Description
A complete and comprehensive PPT explains about compensation and benefits.
Compensation and Benefits
Compensation and Benefits
• Compensation is the process of providing adequate, equitable and fair remuneration to the employees
• Benefits are Non-Wage benefits, such as paid vacations, pensions, health and welfare provisions, life insurance, the cost of which is borne in whole or in part by the employer.
Compensation System Components
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.1
Compensation and Benefits
• • • • Compensation System Components Equity Issues Equity Theory Pay Systems
– Market-Based Pay – Job Evaluation Pay Systems
• Pay Policy Issues
Compensation Overview
Q1: What are the basic goals of any compensation system?
– to attract high quality employees – to retain high quality employees – to stimulate high performance
Q2: What are the basic components of any compensation system?
– base pay (wages) – incentives – benefits
Compensation Overview
Q3: What are the basic tools of any compensation system?
– Wage surveys – Job analysis/evaluation – Performance appraisal
Q4: Why do wages differ?
– Differences by industry – Differences by occupation – Differences based on individual performance, seniority, etc.
Compensation decisions are influenced by both internal and external factors:
Internal:
– financial conditions – corporate/managerial philosophy – corporate strategy/life cycle
External:
– labor market factors
– area wages/cost of living – collective bargaining agreements – government regulations
* Fair Labor Standards Act (1938)
* Equal Pay Act (1963)
All organizations face three basic compensation decisions:
A. Pay-Level Decision:
– Are we going to lead, meet, or lag the market? – Comparison: Employees working on similar jobs in other organizations
B. Pay-Structure Decision:
– How do we determine differences in pay for various jobs in our organization? – Comparison: Employees working on different jobs within the organization
C. Individual Pay Determination:
– How do we determine how much to pay various people in our organization? – Comparison: Employees working on the same jobs within the organization
A. Pay-Level Decisions
Wage and salary surveys are one of the major tools used to make external comparisons
Decision points: • Which jobs to make comparison for? • What is the appropriate labor market? • Which organizations to survey?
B. Pay-Structure Decisions:
Pay-structure decisions are typically made in one of two ways:
a. based on attributes of employees: -- knowledge- or skill-based pay
b. based on attributes of the job: -- job evaluation:
???the process of determining the relative worth of various jobs within an organization
Q: Why do job evaluation?
Four Types of Job Evaluation Systems
1. 2. 3. 4. Ranking Systems Classification (Job Grade) Systems Point Systems Factor Comparison Systems
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Job Ranking
– Review job descriptions – Rank jobs in order of relative worth or importance to the organization – Use the rank ordering to set pay for each job
• Pay higher ranked jobs more than lower ranked jobs
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Job Grading (Job Classification)
– Create a sequence of job grades – For each job grade, define the job grade in words
• Nature of the duties performed; Examples:
– Importance – Difficulty
• Nature of supervision; Example:
– Close supervision with limited judgment vs. little supervision with extensive judgment
– Use the job descriptions to classify each job into a job grade
Job Evaluation Pay Systems
• Job Grading (Job Classification) (cont’d.) – Select a set of benchmark (key) jobs • Jobs with well-known, stable job content • Jobs that are common in many organizations • Jobs that represent the range of jobs being evaluated • Jobs for which market pay data is available – Use the market pay data on the benchmark jobs to set the pay for each job grade – All the jobs (including the non-benchmark jobs) in a specific job grade get the pay associated with that job grade
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Factor Comparison
– Select a set of benchmark (key) jobs
• Jobs with well-known, stable job content • Jobs that are common in many organizations • Jobs that represent the range of jobs being evaluated • Jobs that represent the range of each compensable factor
– Compensable factors: the characteristics about jobs that are used to set pay – Example of compensable factors: skill, effort, responsibility, and working conditions
• Jobs for which market pay data is available
C. Individual-Pay Determination:
On what do we base our individual pay determination?
– performance – seniority – ??? (politics, non-job relevant issues)
Equity Issues
• Individual Equity: comparisons across individuals in the same job in the same organization
– Example: In a retail store, is the pay difference between 2 Assistant Store Managers perceived as fair?
• Internal Equity: comparisons across jobs in the same organization
– Example: In a retail store, is the pay difference between the Store Manager and an Assistant Store Manager perceived as fair?
Equity Issues (cont’d.)
