UNIVERSITY OF SCIENCE & TECHNOLOGY CHITTAGONG

Assignment on:

Compensation Management

Topic:

Compensation, Benefit, Formulation of compensations strategy, Internal alignment, Role

of job analysis and job evaluation in compensation management.

Submitted To: Mrs Sahanaz Bagum

Associate professor

FBA, USTC

Submitted by: Durjoy Sharma Joy

ID : 1525

Semester : 8th

Batch : 40th

Major : Human Resource Management

Date of submission: 17-12-2020

1. What is compensation? Importance of standard Compensation
management, discuss on cash-compensation.
What is compensation?
Compensation is the remuneration awarded to an employee in exchange for their services or
individual contributions on a business. The contributions can be their time, knowledge, skills,
abilities and commitment to company or a project.

Importance of standard Compensation management

Compensation management makes a company vigilant. It drives managers to be on the lookout
for star performers who must be given rewards for their efforts, which ultimately decreases the
risk of losing a valuable employee.

Objectives of compensation may be controlling cost, establishing fair and equitable pay
structure, attracting and retaining competent human resources, improving motivation and
morale, improving labor relation, improving the image of an organization and comply with the
legal framework and policies of the organization.

It is positive reinforcement. Yes, money doesn’t make the world go round and if line managers
are not friendly, helpful and supportive retention is difficult. But cash prizes and consistent
monetary perks in conjunction with a great work environment allow companies to grow by
leaps and bounds through motivated, hard-working employees.

Compensation management enhances the company’s reputation. When workers are satisfied
with their monetary and intangible rewards, they attract better prospects for vacant positions,
bringing new, fresh talent to the organization.

The thing that holds most employers back from investing in compensation management is the
tediousness of the process. Costly spreadsheet errors and the inability to efficiently process and
apply the different ‘rules’ and ‘best practices’ of comp leave organizations hesitant.

Software designed specifically for Compensation Management can offer planning support,
advice, alerts and real-time reviews to simplify, align and automate the compensation planning
process.

Cash-compensation
Cash compensation or cash indemnity is a kind of additional payment made to employees
dealing with or responsible for cash flow in pay-desk, cashier's office and so on.

1. Basic salary

Basic salary is the amount paid to an employee before any extras are added or taken off, such
as reductions because of salary sacrifice schemes or an increase due to overtime or a bonus.
Allowances, such as internet for home-based workers or contributions to phone usage, would
also be added to the basic salary.

2. Cost of living/ Merit pay

Cost of living is the amount of money needed to sustain a certain standard of living by affording
expenses such as housing, food, taxes, and healthcare.

3. Incentives – short term

Short-term incentives, also often referred to as annual incentives, are intended to compensate
executives for achieving the company's short-term business strategy based on achievement of
goals by the board compensation committee.

4. Incentives – long term

A company benefit of stock options for employees who have been with the company for five
years provides a long-term incentive, while at the same time making it achievable.

2 : Benefit , Pay model.

Benefits –

1. Allowance

2. Income protection

3. Work/life focus

Allowance
Allowances can be defined as the amount of something that is allowed, especially within a set
of rules and regulations or for a specified purpose. Various allowances are paid in addition to
basic pay. Some of these allowances are as follows –
  Dearness Allowance − This allowance is given to protect real income of an employee
against price rise. Dearness allowance (DA) is paid as a percentage of basic pay. This is
different from the dearness allowance component in the salary of a private sector
employee.DA is calculated as a proportion of the basic salary. The government recently
increased DA by four percentage points to 21 per cent of the basic salary for its
employees and pensioners.
 House Rent Allowance − Companies who do not provide living accommodation to their
employees pay house rent allowance (HRA) to employees. This allowance is calculated
as a percentage of salary
 City Compensatory Allowance − This allowance is paid basically to employees in metros
and other big cities where cost of living is comparatively more. City compensatory
allowance (CCA) is normally a fixed amount per month, like 30 per cent of basic pay in
case of government employees.
 Transport Allowance/Conveyance Allowance − Some companies pay transport
allowance (TA) that accommodates travel from the employee’s house to the office. A
fixed amount is paid every month to cover a part of traveling expenses.

Income Protection
Some income protection, protect employees

from the financial risks inherent in daily life.

✓ Medical insurance,

✓ Retirement programs,

✓ life insurance,

✓ saving plans – these are common benefits.

