COMPENSATION MANAGEMENT

Benefits of Proper Compensation

Consequences of Inadequate Compensation

Concepts of Wages

Components of Remuneration

Theories of Remuneration

Factors Influencing Remuneration

Remuneration Model

Challenges of Remuneration

Skill based and Job based Pay

Total Rewards – Organizational Framework

Mission, Goals, Values

and Strategies

Current Marketplace Realities

Employee Preferences

Training & Work

Pay Benefits
Development Environment

3
Establishing a Total Rewards Framework

Opportunity for Involvement in

Growth Decisions
Direct Pay
Respect

Indirect Pay
Recognition
Job Itself

4
 Total Rewards – Program Components

Transactional Rewards
Compensation
Compensation Benefits
Benefits

Indirect
Fixed
Fixed pay
pay Health
Health and
and Welfare
Welfare
Bonus
Bonus plan
plan Retirement
Retirement
Long
Long term
term incentives
incentives Paid
Paid time
time off
off

Personal
Personal Development
Development Work
Work Environment
Environment
Performance
Performance management Culture
Culture and
and climate
Direct

management climate
Training
Training and
and development
development Work
Work design
design and
and flexibility
flexibility
Career
Career development
development Quality
Quality of
of work
work life
life

Relational Rewards

5
The Workforce Commitment Model

6
 Market Pricing – Competitive Labor Market Sectors

Government For-profit Not-for-profit Other non-profit

 Federal  Industry specific  Trade association  Healthcare

 State  General industry  Professional  Higher education
 Municipal societies  Think tanks
 Education  Social/community
 Charitables service

7
Determining Appropriate Labor Markets – Selection Criteria

Size of annual
operating budget

Organization
Focus/mission structure

Position roles/
Type of
responsibility
not-for-profit
Compensation
philosophy

8
 Market Pricing Protocol - Illustrative Work Functions

Work Meeting &

Work Financial Government Standards/
Functions Membership Conference
Functions Operations Relations Certification
Planning

Market/
Market/ • Not-for-profit • Not-for-profit • Survey Peer Group • Not-for-profit
Sector • Not-for-profit
Sector • General Industry • Corporate • Not-for-profit • General Industry

Organization
Organization • Similar Budget Size • Similar Budget Size
Size
Size • Similar Budget Size • Similar Budget Size • Similar Budget Size
• All Sizes • $1-3 Billion

Geography
Geography • National • National • National • National • National
• Regional • Regional • Regional • Regional • Regional

9
 Market Pricing Protocol – Position Level

Position Level Labor Markets Geographic Location

Survey Peer Group

Leadership National
Not-for-Profit

Management Not-for-Profit Regional and Local

Knowledge Workers/ Not-for-Profit

Regional and Local
Individual Contributors General Industry

Not-for-Profit
Semi-Technical Local
General Industry

Administrative Support General Industry Local

10
 Consequences of Pay Dissatisfaction

performance
Desire for
more pay strikes
absenteeism
grievances

Turn over
Search for
new job

Psychological
withdrawal
Job
Pay Lower dissatisfaction
dissatisfaction attractiveness Poor health
of job
absenteeism

Visits to the
doctors
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289
 Components of Remuneration

Remuneration

Financial Non Financial

Wages and Incentives Fringe Perquisites Job content

Salary benefits
Individual Company Challenging
Hourly plans CPF car job
wages and Group plans Gratuity Club responsibilities
monthly Medical membership Supervision
rates salary etc. Furnished Growth
house prospects
Stock option Working
schemes conditions
etc. Etc.

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286
 Remuneration Model

Job description

Job evaluation

Job hierarchy

Pay survey Pay scales

Pricing Jobs Pay grades

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295
 Challenges of Remuneration

Skill based pay Monetary and non Salary Reviews

monetary rewards

Employee Remuneration Pay Secrecy

participation

Below market or Comparable worth Eliticism

above market pay

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300
Incentive Payments and Employee Benefits
INCENTIVES AND PERFORMANCE BASED
PAYMENTS
 Incentive Payments

• Incentives payments are monetary benefits paid to

employee in recognition of his or her outstanding
performance

• Also called variation rewards or payment by results

• Unlike wages incentives varies from time to time and from

individual to individual

Motivation Reduced Better utilization

absenteeism and of equipment and
turn over competencies

Higher Profits Reduced Increased

production cost Productivity
Pre requisites for Effective Incentive System

1 Employee’s cooperation and participation

2 Realistic standards and necessary tools and facilities

3 Indirect workers like supervisor, helpers and store keepers etc.

should also be given benefit of incentive system.

