Report On

Prepared By: Submitted To:

Rabeka Nazim Sir Mehmood Shah

Indus Institute of Higher Education (IIHE)

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 Acknowledgement
First of all I am very thankful of Allah who is merciful .he gave me power to
complete this report after that I am very thankful of my course teacher who ha s
gave me opportunity to fulfill this target.

I hereby submit my report on the “Salary & Compensation Module”. In

preparing this report, I wish to extend our gratitude towards the management of
Indus institute who have provided us the opportunity to attend this course “Salary
and Compensation”.

Further I am highly indebted to my teacher, as without his guidance, cooperation

and patience, I would have not been able to effectively apply my skills to this
report.

Sincerely

Rabeka Nazim

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 Table of Content
Introduction …………………………………………………………………. 4

Compensation (Definition) …………………………………………………. 5

How is compensation used ………………………………………………….. 5-6

What are the components of compensation ……………………………….. 6-7

Components of compensation system………………………………………. 7

Types of compensation ……………………………………………………… 8-11

Need of compensation management ……………….................................... 11

Strategic compensation …………………………………………………….. 12

Employee compensation ……………………………………………………. 12

Compensation & benefits, practices, programs and policies ………….… 12-20

Component & objective of organization reward system ………………… 20-21

Determinants of pay structure & level ……………………………………. 21-22

Minimum wages rate……………………………………………………….. 22-23

Payments of wages …………………………………………………………. 23-25

Policy issues in pay planning & administration …………………………. 25-29

Guidelines for effective orient-pay system ……………………………….. 28-29

Compensation module for an organization ………………………………. 29-33

Reference ……………………………………………………………………. 33

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 Introduction
Compensation is the Human Resource Management functions that deal with every type of

reward that individuals receive in return for performing organizational task. It is basically an

exchange of relationships. Employees exchange their labor for financial and nonfinancial

rewards. Financial compensation is both direct and indirect.

From the employees’ point of view, pay is a necessity of life. The compensation received from

work is one of the chief reasons people seek employment. Pay is the means by which people

provide for their own and their families’ needs.

Compensation is one of the most important HRM functions for the employer too. Compensation

often equals 50 percent of the cash flow of an organization and for some service organization it

is even larger percentage. Historically, compensation systems, including benefits management

have been concerned with ensuring that people were equitably paid, that wage rates were

competitively set and that benefit plans were approximately administered.

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Compensation Definitions
"If you pick the right people and give them the opportunity to spread their wings - and put

compensation and rewards as a carrier behind it - you almost don't have to manage them."

Or

Compensation is a systematic approach to providing monetary value to employees in exchange

for work performed. Compensation may achieve several purposes assisting in recruitment, job
performed and job satisfaction.

How is compensation used?

Compensation is a tool used by management for a variety of purpose to further the existence of
the company. Compensation may be adjusted according the business needs, goals and available
resources. Compensation is a tool used by management for a variety of purposes to further the
existence of the company. Compensation may be adjusted according the business needs, goals,
and available resources.

Compensation is used to:

 Recruit and retain qualified employees.

 Increase or maintain morale/satisfaction.
 Reward and encourage peak performance.
 Achieve internal and external equity.
 Reduce turnover and encourage company loyalty.
 Modify (through negotiations) practices of unions.

Recruitment and retention of qualified employees is a common goal shared by many employers.
To some extent, the availability and cost of qualified applicants for open positions is determined
by market factors beyond the control of the employer. While an employer may set compensation
levels for new hires and advertise those salary ranges, it does so in the context of other
employers seeking to hire from the same applicant pool.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that
must be reached between the monetary values, the employer is willing to pay and the sentiments

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of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries
or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to
reduce employee turnover may seek to increase salaries and salary levels.
Compensation may also be used as a reward for exceptional job performance. Examples of such
plans include: bonuses, commissions, stock, and profit sharing, gain sharing.