• External Equity: comparisons of similar jobs in different organizations
– Match the market (match the competition)
• No advantage or disadvantage in costs or in attracting and retaining employees
– Lead the market: higher costs offset by:
• Easier to attract and retain employees • More applicants ? “skim the cream” (if valid)
– Lag the market: lower costs offset by:
• Harder to attract and retain employees • Are there other “goodies”? (e.g., promotions)
Equity Theory
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.2
Pay Systems: Market-Based Pay
• Alternative names: Market-Based Pay = Market Pricing = Rank to Market • Steps for each job title:
– Identify the relevant labor market:
• • • • Local Regional National International
Pay Systems: Market-Based Pay
• Steps for each job title (cont’d.):
– Obtain market pay data (cont’d.):
• Or perform a market pay (wage & salary) survey:
– Identify a sample of organizations in the relevant labor market that have the job title – Contact each organization and ask how much they pay the job title (minimum, average, maximum) – Avoid anti-trust (pay-fixing) concerns: » Use an independent consultant to collect data » Collect data several months old (e.g., 3 months) » Include at least 5 employers for each job title » Have consultant report summary statistics only
– Use the market pay data to set pay
Pay Systems: Market-Based Pay • Strengths:
– Not too complicated – Can adjust actual pay for each job to match, lead, or lag the market
• Weaknesses:
– Assumes all jobs with the same job title across different organizations are the same – Hard to use for unique jobs – Assumes market differences in pay correctly captures internal equity issues
Job Evaluation Pay Systems
• Factor Comparison (cont’d.)
– Rank the benchmark jobs on the basis of each compensable factor – Collect market pay data for the benchmark jobs – For each benchmark job, allocate benchmark pay across the compensable factors – For each benchmark job, compare the factor rankings to the pay rankings and make adjustments as needed to bring the rankings into agreement
Job Evaluation Pay Systems
• Factor Comparison (cont’d.)
– Construct a job comparison scale, and slot the benchmark jobs into the pay scale for each compensable factor – Apply the scale: slot all the non-benchmark jobs into their proper places on the pay scale for each compensable factor – Determine the pay for each job by adding up the pay from each compensable factor
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Point Method
– Define a set of compensable factors
• Compensable factors: the characteristics of jobs that are used to set pay
• Example: – (1) education – (2) experience – (3) knowledge – (4) physical demands – (5) mental demands – (6) responsibility for equipment & processes – (7) responsibility for materials & products – (8) responsibility for safety – (9) responsibility for the work of others – (10) working conditions – (11) job hazards
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Define a factor scale for each compensable factor
• Factor scale: define in words different levels (or degrees) of the compensable factor
• Example: Factor scale for “knowledge”: – 1st Degree: reading & writing; adding & subtracting of whole numbers; following instructions; no interpretation – 2nd Degree: arithmetic with decimals & fractions; using measuring instruments; interpretation required – 3rd Degree: mathematics; precision measuring instruments; 1–3 years applied trades training – 4th Degree: advanced mathematics; 2 year technical college – 5th Degree: higher mathematics; engineering degree
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Assign points to each degree of each Compensable factor
• Example:
Source of table: Fisher, Schoenfeldt, & Shaw (2003), Table 12.4
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Job evaluation: evaluate each job to determine the number of points to assign to that job on each compensable factor
• Frequently done by a job evaluation committee • Use the job descriptions as the source of job information • For each job, add up the number of points on each compensable factor to get the total job evaluation points for the job
– Jobs with more total points have more of the things we value in setting pay
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Select a set of benchmark (key) jobs
• • • • Jobs with stable job content Jobs that are common in many organizations Jobs that can be defined with precision Jobs that are performed similarly across organizations • Jobs that represent the range of jobs being evaluated • Jobs for which market pay data is available
– Identify the relevant labor market for each benchmark job
Job Evaluation Pay Systems
• Point Method (cont’d.)
– For each benchmark job, collect pay information in the relevant labor market
• Use pay data collected by others • Or perform a market pay (wage & salary) survey:
– Identify a sample of organizations in the relevant labor market that have the benchmark job title – Contact each organization and ask how much they pay the job title (minimum, average, maximum) – Avoid anti-trust (pay-fixing) concerns: » Use an independent consultant to collect data » Collect data several months old (e.g., 3 months) » Include at least 5 employers for each job title » Have consultant report summary statistics only
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Estimate the market pay lines:
• Run simple regressions using the benchmark jobs as the data points:
– Min pay line: regress minimum pay (dependent variable) on points (independent variable) – Max pay line: regress maximum pay (dependent variable) on points (independent variable)
– Use the estimated market pay lines to determine the pay ranges for each job (benchmark and non-benchmark jobs) – Optional: create pay grades
Broad banding
Definition: • Broad banding (or 'broad grades') is the consolidation of traditional pay structures, consisting of many, narrow pay ranges into a few, wider ranges or bands. Purpose: • Broad banding is intended to support agile, flatter, faster-paced, debureaucratized organizational cultures.
Use of Broad-banding
Broad-bands are imperative for companies with competency-based pay programs, but are also used in companies with longevity- and performance-based pay programs. Companies employ broad banding to: • facilitate change • avoid multiple pay structures • drive pay decision-making downward (empowering managers) • provide greater latitude in management pay decisions • promote lateral moves or in-grade promotions • reduce use of promotions to increase pay • promote career development / learning • reduce the need for precise job analysis/evaluation • promote fewer, broadly-defined jobs • focus on the person instead of the job • facilitate quick responses to changing goals
Structure of Broad- banding
Companies adopting a broadband structure generally reduce the number of salary ranges by one-half to two-thirds. Most broad-banding companies use 10 bands: • 2 for the executive level • 4 for the managerial and professional level • 4 for the non-managerial or hourly
Prevalence:
• Broad-bands (and career bands) are still viewed as a novel approach to pay, yet to be proven workable. While companies continue to move to broadband pay programs, anecdotal reports indicate that many early-adopters are returning to more traditional (albeit relatively wide) pay structures.
