgulkar-Compensation Management/2006
Compensation structure
A pay structure provides framework within which an organization defines the different levels of pay for jobs or groups of jobs on the basis of their relative internal value and of external relatives.
Broadbanding
Collapse narrow salary grades into wide bands.
20 grades reduced to 4 to 5 bands. 40-60% ranges increased to 100-250%
Broadbanding
Compressing a hierarchy of pay grades or salary ranges into a number of wider bands Typically no more than five or six bands Wide pay spans Market pricing used to define reference points Focus on lateral career development and competence growth
Broadbanding
What are the advantages and disadvantages of broadbanding?
Broadbanding
IV 40%
$85K
40%
$35K
Advantages of Broadbanding
Facilitate Lateral career moves
Enhanced flexibility for transfers Cross-functional teams with fluid duties
Salary Surveys
Contingent Pay
Contingent pay covers the various methods of providing additional rewards for individuals or teams
Define the objectives Analyze the existing situation Decide on the involvement of line managers, team leaders, employees , trade unions. Consider alternative designs Consider process elements Produce overall design Prepare implementation program Implement communication and training programs Implement the plan Evaluate the impact of the plan
Mohan Madgulkar-Compensation Management/2006
Disadvantages
Is not the only motivator Is not an effective motivator Can demotivate May deliver the wrong message Problems of measuring performance Relies on managerial judgment which may be partial Emphasizes quantity at the expense of quality Is prejudicial to teamwork May be discriminatory May not deliver value for money May not be appropriate Is too often taken on trust May be right in principle but is hard to make work in practice
Appropriateness
Well researched competency framework exists Criteria are available for the measurement/assessment of competencies The organization is concerned with the development of competence levels Managers and staff are properly briefed and trained on the assessment of competence
Performance Management
A business process intended to ensure alignment of group and individual efforts for achievement of continuous business improvement How much and how??
Mission
Vision of future
Strategic organizational goals Core Organizational Capabilities Performance Development & planning
Mohan Madgulkar-Compensation Management/2006
3
Formal assessment And pay link
1
Individual / team goal setting And planning
Write performance goals/ plans Write development plan for current Performance goal and future interest Select coaches
2
Ongoing progress review And coaching
Objectives
Achieve competitiveness through pay increases which are more related to productive measures as a way of absorbing increased labor costs, while at the same time rewarding and motivating employees
Types
Individual based Profit sharing Gain sharing Employee share ownership
Elements
Adequate criteria to measure performance which is understood communicated and accepted Appropriate performance appraisal system Regular feedback of performance Appropriate quantum of pay which is subjected to performance criteria Periodic evaluation Recognition to factors outside the control of employees
Mohan Madgulkar-Compensation Management/2006
The benefits to management and employees are: where performance/profits increase, higher pay is an incentive to employees where profits reduce, the reduction in the performance-related pay can cushion employees against redundancies employee identification with the success of the business is enhanced variations in pay lead to employees becoming more familiar with the fortunes (or misfortunes) of the business. This would depend on the information-sharing practices of the management.
Guidelines
A performance pay system should be designed to promote the kind of performance an organization needs. In order to do so an analysis should first be made of the objectives and results sought the principles/policies and practices needed to obtain the results (e.g. team work) should be established these policies and practices should form part of an overall human resource management strategy. Employees should be consulted in the formulation of the plan (to ascertain the type of rewards most likely to have motivational effect), in regard to its operation and distribution of rewards, and in monitoring the scheme.
Guidelines ( contd.)
The criteria for the determination of performance pay should be objective measurable and measure only what is important that it is operated along with an appraisal system which measures performance appropriately designed to feed back information to employees, and not only to management easily understood related to what is controllable, so as to exclude what is beyond the control of employees. The intrinsic reward system should be strengthened if need be, e.g. through consultation, communication, participatory systems training job satisfaction and responsibility reorganization of work processes
Guidelines ( Contd.)
How the performance pay is shared is as important as the quantum, because the manner of sharing affects employees' perceptions as to whether the scheme is equitable. The impact of the scheme also depends on the frequency of the payment. Therefore the reward should follow the performance as soon as possible. The scheme should be given wide publicity within the enterprise. The performance level should be achievable or else the scheme will have no motivational impact. The quantum of pay on account of performance which is placed at risk (i.e. the amount that can be lost due to poor performance) should be carefully determined. At the same time the scheme should be sufficiently flexible to absorb downturns and adequately reward when performance is good.
Rewarding Contribution
What do we really mean by Contribution related pay and how is it different from PRP? What are the key building blocks? What do you have to do to get this right?
A New Direction?
