Jahangirnagar University

Institute of Business Administration

3rd Year 2nd Semester/Honours/Masters Final Examination-2019

Assignment for Final Examination

Course No.# HRM 406

Course Title# Compensation Management

Name of the Student: Tasfia haque Maisha

Class Roll No. # 1912

Examination Roll No. # 172393

Registration No. # 45668

Academic Session # 2016 - 2017

Total number of written pages in the assignment #

Date of Submission: July 10, 2021

Instructions:
1. Don’t copy from other’s assignment. Copying from others will be punished
severely.

2. The student must submit the assignment online (Google

classroom/email/google form etc.) as the course-teacher prescribes.

3. You must use your name# your EXAM ID only for naming your submitted file.
Summary of the Compensation
Management Course
Table of Contents
What is compensation?....................................................................................................................1

Components and policies of Compensation:...............................................................................1

Different strategies and Totality of Decisions:................................................................................1

Defining Internal Alignment:..........................................................................................................2

Pay structures:..............................................................................................................................2

Internal Structures:.......................................................................................................................3

Strategic Choices that affect internal structures:.........................................................................3

Defining Competitiveness and Designing Pay Levels, Mix and Pay Structures:............................3

Determining Pay levels and mix:.................................................................................................4

Pay depending on Employee Behaviours:.......................................................................................4

Establishing Rewards and Pay plans:..............................................................................................5

International Compensation:............................................................................................................5

Government and Legal Issues in Compensation:............................................................................5

What is compensation?
What employees receive in exchange for their efforts is referred to as compensation. It is the
monetary and non-monetary compensation given to employees in exchange for their efforts.
Compensation management sometimes referred to as wage and salary administration,
remuneration management, or reward management, is the process of planning and administering
a whole compensation package. But there can be different view on compensation that can change
how people perceive compensation as a whole. Society refers to compensation as a pay of justice
whereas stockholders believe that paying employees by using stock can give them a sense of
ownership. There is also a manager’s perspective on compensation which is the influence it has
on employee behaviours and thinking about the employees’ perspective, compensation is the
major source of financial security for the employees.

Components and policies of Compensation:

There are different components of compensation which are known as wages and salary,
incentives, fringe benefits, and perquisites. Wages and salaries are the most important
components of compensation whereas incentives, fringe benefits also are equally important so
that the employees retain in the organization. There are also different policies that need to be
fulfilled to ensure compensation strategy. The internal alignment strategy focuses on the jobs or
pay levels inside an organization whereas external competitiveness focuses on the jobs in the
market or the pay levels of the competitors. In employee contributions strategy, emphasis is
made on the performance of the employees and the management strategies ensure that the right
individuals are compensated appropriately for accomplishing the right goals in the right way.

Different strategies and Totality of Decisions:

Developing a compensation strategy includes four different steps. Firstly, the organization needs
to assess total compensation implication. The employees need to understand the competitive
dynamics of the business, cultures or values of the certain organization; they also need to refer to
the political and social context of the organization. Secondly, the organization needs to map the
compensation strategy in a proper way. Then the organization needs to implement the
compensation strategy properly and lastly, the compensation strategy needs to be reassessed.
There will be virtuous and vicious cycles of pay structure. An organization goes through a
virtuous circle when there is an upward momentum in the business and there is an improvement
in the performance whereas virtuous circle mainly happens when there is downward momentum
in business and the organization faces continuous difficulties in organization performance.

Defining Internal Alignment:

Internal alignment is a strategic approach that addresses relationships within the organization.
The relationships within a pay structure needs to be aligned with the organization strategy and
the work flow of an organization. As a result, internal alignment is often referred to as internal
equity as it addresses the pay relationships of certain jobs, pay levels or skills.

Pay structures:
Within a single organization, pay structure refers to the range of pay rates for various jobs or
skills. The structure is defined by the number of levels, the pay differentials between them, and
the criteria used to calculate those variances. There are different ways in which an internal pay
structure can be defined which are –

1. The quantity of the levels of work done in an organization

2. The pay differentials between the levels
3. The criteria or basis that is set to determine those levels

The pay structure is known to be hierarchical because of the number of levels and the reporting
relationships within the organization. The pay differentials between the levels are mostly known
as differentials. The differentials happen when there is a difference of –

 Knowledge/ skills

 Working conditions

 Valued addition to the company

And the criteria mentioned above, is basically depended on the content and value of the work.
Here, content refers to the work performed in a job and how it gets done altogether. And the
value of the work refers to how much the job is worth and what relative contribution it has made
in the company objectives.
Internal Structures:
Internal structures are shaped by different factors which are – external, organizational factors.
The external factors include economic pressures, marginal productivity from one job to another,
and also, supply and demand of a product. There are government policies, external stakeholders,
cultures and customs which also fall under external factors. The organizational strategies that
affect internal structures those are organization’s strategy, the human capital of organization, the
overall HR policies of the organization, etc.