What are the components of a compensation

system?
Compensation will be perceived by employees as fair if based on systematic components.
Various compensation systems have developed to determine the value of positions. These
systems utilize many similar components including job descriptions, salary ranges/structures, and
written procedures.
The components of a compensation system include:

 Job Descriptions A critical component of both compensation and selection systems, job
descriptions define in writing the responsibilities, requirements, functions, duties,
location, environment, conditions, and other aspects of jobs. Descriptions may be
developed for jobs individually or for entire job families.
 Job Analysis The process of analyzing jobs from which job descriptions are developed.
Job analysis techniques include the use of interviews, questionnaires, and observation.
 Job Evaluation A system for comparing jobs for the purpose of determining appropriate
compensation levels for individual jobs or job elements. There are four main techniques:
Ranking, Classification, Factor Comparison, and Point Method.
 Pay Structures Useful for standardizing compensation practices. Most pay structures
include several grades with each grade containing a minimum salary/wage and either step
increments or grade range. Step increments are common with union positions where the
pay for each job is pre-determined through collective bargaining.
 Salary Surveys Collections of salary and market data. May include average salaries,
inflation indicators, cost of living indicators, salary budget averages. Companies may

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 purchase results of surveys conducted by survey vendors or may conduct their own salary
surveys. When purchasing the results of salary surveys conducted by other vendors, note
that surveys may be conducted within a specific industry or across industries as well as
within one geographical region or across different geographical regions. Know which
industry or geographic location the salary results pertain to before comparing the results
to your company.

Compensation Management:
Compensation is the remuneration received by an employee in return for his/her contribution to
the organization. It is an organized practice that involves balancing the work-employee relation
by providing monetary and non-monetary benefits to employees.
Compensation is an integral part of human resource management which helps in motivating the
employees and improving organizational effectiveness.

Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives.
Compensation system is designed on the basis of certain factors after analyzing the job work and
responsibilities. Components of a compensation system are as follows:
• Job analysis
• Salary structures
• Pay structure

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Types of Compensation
Compensation provided to employees can direct in the form of monetary benefits and/or indirect
in the form of non-monetary benefits known as perks, time off, etc. Compensation does not
include only salary but it is the sum total of all rewards and allowances provided to the
employees in return for their services. If the compensation offered is effectively managed, it
contributes to high organizational productivity.

 Direct Compensation            
 Indirect Compensation 

Direct Compensation         
Direct compensation refers to monetary benefits offered and provided to employees in return of
the services they provide to the organization. The monetary benefits include basic salary, house
rent allowance, conveyance, leave travel allowance, medical reimbursements, special
allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

   

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Basic Salary
Salary is the amount received by the employee in lieu of the work done by him/her for a certain
period say a day, a week, a month, etc. It is the money an employee receives from his/her
employer by rendering his/her services.

House Rent Allowance

Organizations either provide accommodations to its employees who are from different state or
country or they provide house rent allowances to its employees. This is done to provide them
social security and motivate them to work.

Conveyance
Organizations provide for cab facilities to their employees. Few organizations also provide
vehicles and petrol allowances to their employees to motivate them.

Leave Travel Allowance

These allowances are provided to retain the best talent in the organization. The employees are
given allowances to visit any place they wish with their families. The allowances are scaled as
per the position of employee in the organization.

Medical Reimbursement
Organizations also look after the health conditions of their employees. The employees are
provided with medi-claims for them and their family members. These medi-claims include
health-insurances and treatment bills reimbursements.

Bonus
Bonus is paid to the employees during festive seasons to motivate them and provide them the
social security. The bonus amount usually amounts to one month’s salary of the employee.

Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses,
reduced interest loans; insurance, club memberships, etc are provided to employees to provide
them social security and motivate them which improve the organizational productivity.  

Indirect Compensation
Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu
of the services provided by them to the organization. They include Leave Policy, Overtime
Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement
Benefits, Holiday Homes.

