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Amity Business School

Elements of Compensation

Elements of Compensation
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Base Compensation

Indirect Compensation Benefits Pay Incentives

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Indirect Compensation Benefits


Income Protection
Medical insurance Retirement programs, Life insurance, Saving plans

Work / Life Focus


Vacations Flexible Work Arrangements (telecommuting, nontraditional schedules, non-paid time off)

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Indirect Compensation Benefits


Allowances
D.A. P.F. C.C.A Acting Car Books Computer Conveyance / transport Deputation Education LTC Overtime Night-duty Telephone

Pay-Incentive
Micro Level

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Macro Level

Individual

Team

Business Unit Firm

Merit Pay

Bonuses

Gain-sharing

Profit Sharing

Bonuses

Awards

Bonuses

Stock plans

Awards Piece rate

Awards

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Principles of Reward strategy & Gain Sharing

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Principles of Reward strategy


Give value to the reward system. Employees must have a preference for the types of rewards being offered. Many employees prefer cash awards and plaques. Some employees like to see their name in the companys newsletter. Others like the public recognition surrounding award ceremony. Make the reward system simple to understand. Elaborate procedures for evaluating performance, filling out forms, and review by several levels of management lead to confusion. The system must be easy to understand if it is to be used effectively. Lay down performance standards within the control of the team. Make the reward system fair and effective. Ensure participation in the reward system. Involve people in the reward process and empower them to do the needful.

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Gainsharing

Concept of gain-sharing
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Gainsharing is an incentive plan that engages many or all employees in a common effort to achieve a companys productivity objectives, with any resulting cost savings gains shared among employees and the company.

There are three tenets which make for a successful program:


Employee Involvement Commitment Communication

This type of bonus program is most common in manufacturing plants and is designed to reward productivity and improved product quality. It works best when company performance levels can be easily quantified. Gainsharing is used in more than a quarter of the Fortune 1000 companies, as well as many smaller firms and public sector organisations.

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Designing a Gain Sharing Plan

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To determine what is to be accomplished

to determine how employees will be grouped under the program to determine what measures of performance are necessary to meet the stated objectives to design the key elements of the program

to implement the plan and get employees actively involved in a team approach to performance improvement.

to ensure that it stays current with the development of the organization

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Implementing a Gainsharing Plan

Establish general plan objectives e.g. boosting productivity, lowering costs


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Choose specific performance measures e.g. labor hours per unit produced, return on net assets to measure employee performance

Decide on funding formula. What portion of gains will employee receive? Decide on a method for dividing and distributing the employees share of the gains Choose the form of payment cash or common stock Decide how often to pay bonuses? Develop the involvement system. E.g. steering committee, update meetings, suggestion systems. Implement the plan

Advantages

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Attain specific objectives, Increase credibility Stimulate teamwork, Reduce resistance Reduce costs, Sustained increases in productivity. Enhances commitment to organizational goals. Favor the knowledge of the performance of units or branches, Increase the demand from employees for improvement systems, Improvements in product quality, lower rates of absenteeism, defects, and "downtime." Employees become more involved the productivity gains made by the employer. Employees can share in the benefits of employee sponsored improvements.

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Disadvantages
Time consuming to design, implement and administer
Requires employee orientation, education and training

Accurate and timely production and cost data must be available


If not already in place, gain sharing requires a shift to participative management and employee involvement Once you decide to add a gain sharing plan to your company you must pick the type of plan you wish to implement into your company.

Amity Business School Different types of plans a company can implement

Scanlon Plan (Single Ratio Volume)

Rucker Plan

Imposhare

Numerator of ratio (input factor)

Payroll costs

Labor Cost

Actual Hours worked

Denominator of ratio Net sales (plus or minus (output factor) inventories)

Value added

Total standard value hours

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Perquisites

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What are Perquisites?


"Perquisite" may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages.
"Perquisite" is defined in the section17(2) of the Income tax Act as including:
Value of rent-free/concessional rent accommodation provided by the employer. Any sum paid by employer in respect of an obligation which was actually payable by the assessee. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

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Perquisites
Perks Form of Indirect Compensation Competitive package Taxable in hands of employees Develops favorable attitude towards company Increased long term commitment

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Valuation of Perquisites (Rule 3 of Income Tax Rules)


Valuation of Residential Accommodation
Accommodation owned by employer Accommodation taken on lease Furnished Accommodation

Valuation of Motor Car


Owned / Hired by employer used exclusively for official duties Used exclusively for private or personal use Used partly for official and partly for personal use

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Valuation of Perquisites (Rule 3 of Income Tax Rules) Contd...

Sweeper, Gardner, watchman etc. Benefits resulting from supply of gas , electric energy for household consumption Fee or concessional education facilities in own institution Medical facilities Free meals during office hours or through vouchers at eating joints Gift vouchers Expense for credit card

Non -Taxable Perquisites

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Refreshment provided by employer during working hours of office premises Subsidized lunch or dinner in canteen Recreational facilities Subsidized transport from office to residence Goods manufactured by Company sold at subsidized rates to employees etc. Laptops and computers etc. Expenses on telephone, including mobile phone

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Bonus & Social Security

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BONUS
Payment of Bonus Act,1965 Act is applicable to factories and other establishments employing 20 or more employees Minimum rate of 8.33 percent of salary earned Maximum is fixed at 20 percent

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Social Security
Introduced in 1937 Social Security Act Old Age or disability benefits Death payments

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Team Based Pay

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What is a Team
Team Definition (By Katzenbach & Smith, 1993) Group of employees whose members are mutually accountable to each other for common goals. Team members interact on a regular basis. There is the possibility of synergy between team members. Size of team is between 2 and 25 members.

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Types of Teams (By :- Cohen &


Bailey, 1997)

Work Team Project Team Parallel Team

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Why Use Team Pay?


To Encourage Behaviors such as Peer Cooperation Information Sharing Unselfish behavior supportive of team
Sacrifice personal interest for good of team such as giving up leisure time on weekend to work for an important team goal.

Mutual Monitoring
Provide performance feedback to team members.

Monetary Team Rewards Business School Amity


(Gomez-Mejia & Balkin, 1992)

Team Bonus - Cash payment to tied to achieving major team performance outcome and allocated on non-recurring basis. Team Merit Pay - Cash adjustment to salary tied to achieving team behavioral and performance outcomes. Skill-based Pay - Adjustment to base pay rate of team members tied to team competence level.

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Gain sharing - Share gains of unit/department with interdependent teams. Spot Cash Rewards - Discretionary basis.

Amity Business Non-monetary Team Rewards School

Team Recognition Reward - Public ceremony or announcement in company newsletter. Team Celebration - Celebrate team win; includes special dinner, ticket to sports event, etc.

Travel - Team members (and possibly spouses) travel to resort for relaxation and fun - often used for sales teams after successful marketing push.

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Role Of Compensation In Sales Force Success

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Definition Of A salesperson

An individual acting for a company by performing one or more of the following activities: prospecting, communicating, servicing, and information gathering.

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Definition Of Sales Force Management


The analysis, planning, implementation, and control of sales force activities. It includes setting and designing sales force strategy; and recruiting, selecting, training, supervising, compensating, and evaluating the firms salespeople.

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Compensating Sales force


Compensation elements: salary, bonuses, commissions, expenses, and fringe benefits Basic compensation plans: Straight salary Straight commission Salary plus bonus Salary plus commission

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Compensation plans should direct the sales force toward activities that are consistent with overall marketing objectives. Gain market share Solidify market leadership Maximize profitability

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Role Of Supervision
Effective supervisors provide direction to the sales force. Effective supervisors also motivate the sales force.