Chapter 11-Establishing Strategic Pay Plans

Chapter 12-Pay for Performance and Financial Incentives

Chapter 13-BENEFITS AND SERVICES

Pranav Gupta 231100 Jayant Adlakha 231070

Himanshu Trivedi 231064 Rohan Sachdeva 231118
Naveen Kumar Suman 231094 Kshitij Sethi 231088
Pulkit Sehra 231106

Rahul Sharma 231112

Kirti Ramesh. Obhan 231076 Rohit Malhotra 231082

Establishing
Strategic Pay Plans

Basic Factors Determining The Pay Rates

Employee Compensation
Direct Financial Payment(wages, salary etc)
Time based
Performance based

Indirect Financial Payment(financial benefits etc)

Factors determining the design of pay plan

LEGAL(India)
Companies Act of 1956
Employees stock Option scheme and Employee Stock Purchase
scheme
Minimum Wage in India
Other Legislations Regarding Compensation in India
Wage Law in informal sector

 LEGAL (US)

1938 fair Labor Standard Act

Exempt/Nonexempt
1963 Equal Pay Act
1974 Employee Retirement Income Security Act

UNION
Agreement between trade unions and employees
Sixth pay commission

COMPETITIVE STRATEGY, CORPORATE POLICIES, &

COMPENSATION

Types of pay policies

Pay Raises
Salary Compression
Geography

EQUITY
Equity theory of motivation
Addressing Equity Issues

Compensation Issues
Pay Raises
Merit pay policy
Across-the-board

Salary compression
Geography

Establishing Pay Rates

Step 1. The salary survey
Formal and Informal
Three ways
Benchmark jobs
Positions directly in the marketplace
Benefits like insurance, sick leave

Sources
Professional and Government surveys
Data web sites

Step 2. Job evaluation

Preparing for the Job Evaluation
Need
Cooperation
evaluation committee

Job Evaluation Methods

Ranking
Obtain job information
Select and group jobs
Select compensable factors
Common to use just one factor (job difficulty)

Rank jobs
Combine ratings. (Average raters rankings)

 Job Classification
Classes contain similar jobs
Grades are jobs that are similar in difficulty
but otherwise different
Jobs are classed by the amount or level of
compensable factors they contain
Skills, effort required, working conditions, level
of responsibility, etc

Point Method
Identifying the degree to which each
compensable factors are present in the job
Awarding points for each degree of each
factor

Factor Comparison

Step 3. Group Similar Jobs into Pay

Grades
A pay grade is comprised of jobs of
approximately equal difficulty
Point method
Ranking method
Classification method

Step 4. Price Each Pay Grade Wage

Curve
Shows the pay rates currently paid for jobs
in each pay grade, relative to the points or
rankings assigned to each job or grade by
the job evaluation

Step 5. Fine-tune pay rates

Developing pay ranges
Easier for employees to move into
higher pay grades
Correcting out-of-line rates

Pricing Managerial and Professional

jobs
Basic aim: to attract and retain good talent
Paid based on results
Compensation of Top Executives: Base Pay +
Short Term Incentives + Long Term Incentives +
Perks
Determination of pay for Top Executives (CEO)
Key Issue: Identifying the performance standard
Compensating Professional
Employees(Engineer, Scientist): market-pricing
approach

Competency-Based Pay
Company pays for the employees skills and
knowledge, rather than for the job title one
holds (job oriented v/s person oriented).
Pay-for-knowledge: relevant knowledge (eg.
Microsoft)
Skill-based pay: used more for workers with
manual jobs (eg. Carpenters)
Why Competency-Based Pay?
encourage employees to develop competency
help in employers performance management
process

Competency-Based Pay in Practice

1. Define required skills
2. Tying persons pay to his skill level
3. Training systems that lets
employees acquire skills
4. Formal skill competency testing
system
5. Design that lets employees move
among jobs to permit flexibility

Special Topics in
Compensation
Collapsing different salary
grades into few wide bands
containing relatively wide
range of jobs and pay levels.
Employers can create band
for all its jobs or for specific
groups such as managers.
Easier to move employees
Pros :
within
a band.
Greater flexibility into employee
assignment.

Inadaptability in traditional pay system

Cons:
Unsettling for new employees

 Comparable Worth
Requirement to pay equal wages for jobs that are of
comparable(not strictly equal) value to the employer,
especially equal wages to men and women.
Comparable worth has implication for job evaluation.
Board oversight of Executive pay
Tomorrows Pay programs
Greater expectation of coming generation.
Differentiate between strategically crucial and
supportive jobs.
Improving productivity through HRIS
Automating compensation administration.