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Leave Policy
It is the right of employee to get adequate number of leave while working with the organization.
The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and
maternity leaves, statutory pay, etc.

Overtime Policy
Employees should be provided with the adequate allowances and facilities during their overtime,
if they happened to do so, such as transport facilities, overtime pay, etc.

Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an interval
of one year. Even their dependents should be eligible for the medi-claims that provide them
emotional and social security.

Insurance
Organizations also provide for accidental insurance and life insurance for employees. This give
them the emotional security and they feel themselves valued in the organization.

Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with their
families. Some organizations arrange for a tour for the employees of the organization. This is
usually done to make the employees stress free.

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Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which benefits
them after they retire from the organization at the prescribed age.

Holiday Homes
Organizations provide for holiday homes and guest house for their employees at different
locations. These holiday homes are usually located in hill station and other most wanted holiday
spots. The organizations make sure that the employees do not face any kind of difficulties during
their stay in the guest house.

Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work during
normal shifts due to their personal problems and valid reasons.

         
Need of Compensation Management
 A good compensation package is important to motivate the employees to increase the
organizational productivity.
 Unless compensation is provided no one will come and work for the organization. Thus,
compensation helps in running an organization effectively and accomplishing its goals.
 Salary is just a part of the compensation system, the employees have other psychological
and self-actualization needs to fulfill. Thus, compensation serves the purpose.
 The most competitive compensation will help the organization to attract and sustain the
best talent. The compensation package should be as per industry standards.

Strategic Compensation
Strategic compensation is determining and providing the compensation packages to the

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employees that are aligned with the business goals and objectives. In today’s competitive
scenario organizations have to take special measures regarding compensation of the employees
so that the organizations retain the valuable employees. The compensation systems have changed
from traditional ones to strategic compensation systems.

Employee Compensation
Compensating an employee is not simply a process of settling upon a mutually agreeable salary.
There are a number of regulations and reporting requirements that need to be met. Here is some
information a variety of issues surrounding compensation that you need to be aware of.

Compensation & Benefits Practices, Programs and

Policies

Employee Benefits: Employee Policies and Programs:

Benefit Plan Costs Paid-Time Off (PTO)

Health Care Plans Alternative Work Schedules

(PPO, POS, HMO, HSA) (including Telecommuting)

Dental Care Plans Recruiting and Hiring

Retirement Plans Hiring Bonuses

Flexible Benefit Plans Referral Bonuses

Disability Benefit Plans Retention Bonuses

Group Life & AD&D Insurance Plans Severance Practices

Benefits for Part-Time Employees Workplace Environment

Domestic Partner Benefits Career Planning & Professional

Development

Military Leave Policy

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Employee Benefits

Benefit Plan Costs

 Benefit Costs as Percent of Payroll

o Medical, Dental, Vision, Disability, Life, AD&D Plans
o Retirement Plans
 Benefits Costs as a Monthly Amount Per Employee
o Medical, Dental, Vision, Disability, Life, AD&D Plans
o Retirement Plans

Health Care Plans (PPO, HMO, POS)

 Monthly Premiums
o Premium Cost
o Premiums Paid by Company
 Deductibles
o Percent of Plans with Deductibles
o Annual Deductible Amounts
 Coinsurance
o Percent of Expense Covered by Plan
 Out-of-Pocket Maximums (OOP)
o Percent of Plans with OOP Maximums
o Annual OOP Amounts
 Lifetime Reimbursement Limits
o Percent of Plans with Lifetime Limits
 Office Visit and Prescription Co-Payments
 Domestic Partner Medical Benefits

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HSA Qualified Health Plans

 Impact on Other Healthcare Options

 Monthly Premium Costs
 Percent of Premiums Paid by Company
 Annual Deductibles
 Out-of-Pocket Maximums (OOP)
 Lifetime Reimbursement Limits
 Prescription Expense Coverage
 Company Contributions

