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Q1. What are the elements of compensation? Ans. The primary elements of a compensation package are: i. Base Pay: Base Pay is the fixed rate of compensation that an employee receives for performing the standard duties and assignments of a job. Employers need to ensure that base-pay programs are designed to reveal market practices within their identified competitor group. To achieve this organisations must first identify their competitive market. This can be achieved by considering different factors, including the nature of the industry, geographic location, total employment and annual revenue. Next, they need to conduct an assessment of market pay practices for similar jobs within the recognized competitor group. This assessment should involve the duties, skills, and impact levels of each job evaluated that is, each job of similar size and scope. Then a pay structure for managing the competitive base-pay levels for the jobs throughout the organization should be developed. Pay structues typically consists of series of pay ranges or bands that reveal competitive rates of pay for specific jobs, as well as allowing room for salary growth. Jobs of similar value from both the market point of view and an internal point of view are together. Then a competitive pay range is developed around the market rates for the particular jobs. ii. Variable Pay: Performance based variable pay continues to achieve momentum as a more successful way to identify and reward employees performance. Also known as pay-per-performance, variable pay is popular in todays corporate world. By including percentage of variable pay in the compensation plan, organisations ensure that two people with different efficiency levels do not get the same benefits. By doing this the company rewards productivity and hardwork and motivates the under-performers to work hard. Once limited to senior management levels, the incentives and bonus plans are redesigned to reward the achievement of specific company or employee performance objectives. In a variable pay plan the size of award varies among the employees and from one performance period to another, based on levels of achievements measured, as well as against pre-established company and employee performance targets. Amounts are usually calculated as a percentage of base-pay depending on Job category and position. Rewards are normally paid in cash on an annual, semi-annual or quarterly basis depending on the plan design. Plan designs range from sales-commission types to individuals incentive or bonus plans or team awards. The main idea of these programs is to reward innovation and hard work and to discourage mediocrity in performance. Skill and Competency-based pay: Skill-based pay offers employees extra compensation when they have new skills especially recognized by the company as essential to achieve a competitive advantage. Skill-based pay can be particularly useful for employees who like their current jobs are looking for new challenges. Competency-based pay is more widespread than skill-based pay because the criteria cover not only measurable skills but also knowledge, performance behaviours and personal attributes. It helps out employees to grow in the company and helps them to close the knowledge gaps needed for creative moves.
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Teleworking: Employees work from home on all the days of the week via telecommunications. This flexi-time arrangement has a lot of benefits for both the employers and the employees. The benefits for the employees are: Provides an opportunity for workers who are disabled. Working parents can meet their family obligations. Saves commuting time. Provides time and location flexibility. Reduces job related stress and also interruptions at the workplace. The benefits for the employers are: Influences employees in a positive way. Improves productivity. Reduces absenteeism. Improves employee job satisfaction, job performance and work quality. Reduces costs related to environmental requirements, time, space, employee safety, relocation of the employees, and productivity. Helps in retention of voluntary workforce, women and baby boomers. Companies can terminate contingent workers services more easily. With respect to compensation and benefits paid to the flexible workforce, most companies pay an hourly wage, which is fixed on the basis of the complexity of work as well as the skill sets of the employee. No amount of paid leave, insurance and legally required benefits like gratuity and retirement benefits are paid.
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