Compensation Management fundamentals
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Transcript of Compensation Management fundamentals
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Compensation Management
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Compensation
It refers to a wide range of financial and non
financial rewards to the employees for the
services rendered to the organisation .
a) Transactional rewards
b) Relational rewards
All forms of financial returns and tangible
services & benefits employees receive as part
of an employment relationship
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Objectives of Wage &Salary
Administration
To attract competent personnel
To retain the present employees
To improve productivity
To improve efficiency
To control Costs
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To ensure fairness
To improve union-management relations
To improve the public image of thecompany
Comply with legal regulations
Objectives of Wage &Salary
Administration
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Essentials of sound wage
and Salary structure
Internal Equity
External Competitiveness
Built in incentive
Link with productivity
Individual worth
Increments
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Wage & Salary Administration
It presents the analytical framework for reward systems the
It presents the analytical framework for reward systems the
company level which includes financial & non
company level which includes financial & non-
-financial
financial rewards , employee benefits, incentives & their link with
rewards , employee benefits, incentives & their link with
productivity. It summarizes the key issues in the wage system
productivity. It summarizes the key issues in the wage system
from the point of view of the key actors in the industrial
from the point of view of the key actors in the industrial
relations system
relations system workers, unions, managements & the
workers, unions, managements & the
government.
government
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Theory of Equalizing Differences
This theory states that wage differentials occur
as the result of intrinsic properties of specific
occupations that require wage compensation
for negative job traits or are compensated for
with non-pecuniary positive traits.
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Human Capital Theory
It seeks to explain wage differentials as a
consequence of differing human capital stocks
that determine an individuals marginal
productivity.
Human Capital Theory explains wage
differentials as a byproduct of productivity
differentials
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Human capital
Human Capital is the stock of knowledge,
skills, aptitudes, education, and training that an
individual or a group of individuals possess
It is all those skills that are acquired through
education, but also talents, I.Q. ,practical
experience, etc.
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Types of Human Capital
1. General human capital
transferable to every other job and thus
improves overall productivity and thus wage
2. firm-specific human capital
not transferable to any other firm and therefore
does not improve productivity and thus wagesanywhere else
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Human Capital Theory
Individuals who invest money and time gain
skills that improves their human capital andultimately their productivity.
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Internal Labor Markets
ILM focuses on the long-term relationships ofemployers and employees and the gains to be made
by both parties by continuing to operate with oneanother
ILM theory argues that firms benefit frommaintaining good relationships with their employeesand visa versa
Reduction of costs
Employees benefit from improved employmentstability and the chance for increased wages andpromotions.
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Devaluation Theory
Wage differentials as a result of biases towards
those employed and earning wages.
Devaluation Theory suggests that the wage
difference stems from the bias of the wage
payer, the firm. Bias from those gauging
productivity could result in women earning
less
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Reward Policies
Reward Policies provide guidelines for
implementation of the reward strategies and
aids in designing and managing the reward
processes
It indicates how the management should behave
in various issues related to Reward
management
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Reward Policy
2.Market rate and Equity:-A policy should
be formulated on the extent to which rewards
are market driven rather than equitable.It is possible to use market supplements to the
rate of the job as determined by job
evaluation which reflect market rates
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Reward Policy
3.Attraction and Retention-Golden hellos
and golden hand cuffs to attract and retain
high quality people ie having a totalreward policy.
To attract prospective employees, factors
for specific occupations should beanalysed .
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Reward Policy
Retention policiesshould take into account
the major retention issues the company is
facing and sets out ways by which the issues
can be dealt with
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Reward Policy
4.Relating rewards to business performance:-
The rewards can vary according to results.
This policy includes guidelines on how gain
sharing and profit-sharing schemes shouldoperate in the company
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Reward Policy
5.Total reward Policy:-assesses the
importance of the non-financial rewards and
how they should complement the financialawards.
6.Contingent Reward:- this policy states
whether the company is willing to pay forcontribution, skill, performance ,competence
etc and if so, to what extent and under what
circumstances.21
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Reward Policy
7.Assimilation policies:-When new pay
policies are introduced, measures to be
taken to assimilate existing employees intoit. This policy should state, where should
they be placed and what needs to be done if
their present rate is above or below the new
scale.
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Reward Policy
8.Flexibility:- The extent to which the
organisation wants to introduce benefits in
response to the fast changing business
conditions.
9.The role of Line managers:- The policy will
cover the level of decisions, the line manager
can make and the guidance that should begiven to them
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10.Transpaency:-Employees will be satisfied
only if they know what is the criteria for
rewards and how they are used to determine
their pay and their methods of pay progression.
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Reward Policy
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Reward Policy
11.Involve employees:- Reward policies are
more likely to be understood and will be
more effective if employees are also given a
voice in the design and management of thepolicy.This is very much applicable to job
evaluation and relating pay to the performance
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Reward Policy
12.Communicating to employees:- Reward
processes in an organisation is a powerful
media to convey messages relating to theorganisational goals to the employees. This
will convey to the employees how their total
remuneration package is made up
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Wage - Definition
Money paid to the workers is considered aswages
The wage is the payment made to the
workers for placing their skill and energy atthe disposal of the employer.
The method of use of that skill and energy
being at the employers discretion andamount to the payment being in accordance
with terms stipulated in an contract of
service.27