Dental Care Plans

 Types of Dental Plans Offered

 Timing of Employee Eligibility to Enroll
 Expenses Covered
 Costs of Monthly Premiums
 Percent of Monthly Premium Paid by Company
 Deductibles and Co-Insurance
 Out-of-Pocket (OOP) Maximums
 Orthodontic Expense Coverage
 Orthodontic Reimbursement Limits

Retirement Plans

 Types of Retirement Plans Available to Employees

o Defined Benefit Plan
o 401(k)
o Simple-IRA
o Profit Sharing Plan
o ESOP

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 o SEP-IRA
o Salary Reduction SEP
 Eligibility Requirements
 When do Employee Contributions Fully Vest
 Retirement Plan Costs
o as a Percentage of Payroll
o per Employee
 401(k) Matching Policy

Flexible Benefit Plans

 Premium Conversion/Premium Only Plan (POP)

 Unreimbursed Medical Expenses (UME)
 Dependent Child Care Expenses (DCC)
 Dependent Adult Care Expenses (DAC)
 Adoption Assistance Expenses (AAE)
 Cafeteria Plan
 Transportation Benefit Plan

Disability Benefit Plans (Short- and Long-Term)

 Who Pays the Premium

 Eligibility for Disability Benefits
 Waiting Periods
 Duration of Plans
 Setting Amount of Disability Benefits
 Disability Payouts

Group Life & AD&D Insurance Plans

 Group Life Plans

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 o Benefit Amounts
o Cost Coverage
o Supplemental Life Insurance
 Accidental Death & Dismemberment (AD&D) Insurance
o Benefit Amounts

Benefits for Part-Time Employees

 Benefits Available
 Work Requirements for Eligibility
 Covering the Costs

Domestic Partner Benefits

 Domestic Partner Healthcare Benefits: Coverage

 Eligibility Requirements

Employee Policies and Programs covered:

Paid-Time off Policies

 Number of Days Paid Time Off Provided by Type of Day:

o Holidays
o Floating Holidays
o Sick Days
o Vacation Days
o Personal Days
o Annual Leave Pool
o Other Paid Time Off
 Number of Days Paid Time Off Provided by Type of Model:
o Traditional Model with Specified Sick Leave

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 o Traditional Model without Specified Sick Leave
o Annual Leave Model
 Treatment of Unused Paid-Time Off:
o Unused Vacation Days
o Unused Sick Days
o Unused Annual Leave Days
o Time Limits on the Use of Carried-Over Paid Time Off
o Accrual of Paid Time Off
o Upon Termination

Alternative Work Schedules

 Types of Alternative Work Schedules Offered:

1. Telecommuting
2. Flexible Work Hours
3. Compressed Work Weeks
 Job Sharing
 Part-time Professional Employment
 Eligibility
 Productivity of Employees in Alternative Work Schedules
 Methods Used to Monitor Productivity
 Tools/Assistance Provided to Telecommuting Employees
 Requirements for Telecommuting Employees

Recruiting and Hiring

 Recruiting Budgets
 Recruiting Sources
 Job Posting Websites
 Recruiting Tools
 Interviewing Applicants

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  Pre-Employment Testing
 Pre-Employment Screening

Referral Bonuses

 Referral Bonus Eligibility by Employee Type and Level

 Referral Bonuses Awarded by Type of New Hire
 Referral Bonus Payments by Type of Hire
 Amount of Referral Bonus
 Timing of Referral Bonus Payouts

Hiring Bonuses

 Hiring Bonus Eligibility by Employee Type and Level

 Calculating Hiring Bonuses
 Hiring Bonus Amounts by Employee Type and Level
 Timing of Hiring Bonus Payouts
 Hiring Bonus Forfeiture and Repayment Policies

Retention Bonuses

 Retention Bonus Eligibility by Employee Type and Level

 Calculating Retention Bonuses
 Retention Bonus Amounts by Employee Type and Level
 Payment of Retention Bonuses

