Chap 10.1 Compensation

8/3/2019 Chap 10.1 Compensation

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Compensation management concept

Fringe benefits

Incentives


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It refers to wide range of financial and non-financialrewards to employees for their services rendered to the

organization.Compensation

Financial Non- Financial

wages salaries Family Picnic

Dinner/lunch

with boss

Company car

Employee benefits

Paid vacationsInsurance

Maternity leave Free travel facilities

Retirement benefitsHRA


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Attracting and retaining personnel

Motivating personnel

Optimizing cost of personnel

Consistency in compensation


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Organizations strategy

Evaluation and review

Analysis of contingent factor

Job analysis and evaluation

Compensation policy

Design and implementation of compensation plan

Compensation Management Process


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Componentsof

Compensation

Wage

andsalary

Incentives

FringeBenefits

Perquisites


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Workers or blue

collared employees

It is usually paidon hourly or dailybasis.

White collaredemployees includingmanagerial

personnel monthly basis.

Wages Salary


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Additional payment

Linked withproductivity

Individual or groupbasis

Variable pay

Additional benefitsgiven irrespectiveof performance

Having long termeffect Provident fund

Gratuity

Pension

Medical allowance

Incentives Fringe benefits


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Componentsof

Compensation

Wage

andsalary

Incentives

FringeBenefits

Perquisites

Provided to managerialpersonnel

To facilitate job

performance or toretain them

It includes

Car

Club membership

Free residential

accommodation


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DimensionsPay for work

and

performance

Disability

income

continuation

Deferred

income

Health,

accident,liability

protection

Pay for

time notworked

Loss of

job

Spouse(family)

continuation

Income

equivalent

payments

Monetary Dimensions of Compensation


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Enhance dignity and satisfaction from work

performed Leads to self worth and pride in making a

contribution

Allocate sufficient resourced to perform work

assignments Provide necessary information and skills

Maintain job related interest and satisfaction

Offer supportive leadership and management

Skills and interests in coaching and counseling

Praise for the job well done

Constructive feedback

Flexible policies, rules and regulations


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Enhance physiological health, intellectual growth andemotional maturity

Safe working environment Minimization of noxious fumes

Avoidance of extreme heat, cold, humidity conditions

Elimination of disease related material

Design jobs that require adequate attention and effort

Problems related to monotonous jobs, boredom Flexibility in job requirements

Rotating work assignments

Opportunity to schedule workdays and workweeks

Grant sufficient control over the job to meet personaldemands Opportunity to participate in decision making process

Scheduling work activities

2 part time employees to share one full time job

Casual dress day


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Internal and external factorresponsible for compensation


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Nature of HR market

Cost of living

Trade union

Legal framework

demand & supply, productivity,prevailing markets rates

Allowance given to maintain social

Status according to place

Union bargains with managementWeapons-strikes, gheroes etc.

Guidelines given by laws aboutEg. wages act 1936


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Demand and supply

Productivity

Prevailing market rate ofwages

Demand for skill up prices will alsoProductivity constant

Efficient employees paid higher

Compare wages with othercompanies' to retain and gain talent


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Nature of HR market

Cost of living

Trade union

Legal framework

demand & supply, productivity,prevailing markets rates

Allowance given to maintain social

Status according to place

Union bargains with managementWeapons-strikes, Gheroes etc.

Guidelines given by laws aboutEg. wages act 1936


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Organizational strategyand attitude

Ability to pay

Nature of jobs

Nature of personnel

compensation dependsupon earning

Difficult job higher compensationJob evaluation is done

It determine the organizationalattitude and hence its remuneratio

Employee related factorsPerformance, seniority, special skill


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They are supplementary compensation overand above base compensation and consistsof incentives and variable paymentsaccording to individual or group output.

They are tangible benefits either in the formof cash or other kinds

Eg: housing, traveling allowance, facility ofrefreshment and lunch etc


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Statutory Benefits Mandatory and provided by all the

organizations

E.g.: paid holiday leaves

Voluntary Benefits

Determined by the individualorganizations on their own

E.g.: transportation facilities, child care,


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Payment for time not worked Eg: payment for weekly-off day, Gazetted

holiday, Personal leave

Retirement Benefits Provident Fund Scheme Pension Scheme Gratuity

Compensation benefits Injuries during the course of employment Death during the course of employment


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Insurance Benefits Eg: medical benefit, disability benefit,

maternity benefit etc

Health and Safety provisions

According to Factories Act, 1948:

Health Safety

Welfare Working hours

Recreational and other Benefits Eg: Telco in Jamshedpur provide excellent

townships


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1. Indian industries have recognized theimportance and are also providing suchbenefits but progress in this area has notbeen very encouraging.

