COMPENSATION AND

REWARD
MANAGEMENT
Dr. Soni Agrawal
Compensation refers to all forms of financial returns
and benefits employees receive as part of an
employment relationship
 The reward system

 To attract and retain those with the required

knowledge, skills aptitudes and attitudes

 The ideal reward system is one that an employee may

desire & value and that which the employer is willing
to offer in exchange for contribution.
In other words
 To reward performance
 To remain competitive in the market
 To maintain salary equity
 To mesh employees’ performance with
organizational goals
 To control compensation budget
 To attract new employees
 To reduce unnecessary turnover
 Total Reward Model
Transactional (tangible)
Pay Benefits
base pay pensions
annual bonuses health care
long-term incentives holidays
shares perks
profit sharing

Communal
Individual

Learning and development Work environment

workplace learning organisation core values
Training leadership
career development/- employee voice
progression work-life balance
job/work design

Relational (intangible)
Determinants of rewards
Internal
 Compensation policy of the org.

 Worth of a job

 Employee’s relative worth

 Employer’s ability to pay

External Determinants

 Labour market conditions

 Economic conditions
 Area wage rates
 Govt. controls
 Cost of living
 Union influences
Types of equities

 Internal
 External
 Individual

Business strategy and compensation

Pay Secrecy
Job Evaluation

Systematically recognizes differences in the relative

worth among a set of jobs and establishes pay
differentials accordingly

Compensable factors

Salient characteristics by which companies establish

relative pay rates
Job Evaluation Process

 Determining single vs. multiple job evaluation

techniques
 Selecting job evaluation committee
 Training employees to conduct job evaluation
 Documenting job evaluation plan
 Communicating with employees
 Setting up appeals process
Job evaluation techniques
Market based evaluation
Job Content Techniques
Point method
Step 1: Select benchmark jobs
Step 2: Choose compensable factors based on benchmark jobs
Skill
Job knowledge
Education
Mental ability
Physical ability
Accuracy
Dexterity
Responsibilities
Fiscal
Material
Personal responsibilities

Working condition

Effort
Physical exertion
Mental exertion
Step 3: Define factor degrees

Ex.: Capacity to communicate with others

1st Degree: Print simple phrases, sentences, using past
and present tense (5 points)
2nd Degree: Write compound and complex sentences,
using proper punctuation, adjectives, adverbs (10
points)

3rd Degree: Write reports & essays with proper format,

spelling, punctuation (15 points)

4th Degree: Prepare business letters, expositions,

summaries, reports using prescribed formats &
conforming to all rules of punctuation, grammar,
diction & style (20 points)

5th Degree: Write manuals & speeches (25 points)

Step 4: Determine weight of each factor
Ex: Skill is highly compensable factor = 60
Responsibility is next = 25
Effort = 10
Working conditions = 5

Step 5: Determine point values for each compensable factor

Step 6: Verify factor degree and point values

Evaluate all jobs

Step 7: Evaluate all jobs & plot wage curve and pay grades
Balancing Internal and Market Considerations using
Point Method
Other Job Evaluation Techniques

Simple ranking

Paired comparison

Alternation Ranking
New Roles
 Skill gap specialist
 Employee experience specialist/chief experience
officer
 Talent technology integrator
 Organizational psychologist
 HR data scientist
Market competitive pay systems
Conducting strategic analyses
 Defining relevant labor market

 Choosing benchmark jobs

 Comparing companies’ jobs with benchmark jobs

Group Exercise
Occupation Salary
Flight Attendant 20000
Lawyer 120000
Police Officer 50000
Librarian 35000
Construction labour 10000
Q1: What factors are accounted for the wide differences
among different occupations?
Q2: Evaluate those factors
Case
 A Vision: Bright Ltd., founded by a couple interested in
improving early childhood education. Today Bright Ltd.,
is one of the leading org. providing employer-sponsored
child care, early education, and work/life solutions. They
have moreover 700 client globally for different solutions.
Company is also known for great place to work.
 Design: Incentives and benefits valuable for this
organization
 How HR manager can make sure that employees remain
motivated
Incentive Plan
 Employees must be able to see clear connection
between incentive payments and job performance
 Identify metrics that encourage employee
performance
 Involve employees
 Find right incentive payout
 Establish clear link
 Ex..
Individual Pay Group Pay Enterprise Pay
• Measure in quantitative • When work is group • When work is enterprise
and simply interdependent interdependent
• Measure independent • Measure should be • Measure when employees
contribution effective fair, precise can control results
• Measure the relationship • Determine, will team • Shows relationship with
between individual members receive equal performance
work and job money or differential
performance payment based on seniority,
skill levels, rates of pay,
contribution, or so forth

Measure based on Without considering • Measuring without

like/dislike contribution considering economic
Based on personalities scenario
Based on political • No linkage
preferences
Without considering
opinions of peers
Financial/non-financial
Direct
 Wage

 Salary

 Variable pay/merit pay

 Skill based pay/Competency based pay
 Individual pay plans: Piecework, Hour Plan
 Group incentives: gain sharing
Scanlon/Rowlan plan
 Organization wide incentives: Profit sharing=(5-50%) ESOPs
 Restricted
 Phantom
Benefits
 Salary/wage = 60-70%
 Benefits = 20-30%
 Others
Benefits
Mandatory benefits

 Retirement benefits: Provident fund

Transferring PF while job hopping
 Gratuity

 Maternity leave

Child care leaves

 Health plans

 Medical leaves

Voluntary Benefits
 Fringe benefits

 Paid holidays

 Sick leaves

 Family-friendly benefits

 Post Retirement benefits (encashment of EL)

 Sabbaticals
 Severance pay
 Life insurance
 Domestic partner benefits
 Child care and elder care
 Work life balance benefits
Discretionary Benefits

Superannuation benefit
Housing subsidy/Housing loans
Financial support for children’s education
Executive Compensation
Salary
Bonus/Perks
Short term incentives
Long term incentives
Employee Service
 Relocation benefits

 Child care

 Educational assistance

 Food service/subsidized cafeterias

 Legal benefits