Severance Practices

 Severance Practices by Company Size

 Calculation of Severance
 Severance Pay Amounts

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  Placement Services Offered
 Release Agreements
 Trends in Severance Amounts

Workplace Environment

 Dress Codes
 Work Space Allocation
 Company Sponsored Events and Activities

Career Planning and Professional Development

Programs

 Career Planning Programs

o Conference Attendance
o Professional Memberships
o Tuition Reimbursement
o Trade Journal Subscriptions
o Technical Career Ladders
o Job Rotation / Cross Training
o Management Succession Planning
o Formal Mentoring
 Tuition Reimbursement
o Course Requirements to Receive Tuition Reimbursement
o Conditions of Tuition Reimbursement
 Professional Development Programs
o Management or Supervisory Skills
o Leadership Development
o Project Management
o Interpersonal Communication

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 o Team Building
o Conflict Management

 Training Budgets

Military Leave Policy

 Military Leave Policy

Component and Objective of Organization Reward

System

At a broad level, an organizational reward system includes anything an employee values and
desires mat an employer is able and willing to offer in exchange for employee contributions,
more specifically, me reward system includes both compensation and no compensation rewards.
Compensation rewards include direct financial payments plus indirect payments in the form of
employee benefits. No compensation rewards include everything in a work environment mat
enhances a worker's sense of self-respect and esteem by others (e.g., work environments mat are
physically, socially, and mentally healthy; training improve job skills; and status symbols to
enhance individual perceptions of self-worth), rewards bridge the gap between organizational
objectives and individual expectations and aspirations. To be effective, organizational reward
systems should provide four things: (1) a sufficient level of rewards to fulfill basic needs, (2)
equity with the external labor market, (3) equity within the organization, and (4) treatment of
each member of the organization in terms of his or her individual needs. More broadly, pay
systems are designed to attract, retain, and motivate employees. Indeed, much of the design of
compensation systems involves working out tradeoffs among more or less seriously conflicting
objectives.

 Perhaps the most important objective of any pay system is fairness or equity.
 Equity can be assessed on at least three dimensions:

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  Internal equity (i.e., in terms of the relative worth of individual jobs to an organization,
are pay rates fair?), External equity (i.e., are the wages paid by an organization "fair" in
terms of competitive market rates outside the organization?)
 Individual equity (i.e., is each individual's pay "fair" relative to other individual doing the
same or similar jobs?)

Several theories for determining equitable payment for work have been proposed. They have

three points in common. One, each assumes that employees perceive a fair return for what they

contribute to their jobs, Two, all include the concept of social comparison, whereby employees

determine what their equitable return should be after comparing their inputs (skills, education,

effort, etc.) and outcomes (pay, promotion, job status, etc.) with those of their coworkers

(comparison persons). Third, the theories assume that employees who perceive themselves to be

in an inequitable situation will seek to reduce that inequity. They may do so by mentally

distorting inputs or outcomes, by directly altering inputs or outcomes, or by leaving the

organization. Reviews of both laboratory and field tests of equity theory are quite consistent:

Individuals tend to follow the equity norm and to use it as a basis for distributing rewards. They

report inequitable conditions as distressing, although there may be individual differences in the

relative sensitivity to equity.

Determinants of Pay Structure and Level

In simplest terms, marginal revenue product theory in labor economics holds that the value of a

person's labor is what someone is willing to pay for it. In practice a number of factors interact to

determine wage levels. Some of the most influential of these are labor market conditions,

legislation, collective bargaining, management attitudes, and an organization's ability to pay.

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Labor Market Conditions
"Tight" for certain skills is high while the supply is low (a "tight" market), there tends to be an

increase in the price paid for these skills. Conversely, if the supply of labor is plentiful, versus

"loose" labor markets have a major impact on wage structures and levels. Thus if the demand

relative to the demand for it, wages tend to decrease.