Broad- banding
Success: Successful use of broad-banding requires that: • top management has a clear goals, understands the pros and cons, commitment • all managers are mature and highly trained in HRM and compensation Pitfalls: Before moving to broad-banding, companies should consider the following: • Broad-banding demands that managers are aware of, and can interpret, market pay data • Broadband control points are not precise for individual jobs • Broad-banding increases the potential for employees to float to the top of the band, way out of sync with the market • Broad-bands lack the automatic cost-control mechanism inherent in narrow pay ranges • Broad-banding eliminates the possibility for precise job analysis/evaluation
Various Types of Incentives
1. Profit-sharing plans
2. Gain-sharing plans 3. Lump-sum bonuses
4. Individual plans (e.g., piece-rate plans, merit pay)
ESOP
• Employee Stock Ownership Plans (ESOPs) involve granting some ownership stake in the company to employees (some or all) with a view to creating ownership attitudes and aligning their interests with that of the company and its shareholders. ESOPs can be in the form of Stock Option Plans, Phantom Equity Plans and Stock Purchase Plans.
Stock Options
• Under a Stock Option Plan a company grants to an employee the right (option) to buy a certain number of shares in the company at a fixed price for a certain number of years (option period). The fixed price is called the 'grant' or 'strike' or 'exercise' price and is typically the market value / fair value of the shares on the date of grant. Since the grant price remains fixed over the term of the option, the employee expects that the share price would increase and he would gain by exercising his option at a lower price. • Before the employee can exercise the option he is usually required to complete the vesting period (or fulfill other vesting restrictions) which typically require that he continue to work for the Company for a minimum number of years (three to five years) before part or all of the options can be exercised. Many a times, certain performance targets are set before the options can be exercised
Phantom Equity Plans (PEPs)
Phantom Equity Plans (PEPs) or Stock Appreciation Rights (SARs) provide employees with one or more benefits of stock ownership without actually making them an actual owner. It is a performance based incentive that is linked to the performance of the company as a whole as reflected in its Share Value. An employee who has Phantom Equity Stock can receive the upside benefits of stock ownership, without having to invest any money and thereby eliminating an owner's risk of losing invested capital. PEPs/SARs are used where the existing owners, say in a closely held company, do not intend parting ownership control, but nevertheless intend to derive benefits of an ESOP.
Stock Purchase Plans
• Stock Purchase Plans are generally used in listed Companies, wherein the employees are given the right to acquire shares of the company at a price lower than the prevailing market price. The discount could vary from 5% to 25% and is expected to act as a sufficient incentive for the employee to acquire the stock, thereby creating ownership attitudes and a focus towards corporate performance
The current legal framework setting up ESOPs in India
• The entire legal framework for setting up ESOPs is now in place. Indian Companies Act permits grant of shares and sweat equity to employees. SEBI has also announced detailed guidelines for grant of Stock Options and Stock Purchase Plans by listed companies. The taxability of gains arising out of exercise of stock options etc. has been clarified through necessary amendments to the Indian Income Tax Act. The Reserve Bank of India also permits employees of Indian subsidiaries of foreign companies to acquire shares of the foreign holding company.
Basis of ESOPs to various employees
Some companies grant • the same number of options etc. across the board to all employees. • Most grant it on the basis of salary and grade levels. It is possible to set /fine tune the grant levels on performance criteria which may be set at an individual level, group a division level or for the company as a whole. • Essentially ESOPs are a pay-for-performance rewards - the level of grants should be calibrated on the extent of performance and responsibility handled
Leverage the power of ESOPs
• Successive research in the USA and elsewhere has shown that employee ownership can bring phenomenal results, if sharing ownership is accompanied by a committed effort to create a culture in which employees are trained and encouraged to think and perform like owners. Educating employees about the plan, the broader aspects of business, providing relevant information and encouraging employees to make informed decisions are some of the key elements in deriving the best mileage from an ESOP.
Why do companies set up ESOPs for Employees ?
• It is a tremendous motivator and can get employees highly involved in their jobs and focused on corporate performance. • It is vital tool to attract and retain quality employees, fostering in them long term attitudes. As a compensation tool, ESOPs offer rewards that can exceed the expectations of employees but are still affordable to the company as they are highly performance driven. • Internationally, ESOPs are used for granting retirement benefits to employees and as succession plan for owners. • Increasingly, sheer competition dictates setting up ESOPs for employees. Strategically, economically, financially or philosophically ESOPs are a win-win combination.