Work/Life Focus
Work/Life Focus Programs that help employees better integrate their work and life
responsibilities include time away from work (vacation, jury duty), access to services to meet
specific needs (drug counseling, child and elder care) and flexible work arrangements
(telecommuting, non-traditional schedules). Responding to the changing demographics of the
workforce – two-income families who demand employer flexibility so that family obligations
can be met, many US emloyers are giving a higher priority to these benefits.
Pay model
A Pay Model The pay model contains three basic building blocks :

1. The compensation Objectives

2. The policies that form the foundation of the compensation system, and

3. The techniques that make up the compensation system.

3. Formulation of compensations strategy

A compensation strategy lays out your organization's point of view on how determine pay and
benefits for employees. It aligns all of compensation resources to business goals, helps decide
where want to compete, how competitiv need to be and what choose to reward.
A strategic perspective on compensation takes the position that how employees are
compensated can be a source of sustainable competitive advantage.

Two alternative approaches are highlighted :

1. Best-fit/ contingent business strategy / environmental context approach and

2. A best practice approach.

A best fit approach presumes that one size does not fit all. Managing compensation strategically
means fitting the compensation system to the business and environmental conditions. In
contrast, the best-practices approach assumes that there exists a universal best way. So the
focus here is not so much of what the best strategy is but of how best to implement the system.
And agreement on what are the best practices does not exist, either.

The best-fit approach is most commonly used. The four step process includes –

• Assessing conditions,

• Deciding on the best strategic choices following the pay model

• Implementing the strategy through the design of the pay system

• Reassessing the fit.

4 Internal alignment, Egalitarian vs Tournament

.

Internal alignment
Internal alignment refers to the pay relationship among different jobs/skills/competencies
within a single organization, and it affects employees and employers. The pay structure should
support the organization strategy, support the work flow and motivate behavior toward
organization objectives.

Hierarchical Vs Egalitarian
Hierarchical structures

Provide a lot more opportunities for promotion. Hierarchies send the message that the
organization values the differences in work content, individual skills, and contributions to the
organization.

Egalitarian structure

An egalitarian structure sends the message that all employees are valued equally. It implies that
more equal treatment will improve employee satisfaction, support cooperation and therefore
affect worker’s performance.

Egalitarian vs Tournament
Egalitarian

Send the message that all employees are valued equally. It implies that more equal treatment
will improve employee satisfaction, support cooperation and therefore affect worker’s
performance. An egalitarian favors equality of some sort: Employees should get the same, or be
treated the same, or be treated as equals, in some respect.

Tournament

The theory is used to describe certain situations where wage differences are based not
on marginal productivity but instead upon relative differences between the individuals.

 Tournaments are competitions between peers to achieve a promotion to a higher rank

along with the pay and perks that go with it.

 Tournaments are likely to result in a "winner take all" outcome.

 Managers who enter the tournament must forego other alternatives such as jobs with
other firms, start own business, receive more pay with an alternative opportunity to
compete in the tournament.

5. Role of job analysis and job evaluation in

compensation management.
Role of Job analysis
Job analysis is a systematic process of collecting the information on nature of a job, qualities
and qualifications required to a job, physical and mental capabilities to required to a job, duties
and responsibilities, physical and mental effort required to perform a job, necessary skills
required to perform a job, working conditions and environment for a job, in order to describe
job description and job specification, for recruitment and selection of employee, improve job
satisfaction, employee safety and to build up employee motivation etc. Job analysis is a
procedure through which you determine the duties and responsibilities, nature of the jobs and
finally to decide qualifications, skills and knowledge to be required for an employee to perform
particular job. Job analysis helps to understand what tasks are important and how they are
carried on. Job analysis forms basis for later HR activities such as developing effective training
program, selection of employees, setting up of performance standards and assessment of
employees ( performance appraisal)and employee remuneration system or compensation plan.
Job analysis helps in analyzing the resources and establishing the strategies to accomplish the
business goals and strategic objectives. Effectively developed, employee job descriptions are
communication tools that are significant in an organization's success.

Role of Job evaluation

The role of conducting job evaluation is to fairly determine the monetary value / worth of a job
in relation to other jobs in an organization. Using job evaluation results, one can develop
appropriate salary grades and decide on other compensation issues. Job evaluation refers to
studying in detail the job performance by all individual. The difficulty levels, skills required and
on that basis the salary is fixed. Information regarding qualities required, skilled levels, difficulty
levels are obtained from job analysis. job evaluation is a way of determining the value/worth of
a job in relation to other jobs in an organization. It tries to make a systematic comparison
between jobs to assess their relative worth for the purpose of establishing a rational pay
structure.

Thank You !