Legislation
As in other areas, legislation related to pay plays a vital role in determining internal organization

practices. Wage-hour laws set limits on minimum wages to be paid and maximum hours to be

worked.

Minimum Wages Rates

Regional minimum wages.

The minimum wage rates for agricultural and non-agricultural employees and workers in each

and every region of the country shall be those prescribed by the Regional Tripartite Wages and

Productivity Boards.

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Prohibition against elimination or diminution of

benefits.

Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or

other employee benefits being enjoyed at the time of promulgation of this Code.chan robles

virtual law library

Payment by results

The Secretary of Labor and Employment shall regulate the payment of wages by results,

including payee, piecework, and other non-time work, in order to ensure the payment of fair and

reasonable wage rates, preferably through time and motion studies or in consultation with

representatives of workers’ and employers’ organizations.

Payment of Wages

Forms of payment

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No employer shall pay the wages of an employee by means of promissory notes, vouchers,

coupons, tokens, tickets, chits, or any object other than legal tender, even when expressly

requested by the employee. Payment of wages by check or money order shall be allowed when

such manner of payment is customary on the date of affectivity of this Code, or is necessary

because of special circumstances as specified in appropriate regulations to be issued by the

Secretary of Labor and Employment or as stipulated in a collective bargaining agreement.

Time of payment

Wages shall be paid at least once every two (2) weeks or twice a month at intervals not

exceeding sixteen (16) days. If on account of force majeure or circumstances beyond the

employer’s control, payment of wages on or within the time herein provided cannot be made, the

employer shall pay the wages immediately after such force majeure or circumstances have

ceased. No employer shall make payment with less frequency than once a month. The payment

of wages of employees engaged to perform a task which cannot be completed in two (2) weeks

shall be subject to the following conditions, in the absence of a collective bargaining agreement

or arbitration award:

 That payments are made at intervals not exceeding sixteen (16) days, in proportion to the

amount of work completed.

 That final settlement is made upon completion of the work.

Place of payment.

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Payment of wages shall be made at or near the place of undertaking, except as otherwise

provided by such regulations as the Secretary of Labor and Employment may prescribe under

conditions to ensure greater protection of wages.

Direct payment of wages

Wages shall be paid directly to the workers, to whom they are due, except:

 In cases of force majeure rendering such payment impossible or under other special

circumstances to be determined by the Secretary of Labor and Employment in

appropriate regulations, in which case, the worker may be paid through another person

under written authority given by the worker for the purpose

 Where the worker has died, in which case, the employer may pay the wages of the

deceased worker to the heirs of the latter without the necessity of intestate proceedings.

The claimants, if they are all of age, shall execute an affidavit attesting to their

relationship to the deceased and the fact that they are his heirs, to the exclusion of all

other persons. If any of the heirs is a minor, the affidavit shall be executed on his behalf

by his natural guardian or next-of-kin. The affidavit shall be presented to the employer

who shall make payment through the Secretary of Labor and Employment or his

representative. The representative of the Secretary of Labor and Employment shall act as

referee in dividing the amount paid among the heirs. The payment of wages under this

Article shall absolve the employer of any further liability with respect to the amount paid.

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Policy Issues in Pay Planning and

Administration

Comparable Worth
When women dominate an occupational field (such as nursing or secretarial work), the rate of

pay for Jobs 111 that field tends to be lower than the pay that men receive when they are the

.dominant incumbents (e.g., construction, skilled trades).

Job evaluation schemes are typically used to assess "worth" to an employer. Jobs with roughly

equal point totals are considered to be of "comparable worth.”. While it is reassuring to note that

research on alternative job evaluation methods has found them generally to be reliable, to yield

comparable results, and to be free of systematic bias for or against jobs dominated by one sexes

pay levels of jobs can influence judgments of job content. This means that biased market pay

structures could work backward through the job evaluation process to produce relatively deflated

evaluations for jobs held predominately by women without the need for any direct bias based on

sex.