Minimum Wages Act
• The enactment of the Minimum Wages Act in 1948 is a landmark in the labor history of India. The Act provides for fixation of minimum wages for notified scheduled employment • As per Government of India, for all the States, the minimum wages have been fixed at about Rs 40 to 60 per day per person, average about Rs 50 per day for 25 days per month.
Accident / Health care Benefits
The employee benefits realized through these services include: • Enhancing workplace safety • Decreasing the risk of employee injuries • Improving employee health and morale • Decreasing turnover • Minimizing workers’ comp and healthcare costs • Increasing productivity • Saving money
Accident / Health care Benefits
Corporate health promotion programs can bring a positive return on investment The company needs to build their investment strategies by analyzing : • What type of return on our wellness Rupee investment do we expect? • What degree of investment are we willing to place on developing our “employee health” asset? • Are we willing to invest in the long or short-term based on expected returns? • Requirements of the Business to adhere to regulations/ compliances
Some Accident /Health care benefits
• Health education & awareness • Dieticians for their canteen menu • Medical room / sick bay manned by qualified staff • Importance of work life balance • Healthy life style changes • Medical insurance for spouse, children & parents ( dental / vision coverage) • Accident insurance( disability / death) covers for groups/ individual and families of employees
Minimum wage Act
• http://labour.nic.in/wagecell/welcome.html • http://lisd.delhi.nic.in/AnnualReport200203/lab05.pdf
Income Tax - Income Tax Rates/ Slab 2007-08
PERSONAL TAX RATES For individuals, HUF, Association of Persons (AOP) and Body of
individuals (BOI):
Up to 1,10,000 Up to 1,45,000 (for women) Up to 1,95,000 (for resident individual of 65 years or above) 1,10,000 – 1,50,000 1,50,001 – 2,50,000 2,50,001 – 1,000,000 1,000,001 upwards
NIL
10% 20% 30% 30*%
A surcharge of 10% of the total tax liability is applicable where the total income exceeds Rs 1,000,000.
Profession Tax
Who is liable to pay Profession Tax (a) Every person getting salary or earning wages about Rs.5000/- per month (b) All legal practitioners including solicitors and Notary public standing in profession for more than 5 years in Municipal Area and more than 10 years in other areas (c) Medical practitioners standing in profession for more than two years. (d) Dealers whose Gross Turnover exceeds Rs.1,00,000/-. (e) Agents having annual gross income of Rs.15,001/- or above (f) Estate agents, brokers, promoters, commission agents, and contractors whose business exceeds Rs.1 lakh. (g) clearing agents, customs agents, licensed shipping brokers (h) Owners and lessee of beauty parlors, health resorts, slimming centers, air conditioned hair dressing saloon. (i) Technical and professional consultants, tax consultants, chartered accounts, cost accountants.
Profession Tax
Profession tax is different from state to state. Maharashtra it is: if the salary is less than Rs. 2500 2500- 3500 3500- 5000 5000-10000 10000 & above nil 60/120/175/200/-
Ref: Maharashtra state tax on trade, callings and employment act, 1975
Fringe Benefits Tax
FBT Provisions in Brief • Levi able on Employer. • Levi able on Fringe benefits provided or deemed to have been provided to employees @ 30% on value of fringe benefits. • Fringe Benefits divided in two categories – Fringe Benefits directly provided to employees consisting of benefit, amenity, facility, free/concessional tickets & contribution to approved superannuation fund section 115WB(1). – Deemed fringe benefits to employees on certain expenditure incurred by employer as specified in section 115WB(2).
Fringe Benefits Tax
Deemed Fringe Benefits Section 115WB(2) Value of Fringe Benefits 20 %
• • • • • • • • • • • •
• • • • •
Free/concession ticket to employees Contribution to Superannuation Fund Entertainment Expenditure Provision of Hospitality of every kind to any person Conference Expenditure Sales promotion expenditure Employees' Welfare expenditure Conveyance, Tour & Travel (incld. Foreign Travel) Hotel, Boarding, Lodging facilities Motor Car expenses (including depreciation) Telephone (including mobile phone) Guest House expenses
Festival celebrations Health club & similar facilities Any other Club facilities Gifts Scholarships 50 %
CTC or cost to company
Cost to Company can also be used to refer to the total cost that an organization is spending towards their employee including the Salary, Perks, Cost related to benefits, Cost related to hiring, Training, Statutory Contributions etc.
A salary quoted as CTC may include some/ all of the following: ~ Cash component of salary ~ The rental value of the ( Individual/shared) accommodation provided ~ Interest on the deposit paid for your flat ~ Allocated cost of furnishings ~ Company's contribution towards your provident fund ~ Your contribution towards PF ~ And, of course, the taxes that you have to pay
doc_297345293.ppt
A complete and comprehensive PPT explains about compensation and benefits.
