M2( Com Pension Management)

8/3/2019 M2( Com Pension Management)

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Module 2:



Understand the concept of CompensationManagement:

Explore the role of compensation inorganisations:



What is it? How is it going to help?

Who does it help?



Compensation management is an integralpart of the management of the organisation.

Compensation is a systematic approach toproviding monetary value to employees in

exchange for work performed. It may achieve purposes. WHAT PURPOSES? Compensation management, also known as

wage and salary administration, remuneration

management, reward management. It is also concerned with designing and

implementing total compensation package.



According to Stephen P. Robbins,“Compensation management is a process of determining cost effective pay structure,designed to attract and retain, provide an

incentive to work hard, and structures toensure that pay levels are perceived as fair”.



How can we attract andretain the right people?

How do we motivate and

develop employees?How do we pay for

performance?



The objectives of compensation management are to help theorganization achieve strategic success while ensuring internal and

external equity. Internal equity ensures that more demanding positions or better

qualified people within the organization are paid more.

External equity assures that jobs are fairly compensated incomparison with similar jobs in the labor market. Sometimes these

objectives conflict with one another, and trade-offs must be made. ACQUIRE QUALIFIED PERSONNEL:

RETAIN CURRENT EMPLOYEES:

ENSURE QUALITY:

REWARD DESIRED BEHAVIOR:

CONTROL COSTS: COMPLY WITH LEGAL REGULATIONS:

FACILITATE UNDERSTANDING:

FURTHER ADMINISTRATIVE EFFICIENCY:



Important work related variables leading to job satisfaction includechallenging work, interesting job assignments, equitable rewards, competentsupervision, and rewarding careers.

It is doubtful, however, whether , many employees would continue workingwere it not for the money they earn.

Employees desire compensation systems that they perceive as being fair andcommensurate with their skills and expectations.

Further more in todays’ business world of low wages and salary increases,PAY has become an increasingly significant consideration for employees asthey strive to maintain their standard of living.

Therefore PAY is a major consideration in HRM because it providesemployees with a tangible reward for their services, as well as a source of recognition and self-esteem.

Employee Compensation includes all forms of pay and rewards received byemployees for the performance of their jobs.

Direct Compensation encompasses employee wages and salaries, incentives,bonuses, and commissions.

Indirect compensation comprises the many benefits supplied by employers,and non financial compensation includes employee recognition programs,rewarding jobs, organizational support, work environment etc.



What is strategic compensation planning?

In simple words, it is the compensation of employees in ways that enhancemotivation, and growth, while at the same time aligning their efforts with the

objectives, philosophies, and culture of the organisation. Strategic CP goes beyond determining what market rates to pay to

employees, although market rates are one of the elements of compensationplanning.

For example in 2006, Microsoft Corporation, in the wake of managerialdiscontent, boosted the efficiency of its pay system by linking compensationpayments to important business needs. An employee survey conducted in2007 showed that employees now saw a stronger connection between payand performance and the accomplishment of business goals and objectives.

According to Gerald Ledford and Elizabeth Hawk, two compensationspecialists note, “companies throughout the economy have begun rethinktheir compensation systems in search for competitive advantage”.

Additionally SCP serves to mesh the monetary payments made to employeeswith specific functions of the HR program. For example: in the recruitment of new employees, the rate of pay for jobs can increase or limit the supply of applicants.



There are three important aspects of compensation planning:

1) linking compensation to organizational objectives:

2) the pay for performance standard:

3) motivating employees through compensation:

LINKING COMPENSATION TO ORGANIZATIONAL OBJECTIVES:

In the present day scenario compensation has been influenced by domesticcompetition, globalization, increased employee skill requirements and newtechnology.

Hence, an outcome of today’s dynamic business environment is that managershave to change their pay philosophies from paying for a specific position or job

title, to rewarding employees on the basis of their individual competencies orwork contributions to organizational success.

PAY –FOR –PERFORMANCE STANDARD:

A pay for performance standard serves to raise the productivity and lower labourcosts in today’s competitive economic environment.

Without this standard, motivation to perform with greater effort will be low.

The term “pay-for-performance” refers to wide range of compensation options,including merit-based pay, bonuses, salary commissions, etc.

However, designing a sound pay-for-performance system is not easy.Considerations must be given to how employee performance will be measured.Other concerns include which employees to cover, the payout method etc.



MOTIVATING EMPLOYEES THROUGH COMPENSATION:

Pay constitutes a quantitative measure of an employee’s relative worth.

For most employees, pay has a direct bearing not only on their standard of living, but also on the status and recognition they may be able to achieveboth on and off the job.

Since, pay represents a reward received in exchange for an employee’scontributions, it is essential that the pay be equitable in terms of thosecontributions.

It is also important that an employee’s pay be equitable in terms of what

other employees are receiving for their contributions.



Compensation and Reward system plays vital role in a businessorganization.

Since, among four Ms, i.e. Men, Material, Machine and Money, Menhas been most important factor, it is impossible to imagine abusiness process without Men.

Every factor contributes to the process of production/business. Itexpects return from the business process such as rent is the returnexpected by the landlord, capitalist expects interest and organizer

i.e. entrepreneur expects profits. Similarly the labour expects wages from the process.

Labour plays vital role in bringing about the process of production/business in motion.

The other factors being human, has expectations, emotions,

ambitions and egos. Labour therefore expects to have fair share in the

business/production process. Therefore a fair compensation systemis a must for every business organization.



An ideal compensation system will have positive impact on the efficiency andresults produced by employees. It will encourage the employees to performbetter and achieve the standards fixed.

It will enhance the process of job evaluation. It will also help in setting up anideal job evaluation and the set standards would be more realistic andachievable.

Such a system should be well defined and uniform. It will be apply to all thelevels of the organization as a general system.

The system should be simple and flexible so that every employee would be

able to compute his own compensation receivable. It should be easy to implement, should not result in exploitation of workers.

It will raise the morale, efficiency and cooperation among the workers. It,being just and fair would provide satisfaction to the workers.

Such system would help management in complying with the various laboracts.

Such system should also solve disputes between the employee union andmanagement.

The system should follow the management principle of equal pay.



It should motivate and encouragement those who perform betterand should provide opportunities for those who wish to excel.

Sound Compensation/Reward System brings peace in the

relationship of employer and employees. It aims at creating a healthy competition among them and

encourages employees to work hard and efficiently. The system provides growth and advancement opportunities to the

deserving employees. The perfect compensation system provides platform for happy and

satisfied workforce. This minimizes the labour turnover. The

organization enjoys stability. The organization will be able to retain the best talent by providing

them adequate compensation thereby stopping them from switchingover to another job.

The business organization can think of expansion and growth if ithas the support of skillful, talented and happy workforce.

The sound compensation system is hallmark of an organization’ssuccess and prosperity. The success and stability of organization ismeasured with pay-package it provides to its employees.

M2( Com Pension Management)

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