Pay Secrecy
The extent to which information on pay is public or private is a basic issue that needs to be

addressed by management. Legally, the U.S. courts have generally supported companies in their

view that salary information, like a product formula or a marketing strategy, is confidential and

26
the property of management. An employee who ferrets our and releases such data can be

discharged for "willful misconduct.”On the other hand, consider that pay secrecy is becoming an

increasingly difficult policy to maintain, particularly as companies look to strengthen the link

between pay and performance. For example, research with bank managers found that when pay

systems are open, managers tend to award higher pay raises to subordinates on whom they

depend heavily. Apparently they do so because they need the subordinates' cooperation, and

subordinates can check on pay allocations.

The Effect of Inflation

All organizations must make some allowance in their salary programs. Given an inflation rate of

8 percent, for example the firm that fails to increase its salary ranges at all over a 2-year period

will be 16 percent behind its competitors.

Pay Compression
Pay compression is related to the general l problem of inflation. It exists in many forms,

including: (1) higher starting salaries for new hires, thereby leading long term employees to see

only a slight difference between their current pay and that of new hires; (2) hourly pay increases

for unionized employees that exceed those of salaried and nonunion employees: (3) recruitment

of new college graduates for management or professional jobs above those of current job

holders; and (4) excessive overtime payments to some employees or payment of different

27
overtime rates . However, first-line supervisors, unlike middle managers, may actually benefit

from pay inflation among non-management employees since companies generally maintain a

differential between the pay supervisor and the pay of their highest-paid subordinates.

Pay Raise
Coping with inflation is the biggest hurdle to overcome in a merit-pay plan. On the other hand,

the only measure of a raise is how much it exceeds the increase in the cost of living: 12.4 percent

inflation in 1980 more than wiped out the average raise. However, the average 6 percent raise

that employees received in 1989 provided a real increase since inflation was only about 4

percent.) The simplest and most effective method for dealing with inflation in a merit pay

system is to increase salary ranges.)? By raising salary ranges (e.g., based on a survey of average

increases in starting salaries for the coming year) without giving general increases, a firm can

maintain competitive hiring rates and at the same time maintain the merit concept surrounding

salary increases. Since a raise in minimum pay for each salary range creates an employee group

that falls below the new minimum, it is necessary to raise these employees to the new minimum.

Such adjustments technically, violate the merit philosophy, but the advantages gained by keeping

employees in the salary range and at a rate that is sufficient to retain them clearly outweigh the

disadvantages. The size of the merit increase for a given level of performance should decrease as

the employee moves farther up the salary range. Merit guide charts provide a means for doing

this. Guide charts identify (1) an employee's current performance rating and (2) his or her

location in a pay grade. The intersection of these two dimensions identifies a percentage of pay

increase based on the performance level and location of the employee in the pay grade.

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Guidelines for Effective Orient-Pay System
Those affected by the merit-pay system must support if it is to work as designed. This is in

addition to the requirements for incentive programs. From the inception of a merit-pay system it

is important that employees feel a sense of “ownership” of the system. To do this, consider

implementing a merit-pay system on a step-by-step basis (for example over a 2-year period)

coupled with continued review and revision. Here are the five steps to follow:

 Establish high standard of performance

 Develop accurate performance appraisal system

 Train supervisors in the mechanics of performance appraisal and in the art of giving

feedback to subordinates.

 Tie rewards closely to performance.

 Use a wide range of increase

Compensation Module for an

organization
Effective compensation management helps you retain employees, boost morale, and enforce a
performance-based culture. Now you can make compensation a key component of your talent
development strategy with the Compensation Management module. Compensation Management
module enables you to flexibly integrate compensation with performance management processes
to ensure fair and equitable employee increases. You’ll also be able to:

 Eliminate costly errors associated with spreadsheets and disparate systems

 Engage manager’s world wild with self-service tools and comprehensive support.
 Achieve faster time-to-value when you easily upload and modify budgets, salary
structures, and increase guidelines.