Compensation and Benefits
Compensation and Benefits
• Compensation is the process of providing adequate, equitable and fair remuneration to the employees
• Benefits are Non-Wage benefits, such as paid vacations, pensions, health and welfare provisions, life insurance, the cost of which is borne in whole or in part by the employer.
Compensation System Components
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.1
Compensation and Benefits
• • • • Compensation System Components Equity Issues Equity Theory Pay Systems
– Market-Based Pay – Job Evaluation Pay Systems
• Pay Policy Issues
Compensation Overview
Q1: What are the basic goals of any compensation system?
– to attract high quality employees – to retain high quality employees – to stimulate high performance
Q2: What are the basic components of any compensation system?
– base pay (wages) – incentives – benefits
Compensation Overview
Q3: What are the basic tools of any compensation system?
– Wage surveys – Job analysis/evaluation – Performance appraisal
Q4: Why do wages differ?
– Differences by industry – Differences by occupation – Differences based on individual performance, seniority, etc.
Compensation decisions are influenced by both internal and external factors:
Internal:
– financial conditions – corporate/managerial philosophy – corporate strategy/life cycle
External:
– labor market factors
– area wages/cost of living – collective bargaining agreements – government regulations
* Fair Labor Standards Act (1938)
* Equal Pay Act (1963)
All organizations face three basic compensation decisions:
A. Pay-Level Decision:
– Are we going to lead, meet, or lag the market? – Comparison: Employees working on similar jobs in other organizations
B. Pay-Structure Decision:
– How do we determine differences in pay for various jobs in our organization? – Comparison: Employees working on different jobs within the organization
C. Individual Pay Determination:
– How do we determine how much to pay various people in our organization? – Comparison: Employees working on the same jobs within the organization
A. Pay-Level Decisions
Wage and salary surveys are one of the major tools used to make external comparisons
Decision points: • Which jobs to make comparison for? • What is the appropriate labor market? • Which organizations to survey?
B. Pay-Structure Decisions:
Pay-structure decisions are typically made in one of two ways:
a. based on attributes of employees: -- knowledge- or skill-based pay
b. based on attributes of the job: -- job evaluation:
???the process of determining the relative worth of various jobs within an organization
Q: Why do job evaluation?
Four Types of Job Evaluation Systems
1. 2. 3. 4. Ranking Systems Classification (Job Grade) Systems Point Systems Factor Comparison Systems
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Job Ranking
– Review job descriptions – Rank jobs in order of relative worth or importance to the organization – Use the rank ordering to set pay for each job
• Pay higher ranked jobs more than lower ranked jobs
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Job Grading (Job Classification)
– Create a sequence of job grades – For each job grade, define the job grade in words
• Nature of the duties performed; Examples:
– Importance – Difficulty
• Nature of supervision; Example:
– Close supervision with limited judgment vs. little supervision with extensive judgment
– Use the job descriptions to classify each job into a job grade
Job Evaluation Pay Systems
• Job Grading (Job Classification) (cont’d.) – Select a set of benchmark (key) jobs • Jobs with well-known, stable job content • Jobs that are common in many organizations • Jobs that represent the range of jobs being evaluated • Jobs for which market pay data is available – Use the market pay data on the benchmark jobs to set the pay for each job grade – All the jobs (including the non-benchmark jobs) in a specific job grade get the pay associated with that job grade
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Factor Comparison
– Select a set of benchmark (key) jobs
• Jobs with well-known, stable job content • Jobs that are common in many organizations • Jobs that represent the range of jobs being evaluated • Jobs that represent the range of each compensable factor
– Compensable factors: the characteristics about jobs that are used to set pay – Example of compensable factors: skill, effort, responsibility, and working conditions
• Jobs for which market pay data is available
C. Individual-Pay Determination:
On what do we base our individual pay determination?
– performance – seniority – ??? (politics, non-job relevant issues)
Equity Issues
• Individual Equity: comparisons across individuals in the same job in the same organization
– Example: In a retail store, is the pay difference between 2 Assistant Store Managers perceived as fair?
• Internal Equity: comparisons across jobs in the same organization
– Example: In a retail store, is the pay difference between the Store Manager and an Assistant Store Manager perceived as fair?
Equity Issues (cont’d.)
