Description
This is a PPT explains about the compensation methods and policies.
Introduction
? Compensation is a HRM function that deals with every
type of reward individuals receive in exchange of performing organizational tasks.
? It can be financial or non financial
Objective of compensation
According to Pattron effective compensation should have following factors : 1. Adequate 2. Equitable 3. Balanced 4. Cost-effective 5. Secure 6. Incentive-providing 7. Acceptable to the employee
Pay Differential
? Allows firms to recognize contribution of different
employees towards organization goals
? Provides organizations with an important tool for
emphasizing norms of enterprise
? Helps in maintaining internal equity ? Allows firms to recognize market changes between jobs in
the same grade
Methods of Payment
? Flat Rates ? Single flat rates are often paid ? Seniority and experience do differ ? Performance differentials are ignored
? Payment for Time Worked ? Wage pay calculated at an hourly rate ? Salary pay calculated at an annual or monthly rate ? Wages and salaries are adjusted once a year
Methods of Payment
? People-Based Pay ? Skill-based Pay ? Knowledge-based pay ? Credential-based pay ? Feedback Pay ? Competency-based pay ? Executive Pay ? Growing dramatically for the past two decades ? Managers use their power over boards to obtain higher compensation
Variable Pay
“Any compensation plan that emphasizes a shared focus on organizational success, broadens opportunity for incentives to nontraditional groups (such as nonexecutives or managers), and operates outside the base pay increase system”
Component of successful variable pay system
? Support by management : Executives and line mangers
must demonstrate commitment ? Acceptance by employees: Employees must accept the plan as equitable ? Supportive organizational culture: Must be based on teamwork, trust and involvement of employees when setting goals ? Timing: Must be launched when there is minimal risk of economic downturn
Incentive compensation
Merit Incentive
? Pay increases based on rated performance over a time period ? Can work in circumstances where the job is well designed
and the performance criteria is assessable
Problems
? Employees fail to make connection between pay and
performance ? Secrecy of reward is perceived as inequity ? Size of merit award has little effect on performance
Incentive compensation
Individual Incentives
? Straight piecework: Pay determination is based on
units of production per time period ? Standard-hour plan: Wages based on completion of a job in some expected period of time ? Taylor Plan: Uses two separate piecework rates ? Production Bonus System: Bonus when employee exceeds the standard ? Commission: Based on percentage of sales
Incentive compensation
Team Incentives
? Difficult to measure individual output ? Cooperation is needed to complete a task ? Reduce administrative cost ? Small-group incentives
Organization wide Incentives
Organization wide Incentives: Suggestion Systems
? Oldest Management tool ? Formal method of obtaining employees advice about
improvement in organizational effectiveness
? Key to successful systems is employees involvement ? Essential elements: Management commitment, Clear goals,
Designated administrator, structured award system, Regular Policy and Immediate response to suggestions
Organization wide Incentives
Organization wide Incentives: Gain sharing
? Company wide group incentive plans for distributing gains ? Lincoln Electric plan: Employees are paid for what they
individually produce ? Scanlon Plan: Group incentive and employee participation scheme ? Rucker Plan: Based on employees involvement and suggestion ? Impro Share: Ties economic rewards to performance without any attempt at participation
Organization wide Incentives
Organization wide Incentives: Profit sharing
? Distribute a fixed amount of total organizational profit
to employees
Ways
? Current distribution plans
? Deferred plans ? A Combination of both
Advantages
? Do not need elaborate cost accounting system ? Easily implemented by companies of any size
Issues in compensation
? Pay Secrecy ? Open System ? Secret System ? Pay Security ? Guaranteed annual Wage ? Supplementary unemployment benefits ? Cost of Living Adjustments ? Severance Pay ? Pay Compression
References
? Human Resource Management Text and Cases – VSP
Rao ? Human Resource Management – John M Ivancevich
Thank you
doc_718030996.pptx
This is a PPT explains about the compensation methods and policies.
Introduction
? Compensation is a HRM function that deals with every
type of reward individuals receive in exchange of performing organizational tasks.
? It can be financial or non financial
Objective of compensation
According to Pattron effective compensation should have following factors : 1. Adequate 2. Equitable 3. Balanced 4. Cost-effective 5. Secure 6. Incentive-providing 7. Acceptable to the employee
Pay Differential
? Allows firms to recognize contribution of different
employees towards organization goals
? Provides organizations with an important tool for
emphasizing norms of enterprise
? Helps in maintaining internal equity ? Allows firms to recognize market changes between jobs in
the same grade
Methods of Payment
? Flat Rates ? Single flat rates are often paid ? Seniority and experience do differ ? Performance differentials are ignored
? Payment for Time Worked ? Wage pay calculated at an hourly rate ? Salary pay calculated at an annual or monthly rate ? Wages and salaries are adjusted once a year
Methods of Payment
? People-Based Pay ? Skill-based Pay ? Knowledge-based pay ? Credential-based pay ? Feedback Pay ? Competency-based pay ? Executive Pay ? Growing dramatically for the past two decades ? Managers use their power over boards to obtain higher compensation
Variable Pay
“Any compensation plan that emphasizes a shared focus on organizational success, broadens opportunity for incentives to nontraditional groups (such as nonexecutives or managers), and operates outside the base pay increase system”
Component of successful variable pay system
? Support by management : Executives and line mangers
must demonstrate commitment ? Acceptance by employees: Employees must accept the plan as equitable ? Supportive organizational culture: Must be based on teamwork, trust and involvement of employees when setting goals ? Timing: Must be launched when there is minimal risk of economic downturn
Incentive compensation
Merit Incentive
? Pay increases based on rated performance over a time period ? Can work in circumstances where the job is well designed
and the performance criteria is assessable
Problems
? Employees fail to make connection between pay and
performance ? Secrecy of reward is perceived as inequity ? Size of merit award has little effect on performance
Incentive compensation
Individual Incentives
? Straight piecework: Pay determination is based on
units of production per time period ? Standard-hour plan: Wages based on completion of a job in some expected period of time ? Taylor Plan: Uses two separate piecework rates ? Production Bonus System: Bonus when employee exceeds the standard ? Commission: Based on percentage of sales
Incentive compensation
Team Incentives
? Difficult to measure individual output ? Cooperation is needed to complete a task ? Reduce administrative cost ? Small-group incentives
Organization wide Incentives
Organization wide Incentives: Suggestion Systems
? Oldest Management tool ? Formal method of obtaining employees advice about
improvement in organizational effectiveness
? Key to successful systems is employees involvement ? Essential elements: Management commitment, Clear goals,
Designated administrator, structured award system, Regular Policy and Immediate response to suggestions
Organization wide Incentives
Organization wide Incentives: Gain sharing
? Company wide group incentive plans for distributing gains ? Lincoln Electric plan: Employees are paid for what they
individually produce ? Scanlon Plan: Group incentive and employee participation scheme ? Rucker Plan: Based on employees involvement and suggestion ? Impro Share: Ties economic rewards to performance without any attempt at participation
Organization wide Incentives
Organization wide Incentives: Profit sharing
? Distribute a fixed amount of total organizational profit
to employees
Ways
? Current distribution plans
? Deferred plans ? A Combination of both
Advantages
? Do not need elaborate cost accounting system ? Easily implemented by companies of any size
Issues in compensation
? Pay Secrecy ? Open System ? Secret System ? Pay Security ? Guaranteed annual Wage ? Supplementary unemployment benefits ? Cost of Living Adjustments ? Severance Pay ? Pay Compression
References
? Human Resource Management Text and Cases – VSP
Rao ? Human Resource Management – John M Ivancevich
Thank you
doc_718030996.pptx