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  Flexibly manage your specific needs with configurable compensation workflows and
multi-component compensation management
 Support a global workforce with capabilities to accommodate multiple languages,
currencies, and cultural requirements

Easy- to- use Interface

The Compensation Management module has an easy-to-use graphical interface that makes the
process of managing compensation programs straightforward for employees, managers, and
administrators. Intuitive features include:
 Ability to easily filter views so managers can toggle between direct reports, specific
departments, or everyone depending on access rights
 Dynamic interfaces that give users control over what data they can see and in what order
 Flexible compensation templates that make it simple for administrators to meet
organizational needs
 Straightforward compensation recommendation screens that provide drill-down
accessibility to individual profile information, including employee performance reports
and career plans

Robust administrative tools

Management module also streamlines processes for configuring, uploading, and modifying
compensation data. Administrators can use the module’s tools to set up all aspects of the
compensation process, including budgets, salary structure, and compensation guidelines. In
addition, the module provides support for compa-ratio and position-in-range methodologies.

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 Component configuration screen lefts you choose and rearrange
compensations for each temple

Budgets
For each compensation component, you can define budgets as a percent of salary or a specific
amount per organizational unit (i.e., cost center).This flexibility enables you to provide, for
example, different budget amounts to individual department managers. And individual awards
can be based on business performance, individual performance, or a combination of both.
Administrators can also define specific budget enforcement rules so managers attempting to give
compensation recommendations that fail to meet guidelines will either be restricted from
submitting those recommendations, or alerted that they are outside of the approved range.

Compensation templates
Administrators can build a template for each employee type that contains separate budgets,
guidelines, proration, and rounding rules. In addition, they can also choose and rearrange each
template’s compensation components such as title, pay grade, and starting salary.

Data import and export

To further promote ease of use, administrators can import employee salary history, salary
structure, compensation guidelines, employee demographic data, and exchange rates into the
system. Summary data can be exported into an external payroll system.

Proration factors
Proration factors allow administrators to define a work week for hourly or international
employees. Complex external formulas can also be imported to determine bonus payout. For
example, to accommodate employees who have only worked at a company for six months in a
year, administrators can set a merit increase at half of the normal rate.

History and auditing

This module offers numerous history and auditing capabilities, including:
 Support for position-specific pay grades including location-specific pay grades (CA
salary vs. FL salary, etc.)
 Support for defined ranges within pay grades (quartiles, quintiles, etc.)

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  Tracking and adjustment of all historical changes to pay grade and range
 Tracking of all changes to employee salary components, with accessibility to employees,
managers, and administrators
 Import or manual adjustment to the compensation history records to support
compensation changes handled outside of the system (spot awards, etc

Flexible workflow capability

Designed to offer superior flexibility, the Compensation Management module supports the
complex compensation workflows of any organization. Full support for Open Workflow
Architecture ensures that steps, transitions, notifications, and approvals are completely
configurable according to your business needs. The system also facilitates the integration of
performance ratings with compensation planning.

Openworkflow or chitecture integration lets you define permissions

salary components at each step in workflow

The module’s flexible workflow features enable you to:

 Automatically transfer preliminary and final performance ratings to compensation
recommendations as part of the performance appraisal workflow
 Conduct batch approvals of compensation recommendations
 Leverage compensation workflows to define the point at which recommendations are
considered approved and final, and update salary histories as required

Extensive Global capabilities

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The Compensation Management module contains many features that intuitively address the
compensation needs of global employees with ease

Pay grades and other compensation components support multi-currency

For example, you can leverage the Compensation Management module to:
Accommodate salary recommendations across currencies
Enter or import exchange rates
Display budgets and compensation recommendations in the user’s target currency
Toggle between currencies, so managers can compare all direct reports on a common currency
Accommodate work week differences across countries
Provide language support for 11 core languages

Reference
www.sumtotalsystem.com/compensation-system
www.business.com
www.scribd.com

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