Strategic Choices that affect internal structures:

There are different strategic choices that help to design internal structures which also can be
compared internally. These are tailored choices or loosely coupled strategic choices. Tailored
choices are mainly structured and the jobs are more detailed and steps-oriented whereas loosely
coupled strategic choices are more innovation-oriented. Egalitarian structures emphasize on
valuing the employees equally whereas hierarchical structure emphasizes on valuing the
employees on the basis of work content, individual skills and other personal development.

Defining Competitiveness and Designing Pay Levels, Mix and Pay

Structures:
External competition can influence a company's reward system by affecting pay levels and pay
forms. Pay levels are the average amount of money paid in a company, whereas Pay Forms are
the many sorts of compensation combined to produce a complete compensation package.
Determining external competitiveness has two goals: one is to control labor expenses, and the
other is to recruit and retain personnel.

There are three factors that influence external competitiveness which are –

 The nature of demand and supply drives the labor market.

 In a product/service market, the levels of competition and demand for the product/service
have an impact on competitiveness.
 Organizational aspects such as the organization's industry, size, and strategy, as well as
its management orientation
The compensation levels and mix must be competitive; otherwise, the company would be unable
to recruit and keep qualified people, resulting in a failure to accomplish organizational goals.

Determining Pay levels and mix:

Companies frequently perform market studies to guarantee the fairness and competitiveness of
the product according to the market in order to identify externally competitive pay levels and
structures. The company does this by first identifying and defining the survey problem, then
deciding which organizations should participate and how the survey questions will be framed. To
obtain the market pay line, survey data is collected and plotted on a graph. The company can
then determine whether it wants to lead, follow, or lag behind the market pay line, and how it
wants to position itself based on its business strategy and objectives. The pay line also aids in the
definition and design of pay ranges within the organization, as well as the reduction of gaps
between job levels through broad banding. Creating a market-driven competitive remuneration
policy to recruit and retain the best fit personnel is another new approach implemented by firms.

Pay depending on Employee Behaviours:

In a very normal scenario, an employer will always want his or her employees to work
exceedingly well so that it can benefit the organizational performance. The organizational
strategy mainly guides how the employees need to behave in order to perform well. A well-
developed organization strategy helps to organize the corporate goals. The corporate goals
motivate the goals of strategic business units that influence the team goals. The team goals
ensure individual goals of an employee.

Compensation is not an only incentive or motivation that can hold the employees together. And
for that, there is an employee behaviour model which ensures that there are three types of
triangles that can influence employee behaviour. Here, Ability triangle focuses on selection,
recruitment and training of an employee, Motivation triangle focuses on performance
management, compensation and culture of the organization and lastly, Environmental Obstacle
triangle focuses on organizational planning, organizational development, and HR planning.

Different motivation theories can help employees to perform well and improve organizational
behaviours. From these theories, employees can understand which will be important for
socialization in the organization and which kind of compensation will support the behaviour.
Establishing Rewards and Pay plans:
There are different reward plans for different types of employees. Intrinsic rewards refer to the
satisfactions the directly comes from the job and extrinsic rewards basically mean the rewards
employee get from outside the job. Financial rewards are the wages, salaries and the non-
financial rewards ensure to make the life of the employee more attractive. Performance based
rewards are more inclined to the rewards related to job performance and membership-based
rewards are known as cost of living increases, benefits, etc.

International Compensation:
When a corporation sends an employee overseas for a short or long-term task, the remuneration
policy must be adjusted to match the task's objective. The employee must be paid differentially
based on increases in living costs in the foreign nation, and the base salary for the function must
be comparable to other prominent positions in the home country. Furthermore, incentive schemes
must be designed for that employee to encourage him or her to go to the foreign nation and
execute that duty, as well as welfare services to enable the employee to bear the expenses of
relocating his or her family overseas if it is a long-term job endeavour.

Government and Legal Issues in Compensation:

When creating a firm's pay structure, various legal standards must be followed. Companies must
satisfy basic wage criteria and pay overtime to employees who meet the government's legal
requirements. Furthermore, there are regulatory restrictions governing operating hours and
holidays that must be adhered to when developing a compensation strategy. In Bangladesh, the
Equal Rights Act mandates businesses to prevent discrimination based on gender, age, or race,
and child labor is prohibited. Overall, HR managers must thoroughly research the legal
environment to ensure that the firm's compensation policy is developed in accordance with
government requirements and that the company follows best practices in relation to rewarding its
employees ’ efforts.