4 Commitment of top management.

5 Careful Planning (well prepared and implemented)

6 There should be clear link between output and reward

7 Setting and reviewing specific objectives and incentives of

each employee periodically

8 Easy to understand and calculate

 Group Incentive Plans
1 Advantages

• Better cooperation among team members

• Less supervision

• Reduce absenteeism

2 Disadvantages

• An efficient worker may suffer from inefficiencies of team

members

• Rivalry among the workers

Incentives for Indirect workers

• Difficult to measure the output of indirect workers like security

staff, maintenance staff, and canteen employees

• Merit rating: Rewarding employees on other qualities in

addition to output
MANAGING EMPLOYEE BENEFITS AND SERVICES
 Employee Benefits

Employee Benefits: Any other benefits that employee receive in

addition to direct compensation. These are not related directly to
performance

Often words used are benefits and services, fringe benefits and
hidden payroll

Benefit and Services: The direct cost of benefits can be calculated

like pension and medical facility, however the cost of services are
difficult to calculate like company newspaper, car parking facility,
and club membership
 Employee Benefits

Reasons for Employee Benefits:

• The direct compensation is taxable

• Employer can purchase health insurance facility as group rate

• Reflect corporate social responsible behavior of employer

• Employee prefer to work for companies who offer fringe benefits

• Housing schemes and medical/disability insurance, pension

reduce burden on public expenditure for providing such facility

• Employees feel relax, less fatigue, socially secure, loyal to

organization and motivated
 Employee Benefits

Types of Employee Benefits

Old age, disability, and health Pension plans
insurance

Maternity leave Sick leave

Medical leave Child care leave
Children tuition fee Vacations
Holidays Travel allowance
Company car Moving expenses
Meal allowances Discount on product and services

Child care facilities Loan facility

 Employee Benefits

Treats Knick Knacks Awards Office

Free lunches Desk accessories Trophies Environment
Coffee breaks Company Certificates Redecoration
Picnics watches Letter of Flexible hours
Dinners Diaries/Planners appreciation Furniture
Birthday treats Wallets Assistant
T-shirts/Ties

Social Tokens
Acknowledgement Movie tickets
Informal recognition Vacation trips
Recognition at Coupon
official party redeemable at
Membership of stores
clubs Early time offs
Use of company Anniversary or
facilities for personal birthday presents
events
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 333
 Principles of Fringe Benefit

• The benefits must fulfill the real needs of employees

• The benefits must be in interest and welfare of employees

• The benefits must be planned and cost effective

• The interest and demands of employees must be incorporated in

benefits

• The employees must be taught and educated to used these

benefits in fair way
Administration of Fringe Benefit
Establish objectives of benefits

Assess environment factors

Assess competitiveness

Communicate benefits

Control benefit cost evaluation

 Common Employee Benefits Applicable in
Pakistan
Common Employee Benefits Applicable in Pakistan
Medical Insurance  
Example: Indoor and outdoor medical facilities

Hiring Facilities  
Example: Payment for rented house or self hiring
Paid Leaves  
Example: Facility to avail leave with pay

Cost of Living Allowance  

Example: Adjustment of salary based on inflation

CPF/GPF  
Example: Deduction from employee’s salary and part of it
is contributed from employer

Benevolent Fund  
Example: Financial assistance to employees in case of
special events (death/marriage of children)

Retirement Programs  
Example: Gratuity
Pension  
Example: Monthly payment to employee after retirement
calculated based on last pay drawn

Employee Old Age Benefit  

Example:
Institution (EOBI)
 Long Term Benefits
Advantages
Employee remain associated for
longer time period with
organization (low turnover)
Organization Loyalty
Job satisfaction
Disadvantages
Cost to organization
Employees are less motivated if
long term benefits associated
with permanent employment
Employee do not feel to work hard
as in case of short term reward
REMUNERATING TOP BRASS
Components of Top Executives Remuneration

No Components Description
1 Salary Salary is based on job evaluation and
capabilities of top executives
2 Bonus Extra salary or lump-sum amount normally at
the end of year based on corporate earning or
any other criteria/success
3 Commission Percentage of corporate profit
4 Long term incentives Option to purchase stock at fixed price
5 Perquisites Major part of executive income. Provident
fund, gratuity, special parking, well furnished
house, car with driver and fuel, membership in
clubs, utility bills, servants etc.
 Issues in Executives Remuneration

No Justification
1 They are very important in organization and key decision maker
2 They are more knowledgeable
3 They are in short supply
4 Difficult to attract and even more difficult to retain
5 They must be motivated to work with dedication and
commitment
6 Expectations and desires of people have gone up
7 Social prestige and respect in society
8 To eliminate corruption