• External Equity: comparisons of similar jobs in different organizations
– Match the market (match the competition)
• No advantage or disadvantage in costs or in attracting and retaining employees
– Lead the market: higher costs offset by:
• Easier to attract and retain employees • More applicants ? “skim the cream” (if valid)
– Lag the market: lower costs offset by:
• Harder to attract and retain employees • Are there other “goodies”? (e.g., promotions)
Equity Theory
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.2
Pay Systems: Market-Based Pay
• Alternative names: Market-Based Pay = Market Pricing = Rank to Market • Steps for each job title:
– Identify the relevant labor market:
• • • • Local Regional National International
Pay Systems: Market-Based Pay
• Steps for each job title (cont’d.):
– Obtain market pay data (cont’d.):
• Or perform a market pay (wage & salary) survey:
– Identify a sample of organizations in the relevant labor market that have the job title – Contact each organization and ask how much they pay the job title (minimum, average, maximum) – Avoid anti-trust (pay-fixing) concerns: » Use an independent consultant to collect data » Collect data several months old (e.g., 3 months) » Include at least 5 employers for each job title » Have consultant report summary statistics only
– Use the market pay data to set pay
Pay Systems: Market-Based Pay • Strengths:
– Not too complicated – Can adjust actual pay for each job to match, lead, or lag the market
• Weaknesses:
– Assumes all jobs with the same job title across different organizations are the same – Hard to use for unique jobs – Assumes market differences in pay correctly captures internal equity issues
Job Evaluation Pay Systems
• Factor Comparison (cont’d.)
– Rank the benchmark jobs on the basis of each compensable factor – Collect market pay data for the benchmark jobs – For each benchmark job, allocate benchmark pay across the compensable factors – For each benchmark job, compare the factor rankings to the pay rankings and make adjustments as needed to bring the rankings into agreement
Job Evaluation Pay Systems
• Factor Comparison (cont’d.)
– Construct a job comparison scale, and slot the benchmark jobs into the pay scale for each compensable factor – Apply the scale: slot all the non-benchmark jobs into their proper places on the pay scale for each compensable factor – Determine the pay for each job by adding up the pay from each compensable factor
Job Evaluation Pay Systems
Source of figure: Fisher, Schoenfeldt, & Shaw (2003), Figure 12.3
Job Evaluation Pay Systems
• Point Method
– Define a set of compensable factors
• Compensable factors: the characteristics of jobs that are used to set pay
• Example: – (1) education – (2) experience – (3) knowledge – (4) physical demands – (5) mental demands – (6) responsibility for equipment & processes – (7) responsibility for materials & products – (8) responsibility for safety – (9) responsibility for the work of others – (10) working conditions – (11) job hazards
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Define a factor scale for each compensable factor
• Factor scale: define in words different levels (or degrees) of the compensable factor
• Example: Factor scale for “knowledge”: – 1st Degree: reading & writing; adding & subtracting of whole numbers; following instructions; no interpretation – 2nd Degree: arithmetic with decimals & fractions; using measuring instruments; interpretation required – 3rd Degree: mathematics; precision measuring instruments; 1–3 years applied trades training – 4th Degree: advanced mathematics; 2 year technical college – 5th Degree: higher mathematics; engineering degree
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Assign points to each degree of each Compensable factor
• Example:
Source of table: Fisher, Schoenfeldt, & Shaw (2003), Table 12.4
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Job evaluation: evaluate each job to determine the number of points to assign to that job on each compensable factor
• Frequently done by a job evaluation committee • Use the job descriptions as the source of job information • For each job, add up the number of points on each compensable factor to get the total job evaluation points for the job
– Jobs with more total points have more of the things we value in setting pay
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Select a set of benchmark (key) jobs
• • • • Jobs with stable job content Jobs that are common in many organizations Jobs that can be defined with precision Jobs that are performed similarly across organizations • Jobs that represent the range of jobs being evaluated • Jobs for which market pay data is available
– Identify the relevant labor market for each benchmark job
Job Evaluation Pay Systems
• Point Method (cont’d.)
– For each benchmark job, collect pay information in the relevant labor market
• Use pay data collected by others • Or perform a market pay (wage & salary) survey:
– Identify a sample of organizations in the relevant labor market that have the benchmark job title – Contact each organization and ask how much they pay the job title (minimum, average, maximum) – Avoid anti-trust (pay-fixing) concerns: » Use an independent consultant to collect data » Collect data several months old (e.g., 3 months) » Include at least 5 employers for each job title » Have consultant report summary statistics only
Job Evaluation Pay Systems
• Point Method (cont’d.)
– Estimate the market pay lines:
• Run simple regressions using the benchmark jobs as the data points:
– Min pay line: regress minimum pay (dependent variable) on points (independent variable) – Max pay line: regress maximum pay (dependent variable) on points (independent variable)
– Use the estimated market pay lines to determine the pay ranges for each job (benchmark and non-benchmark jobs) – Optional: create pay grades
Broad banding
Definition: • Broad banding (or 'broad grades') is the consolidation of traditional pay structures, consisting of many, narrow pay ranges into a few, wider ranges or bands. Purpose: • Broad banding is intended to support agile, flatter, faster-paced, debureaucratized organizational cultures.