FROM Pay for performance People as costs Tends to focus on individual One Dimensional results focus Rewards immediate past performance Little recognition of motivation research Or the key role of line managers Simplistic Tends to be controlled by HR Pay links usually a fixed formula
TO
Pay for Contribution Discretionary effort-people as assets Focus on team and individual Investment in skills/behaviours for the future Results matter too but look at interdependencies Draws on commitment/ engagement/motivation research Capability is crucial Tends to be owned by users Variety of reward methods
Key Elements
Constructive focus Clear rules of the game on personal and pay progression Based on:
an agreement on deliverables/results and acquisition and use of competences required for current role e.g. IT skills behaviours acknowledged as key to success (e.g. customer orientation, respect for others, partnership working, developing others) base pay progression and variable pay best fit for level/role
Performance management as the key vehicle for continuing dialogue on delivery and development
A Virtuous Cycle
Planning Performance Managing Performance
Coaching Counselling Feedback and day-to-day planning meetings Self monitoring Monitoring training & development activities
Rewarding Performance Praise Promotion/Job enrichment Links to individual and/or team pay Prizes Special Awards Other forms of recognition
Reviewing Performance Formal review of performance Performance measurement Formal team feedback sessions Individual self-review Peer group and upwards appraisal 360 degree
Low
Level of Intervention
We want to improve our appraisal scheme We want to integrate competencies and/or skills in our appraisal process We want to ink up our PM process to other initiatives/ processes e.g. Investors in People, Business Process Redesign, Business Planning, EFQM A holistic process with explicit links to other initiatives/ processes 360 feedback usually involved
High
We want to transform how we operate Business Process Reengineering
AIMS
Feature of PM Process
An integrated management process covering four phases Planning, Managing, Reviewing and Rewarding
PM process part of an integrated HR project Pay, Work Definition, Organisation Change, Benefits Management
LOW
Not Relevant
Decisions on Rating
Total Ownership
Management Capability
HIGH
Clarity about organisational strategy and plans and requirements they will make on:
Departments, teams and individuals
Values that recognise that how can be as or more important as what Skill/competence frameworks that support delivery and are well understood Learning and development resources Sound performance management processes Clear pay progression rules linked to roles/levels (often in job families) Capable managers who praise achievement and confront contribution shortfalls
Mohan Madgulkar-Compensation Management/2006
Competencies A Reminder
Dr Sharpe Same Skills What I can do Knowledge What I know Social Role How I see my job Self Image What I value in myself My Traits My non-conscious patterns of behaviour My Motives Where my excitement comes from Outcomes
2.2/8
Same
Dr Hart
Helps people get better Healer Sitting by Caring bed Power Earlier discharge
Contribution Rating
Rating is only important where contribution level is directly linked to pay decisions. The approach to rating depends on the purpose and emphasis of the performance management process:Individual Remuneration Organisational Contribution Qualitative Indicators Individual Development Where rating is judged essential, a 5-point scale is often used. This may be expressed in numbers, letters and descriptors e.g. A 1 +2 Outstanding B 2 +1 Superior C 3 0 Fully Acceptable D 4 -1 Incomplete E 5 -2 Marginal/Not Proven Words and psychology matter a lot! Exceptional contribution Consistently high level of contribution A good years work Acceptable contribution, some shortcomings Contribution less than acceptable/learner/ achiever
Quantitative Judgments
Team-based Pay
Team Definition (Katzenbach & Smith, 1993) Group of employees whose members are mutually accountable to each other for common goals. Team members interact on a regular basis. There is the possibility of synergy between team members. Size of team is between 2 and 25 members.
Mohan Madgulkar-Compensation Management/2006
Project Team
Project is limited by completion time such as new product design or construction project. Delivery time, budget variance and design quality are some criteria. Full-time commitment; after project team members are reassigned to different projects.
Mutual Monitoring
Provide performance feedback to team members.
Mohan Madgulkar-Compensation Management/2006
Meaning of perquisites
An element of compensation provided in addition to cash which can directly facilitate more effective performance for the job, as well as augmenting the total value of compensation The term perquisites should be reserved for those benefits which are not fundamentally catering personal security and personal needs.
Objectives of benefits
To increase the commitment of the employees to the organization To provide for the actual or perceived needs of employees To demonstrate that the company cares for its employees To ensure that an attractive remuneration package is provided which attracts and retains high quality staff To provide tax-efficient method of remuneration which reduces tax liabilities with those related to equivalent cash payments
Benefits policies
Range of benefits to be provided Scale of benefits provided Proportion of benefits to total remuneration Allowing choice Allocation of benefits Harmonization Market considerations Government policy Trade unions
Major categories
Payment for time not worked Hazard protection Employee services Legally required payment
Tax considerations
A tax efficient remuneration package can benefit both employers and employees. From the employees perspective it can enhance the benefits of working for that employer, from the employers point of view, it can mean reduced costs. In the past , tax efficiency was one of the main reasons for the proliferation of benefits, but it has become progressively less important as governments have tightened up the fiscal rules relating to employee benefits. Because fiscal regulations are constantly changing, it is essential to update the information related to tax law for salaried persons.