Reason- industrial development started latehere in comparison to developed nations i.eonly after 1947 and most of the industries arestill not in position to offer a great benefitsdue to low profits


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INCENTIVE PLANS-Incentive wagesrelate earnings to productivity andmay use bonuses, premiums or avariety of rates to compensate forsuperior performance.


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Incentives

Positive &

Negative

Individual &

Collective


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Types of incentive plan

For White

collared

employee

Salary Commission Combination

For blue

collared

employee

Group

incentive

Individual

incentive


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Wage and Incentive plan for

blue collared employees

Piece wage Time wageWage incentive

plan

Groupincentive

Co-

partnership

ESOPProfit

sharing

Cafeteria

compensation

Individualincentive

Based on

time

Halsey

plan

Rowan

plan

Based on

productivity

Gantt

plan


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It is the right given to employee topurchase a fixed number of sharesof company stock at a specified pricefor a limited period of time.

It gives the employees an ownershipof the company due to which he canparticipate in the companys affaires


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It offers an option to purchase a certain ofstock in the future at a stated price or in thepresent at a price lower than the marketprice.

Makes the employee a part owner of company Mutuality of interest is created between the

individual and the company

Stocks are held in an employee stockownership trust until the employee choosesto withdraw from the plan or wants to leavethe company


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Esos i.e. employee stock option scheme, is a

voluntary scheme on the part of the company toencourage employees participation in the company

Suitable percentage of reservation can be made bythe issue of the employees of the company

Under existing guidelines- 5% of the new issue maybe reserved for the esos subject in a maximumlimit of 200 shares per employee who agree to

participate the esos

Membership of the esos should be restricted onlyto the permanent employees of the company


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1. Profit sharing means a system to distributea portion of the profits of the organizationto employees.

2. It is an agreement by which employeesreceive a fixed portion of profit.


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1. Agreement between employers andemployees for sharing of profit

2. Bonus paid to employees in addition totheir wages and profit as an incentive for

higher performance3. Workers share only profits not the losses

4. Criteria for distribution of profits isdecided well in advance-based on theposition of an employee in an organization


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1. Industry basis- profits of a number of industrial units

in the same industry may be group together todetermine the share for the laborers.

2. Unit basis- simplest way of giving a labourer a share inthe profits of individual undertaking in which he isemployed

3. Department basis- workers in a particular departmentshare in the profits made by that department.

4. Locality basis- industrial units in particular locality may

pool their profits to determine labours remunerationby profit sharing.

5. Individual basis- a worker receives a proportion of theprofit which may have been earned by a businessthrough the effort of that individual worker.


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Gainsharing is a system that includes:

(1) A financial measurement and feedback systemto monitor company performance against anagreed benchmark and distribute gains in theform of bonuses when appropriate, and

(2) A focused involvement system to eliminatebarriers to improved company performance.


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1. Purpose- In gain sharing the purpose is to drive performance of aorganization by promoting awareness, alignment, teamwork,communication and involvement whereas in profit sharing thepurpose is to share the financial success of the total organizatioand encourage employee identity with company success.

2. Application- In gain sharing The plan commonly applies to a singlefacility, site, or stand-alone organization whereas in profitsharing The plan typically applies organization-wide

3. Measurementin gain sharing Payout is based on operationalmeasures (productivity, quality, spending, service) whereas inprofit sharing Payout is based on a broad financial measure of thorganizations profitability.


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4. Funding- in gain sharing Gains and resultingpayouts are self-funded based on savingsgenerated by improved performance whereas inprofit sharing Payouts are funded through

company profits

5. Employee eligibility- in gain sharing Typically allemployees at a site are eligible for plan paymentswhereas in profit sharing Some employee groupsmay be excluded, such as hourly or unionemployees


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Principle choose your own reward

Employees are allowed to select their ownincentives schemes from a variety ofpossibilities this arrangement is known assmorgas Board

This program requires more informationto be provided to employees bymanagement.

Help employees to make correct decision.


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HALSEY-WEIR PREMIUM PLANBonus =(1/2) time saved x hourly rate

ROWAN PREMIUM PLAN

Bonus =Saved time x Actual time taken x Rate perhour

Standard time

BEDEAUX POINT METHOD

Value of time saved =(S-T) x RBs

where,S =Standard time R =Rate of wages

T =Actual time Bs= Bedeaux point


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A smart compensation planwith right mix of monetaryand non-monetarycompensation can motivatethe employees to stretchtheir limits and performbeyond expectation

leading to higher productivityand profits

Good communication anduniformity of procedure is thekey to success of such plans


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Compensation management bySoffia Dube


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Chap 10.1 Compensation

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