Use of Broad-banding
Broad-bands are imperative for companies with competency-based pay programs, but are also used in companies with longevity- and performance-based pay programs. Companies employ broad banding to: • facilitate change • avoid multiple pay structures • drive pay decision-making downward (empowering managers) • provide greater latitude in management pay decisions • promote lateral moves or in-grade promotions • reduce use of promotions to increase pay • promote career development / learning • reduce the need for precise job analysis/evaluation • promote fewer, broadly-defined jobs • focus on the person instead of the job • facilitate quick responses to changing goals
Structure of Broad- banding
Companies adopting a broadband structure generally reduce the number of salary ranges by one-half to two-thirds. Most broad-banding companies use 10 bands: • 2 for the executive level • 4 for the managerial and professional level • 4 for the non-managerial or hourly
Prevalence:
• Broad-bands (and career bands) are still viewed as a novel approach to pay, yet to be proven workable. While companies continue to move to broadband pay programs, anecdotal reports indicate that many early-adopters are returning to more traditional (albeit relatively wide) pay structures.
Broad- banding
Success: Successful use of broad-banding requires that: • top management has a clear goals, understands the pros and cons, commitment • all managers are mature and highly trained in HRM and compensation Pitfalls: Before moving to broad-banding, companies should consider the following: • Broad-banding demands that managers are aware of, and can interpret, market pay data • Broadband control points are not precise for individual jobs • Broad-banding increases the potential for employees to float to the top of the band, way out of sync with the market • Broad-bands lack the automatic cost-control mechanism inherent in narrow pay ranges • Broad-banding eliminates the possibility for precise job analysis/evaluation
Various Types of Incentives
1. Profit-sharing plans
2. Gain-sharing plans 3. Lump-sum bonuses
4. Individual plans (e.g., piece-rate plans, merit pay)
ESOP
• Employee Stock Ownership Plans (ESOPs) involve granting some ownership stake in the company to employees (some or all) with a view to creating ownership attitudes and aligning their interests with that of the company and its shareholders. ESOPs can be in the form of Stock Option Plans, Phantom Equity Plans and Stock Purchase Plans.
Stock Options
• Under a Stock Option Plan a company grants to an employee the right (option) to buy a certain number of shares in the company at a fixed price for a certain number of years (option period). The fixed price is called the 'grant' or 'strike' or 'exercise' price and is typically the market value / fair value of the shares on the date of grant. Since the grant price remains fixed over the term of the option, the employee expects that the share price would increase and he would gain by exercising his option at a lower price. • Before the employee can exercise the option he is usually required to complete the vesting period (or fulfill other vesting restrictions) which typically require that he continue to work for the Company for a minimum number of years (three to five years) before part or all of the options can be exercised. Many a times, certain performance targets are set before the options can be exercised
Phantom Equity Plans (PEPs)
Phantom Equity Plans (PEPs) or Stock Appreciation Rights (SARs) provide employees with one or more benefits of stock ownership without actually making them an actual owner. It is a performance based incentive that is linked to the performance of the company as a whole as reflected in its Share Value. An employee who has Phantom Equity Stock can receive the upside benefits of stock ownership, without having to invest any money and thereby eliminating an owner's risk of losing invested capital. PEPs/SARs are used where the existing owners, say in a closely held company, do not intend parting ownership control, but nevertheless intend to derive benefits of an ESOP.
Stock Purchase Plans
• Stock Purchase Plans are generally used in listed Companies, wherein the employees are given the right to acquire shares of the company at a price lower than the prevailing market price. The discount could vary from 5% to 25% and is expected to act as a sufficient incentive for the employee to acquire the stock, thereby creating ownership attitudes and a focus towards corporate performance
The current legal framework setting up ESOPs in India
• The entire legal framework for setting up ESOPs is now in place. Indian Companies Act permits grant of shares and sweat equity to employees. SEBI has also announced detailed guidelines for grant of Stock Options and Stock Purchase Plans by listed companies. The taxability of gains arising out of exercise of stock options etc. has been clarified through necessary amendments to the Indian Income Tax Act. The Reserve Bank of India also permits employees of Indian subsidiaries of foreign companies to acquire shares of the foreign holding company.
Basis of ESOPs to various employees
Some companies grant • the same number of options etc. across the board to all employees. • Most grant it on the basis of salary and grade levels. It is possible to set /fine tune the grant levels on performance criteria which may be set at an individual level, group a division level or for the company as a whole. • Essentially ESOPs are a pay-for-performance rewards - the level of grants should be calibrated on the extent of performance and responsibility handled
Leverage the power of ESOPs
• Successive research in the USA and elsewhere has shown that employee ownership can bring phenomenal results, if sharing ownership is accompanied by a committed effort to create a culture in which employees are trained and encouraged to think and perform like owners. Educating employees about the plan, the broader aspects of business, providing relevant information and encouraging employees to make informed decisions are some of the key elements in deriving the best mileage from an ESOP.
Why do companies set up ESOPs for Employees ?
• It is a tremendous motivator and can get employees highly involved in their jobs and focused on corporate performance. • It is vital tool to attract and retain quality employees, fostering in them long term attitudes. As a compensation tool, ESOPs offer rewards that can exceed the expectations of employees but are still affordable to the company as they are highly performance driven. • Internationally, ESOPs are used for granting retirement benefits to employees and as succession plan for owners. • Increasingly, sheer competition dictates setting up ESOPs for employees. Strategically, economically, financially or philosophically ESOPs are a win-win combination.