Pay for Performance and

Financial Incentives

Motivation Theories
1. The Hierarchy of Needs (Abraham
Maslow)

2. Motivators and Frederick Herzberg

3. Demotivators and Edward Deci

4. Expectancy Theory and Victor

Vroom

5. Behaviour Modification/
Reinforcement and B.F.Skinner

Individual Employee Incentive And

Recognition Programs
1. Piecework Plans
2. Merit Pay or Performance Increments as
an Incentive
Merit Pay
3. Incentives for Professional Employees
4. Nonfinancial and Recognition-Based
Awards
Online and IT-Supported Awards

INCENTIVES FOR SALES PEOPLE

SALARY PLAN
Straight Salaries
Easier to switch territories or reassign people
Can demotivate potentially high performing sales people
COMMISSION PLAN
Attracts high performing sales people
Focus on high volume items, Neglect non selling duties
Wide variations in pay may occur
No financial safety net
COMBINATION PLAN
Salary-plus-commission plan
Commission-plus-drawing plan
Commission-plus-bonus plan

INCENTIVES FOR
MANAGERS AND
SARBANES-OXLEY
EXECUTIVES

SHORT-TERM INCENTIVES: THE ANNUAL BONUS

Factors that influence Bonus :
Eligibility
Fund Size
Individual Performance

LONG-TERM INCENTIVES
Golden handcuffs
Stock options
Other stock plans:
Performance Shares
Stock Appreciation rights
Phantom stock plans
OTHER EXECUTIVE INCENTIVES
Golden parachutes
Guarantee large loans

INCENTIVE PLANS
Profit Sharing Plans
Employees receive a share of firms annual profit.
Current profit plan and deferred profit plan

Scanlon Plans
Developed by Joseph Scanlon in 1937.
Has 5 basic features
1. Philosophy of cooperation
2. Identity
3. Competence
4. Involvement system
5. Sharing of benefits formula

Other Gain sharing plans

1) Scanlon plan
2) Lincoln
3) Rucker
4) Improshare
) Scanlon plan divides payroll expenses by total sales.
) Rucker plan uses value added formula
(NET SALES COST OF MATERIALS, SUPPLIES And
SERVICES) by total payroll expenses.
) Improshare the bonus depends upon difference
between labour hours company should have used and
the actual labour hours.
) Lincoln company distributes total annual profits
among employees based on merit rating.

Steps in Implementing GainSharing Plans

1) Establish general plan objectives.
2) Choose specific performance measures.
3) Decide the portion of gain employees will
receive.
4) Decide the method for dividing and
distributing the employees share of gains.
5) Choose the form of payment.
6) Decide how often to pay bonuses.
7) Develop the involvement system.
8) Implement the plan

 At Risk plans
Some portion of employees weekly ,
monthly or yearly pay is put at risk.
If employees meet desired goals ,
they get back this pay along with
incentive.
Employee Stock Ownership Plan
Employee contributes to trust
established to purchase share of
firms stock for employees.

Designing Effective Incentive

Programs
Financial Incentives: Lump-sum bonuses
Non-Financial Incentives: Recognition
THE FIVE BUILDING BLOCKS OF EFFECTIVE
INCENTIVE PLANS:
1) ASK: Does it make sense to use incentive here
2) Link the incentive with your strategy
3) Make sure the program is motivational
4) Set complete standards
5) Be scientific

CHAPTER- 13
BENEFITS AND
SERVICES

Employee Benefits in
India
Benefits given by Central or State Law:
Provident Fund
Health Insurance
Family pension
Medical Care and Hospital facilities under ESI.
Death Benefits, compassionate appointment for
relatives in government organizations/PSUs.
For Women: Maternity Leave, transport and
security for night shift.
LTC Leave Travel Concession for self and family.

Discretionary Benefits:
Subsidy in housing loan.
Telephone and entertainment allowance.
Recreational benefits like health club and
hobby classes.
Different types of leaves like study leave,
vacation care for children.
Executive perquisites like chauffer driven
car, petrol allowance, family holidays etc.

SUPPLEMENTAL PAY
BENEFITS

Unemployment insurance
Vacation and Holidays
Sick Leave
Cost reduction Tactics

Insurance Benefits
Workers Compensation
Aim: To provide sure, prompt income
to work-related accidents victims or
their dependents.
Q. How are the benefits determined ?
A. Workers Compensation can be
monetary or medical.
. In case of workers death or
disablement :
Dependents receive a cash benefit
based on prior earnings.
Q.Why Control Workers Compensation
Costs?
A. Employer pays the insurance
premiums.
Q. How to reduce Workers Comp
Claims ?
A. 1. Screen out accident prone
workers.
2. Safe working environment.
3. Identify shoddy claims.

Health Insurance
Aim: To protect employees
against hospital-ization costs
and loss of income arising from
off-the-job accidents.
Employers provide major
medical coverage to meet
expenses due to serious
illness.
Disability insurance provides
income protection for salary
loss.
Membership in a Health
Maintenance Organization
(HMO).
Mental health benefits.

Trends in Employer Health

Care Cost Control
Communication and Empowerment :
Make sure employees know the costs of their medical benefits.

Wellness Programs :
Many illness are preventable ; Clinical prevention programs like
routine checkups, Health promotion
and disease
prevention programs like seminars etc.

Claim Audits :
Make sure that claims are authentic.

Definite Contribution Health Care Plans:

Each Employee gets a specific dollar amount allotment to use
for medical costs rather than openended cost packages.

Life Insurance :
Provide low rate group life insurance plans.

Retirement Benefits

Personal Service and FamilyFriendly Benefits

Personal Services
Credit Unions.
Employee Assistance Programs.

Family-Friendly/Work-Life Benefits
Subsidized Child Care.
Sick Child Benefits.
Elder Care.
Time-off

Other Job-Related Benefits

Educational Subsidies
Executive Perquisites.

Flexible Benefits Programs

The Cafeteria Approach
Benefits and Employee Leasing
Flexible Work Schedules
Flextime
Compressed Workweeks
Effectiveness of Flexible Work Schedule
Arrangements
Workplace Flexibility
Other Flexible Work Arrangements.
Job Sharing
Work Sharing

THANK
YOU