Minimum Wages Act
• The enactment of the Minimum Wages Act in 1948 is a landmark in the labor history of India. The Act provides for fixation of minimum wages for notified scheduled employment • As per Government of India, for all the States, the minimum wages have been fixed at about Rs 40 to 60 per day per person, average about Rs 50 per day for 25 days per month.
Accident / Health care Benefits
The employee benefits realized through these services include: • Enhancing workplace safety • Decreasing the risk of employee injuries • Improving employee health and morale • Decreasing turnover • Minimizing workers’ comp and healthcare costs • Increasing productivity • Saving money
Accident / Health care Benefits
Corporate health promotion programs can bring a positive return on investment The company needs to build their investment strategies by analyzing : • What type of return on our wellness Rupee investment do we expect? • What degree of investment are we willing to place on developing our “employee health” asset? • Are we willing to invest in the long or short-term based on expected returns? • Requirements of the Business to adhere to regulations/ compliances
Some Accident /Health care benefits
• Health education & awareness • Dieticians for their canteen menu • Medical room / sick bay manned by qualified staff • Importance of work life balance • Healthy life style changes • Medical insurance for spouse, children & parents ( dental / vision coverage) • Accident insurance( disability / death) covers for groups/ individual and families of employees
Minimum wage Act
• http://labour.nic.in/wagecell/welcome.html • http://lisd.delhi.nic.in/AnnualReport200203/lab05.pdf
Income Tax - Income Tax Rates/ Slab 2007-08
PERSONAL TAX RATES For individuals, HUF, Association of Persons (AOP) and Body of
individuals (BOI):
Up to 1,10,000 Up to 1,45,000 (for women) Up to 1,95,000 (for resident individual of 65 years or above) 1,10,000 – 1,50,000 1,50,001 – 2,50,000 2,50,001 – 1,000,000 1,000,001 upwards
NIL
10% 20% 30% 30*%
A surcharge of 10% of the total tax liability is applicable where the total income exceeds Rs 1,000,000.
Profession Tax
Who is liable to pay Profession Tax (a) Every person getting salary or earning wages about Rs.5000/- per month (b) All legal practitioners including solicitors and Notary public standing in profession for more than 5 years in Municipal Area and more than 10 years in other areas (c) Medical practitioners standing in profession for more than two years. (d) Dealers whose Gross Turnover exceeds Rs.1,00,000/-. (e) Agents having annual gross income of Rs.15,001/- or above (f) Estate agents, brokers, promoters, commission agents, and contractors whose business exceeds Rs.1 lakh. (g) clearing agents, customs agents, licensed shipping brokers (h) Owners and lessee of beauty parlors, health resorts, slimming centers, air conditioned hair dressing saloon. (i) Technical and professional consultants, tax consultants, chartered accounts, cost accountants.
Profession Tax
Profession tax is different from state to state. Maharashtra it is: if the salary is less than Rs. 2500 2500- 3500 3500- 5000 5000-10000 10000 & above nil 60/120/175/200/-
Ref: Maharashtra state tax on trade, callings and employment act, 1975
Fringe Benefits Tax
FBT Provisions in Brief • Levi able on Employer. • Levi able on Fringe benefits provided or deemed to have been provided to employees @ 30% on value of fringe benefits. • Fringe Benefits divided in two categories – Fringe Benefits directly provided to employees consisting of benefit, amenity, facility, free/concessional tickets & contribution to approved superannuation fund section 115WB(1). – Deemed fringe benefits to employees on certain expenditure incurred by employer as specified in section 115WB(2).
Fringe Benefits Tax
Deemed Fringe Benefits Section 115WB(2) Value of Fringe Benefits 20 %
• • • • • • • • • • • •
• • • • •
Free/concession ticket to employees Contribution to Superannuation Fund Entertainment Expenditure Provision of Hospitality of every kind to any person Conference Expenditure Sales promotion expenditure Employees' Welfare expenditure Conveyance, Tour & Travel (incld. Foreign Travel) Hotel, Boarding, Lodging facilities Motor Car expenses (including depreciation) Telephone (including mobile phone) Guest House expenses
Festival celebrations Health club & similar facilities Any other Club facilities Gifts Scholarships 50 %
CTC or cost to company
Cost to Company can also be used to refer to the total cost that an organization is spending towards their employee including the Salary, Perks, Cost related to benefits, Cost related to hiring, Training, Statutory Contributions etc.
A salary quoted as CTC may include some/ all of the following: ~ Cash component of salary ~ The rental value of the ( Individual/shared) accommodation provided ~ Interest on the deposit paid for your flat ~ Allocated cost of furnishings ~ Company's contribution towards your provident fund ~ Your contribution towards PF ~ And, of course, the taxes that you have to pay
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