COMPENSATION MANAGEMENT

Session Overview

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

 Session Overview
Incentive Payments

Prerequisites of Effective Incentive System

Types of Incentive System

Group Incentive Plans

Incentives for Indirect Workers

Nature of Benefits and Services

Benefits as Incentive

Types of Employee Benefits and Services

Principles of Fringes
 Session Overview

Significant Benefits and Service Programs

Common Benefits in Pakistan

Advantages and Disadvantages of Long Term Benefits

Administration of Fringe Benefits

Remunerating Top Executives

Components of Executive Remuneration

Issues in Executive Remuneration

 Chapter 11

MANAGING BASIC REMUNERATION

 Benefits of Proper Compensation

Compensation policy aims to attract talented employees and motivate

them to put their efforts and commitment to work that increase job
satisfaction work performance

Benefits of Proper Compensation Administration

1 2 3 4 5
Attracts talent Motivates Rewards Reduces Manages
Employees Performance Turnover Compensation
Budget
 Consequences of Pay Dissatisfaction

performance
Desire for
more pay strikes
absenteeism
grievances

turnover
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
 Concepts of Wages

1 Minimum Wage

2 Fair Wage

3 Living Wage

4 Team based Pay

5 Remunerating Professionals

6 Contract Employees

7 Expatriates and Executives

 Components of Remuneration

Benefits include both financial and non financial

Wages and Salary

Incentives

Fringe Benefits

Perquisites

Non Monetary Benefits

 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
 Theories of Remuneration
Feedback to employee

Employee set Performance is Employee consider

expectations and rewarded equity of reward and
goals performance

Employee sets new goals and expectations

based on experience
 Theories of Remuneration

Reinforcement Theory

Behavior rewarded Positive Experience Behavior is repeated

 Theories of Remuneration

Equity Theory
Adams equity theory emphasizes to have equity in pay
structure of employee

If employee feel that their efforts are well rewarded they will
put more efforts and will be satisfied with their job

In case of inequity feeling they will be de moralized and

dissatisfied resulting into low productivity

Individual Motivation
equity

Internal Perception of Commitment

equity fairness

External
Performance
equity

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 287
 Theories of Remuneration

Agency Theory

In the organizations employer and employees are two main

stakeholders

Employer act as principals and employees assume the role of

agent

The remuneration of employee is agency cost

Principal tries to agency cost and agent expect to have more

agency cost

The principal (Employer) should try to choose remunerating

schemes that align its own interest with expectation of agents
(employees)

Behavior oriented (merit based pay)

Outcome oriented (profit sharing, commission)

 Factors Influencing Remuneration

Internal Factors External Factors

Organization Strategy Economy

Employee Society

Job Evaluation Labour Market

Performance Appraisal Cost of Living

Labor Unions

Legislation
 Factors Influencing Remuneration

Business Market Remuneration Blend of

Strategy Position Strategy Remuneration
Invest to grow Merging or Encourage High cash and
grow rapidly innovation and incentives for
entrepreneurship performance.
Modest benefits
Manage earning Normal growth Reward Average
Protect Markets to maturity management skills incentives with
average cash on
unit and
individual
performance.
Standard benefits

Harvest earnings Maturity or Focus on cost Below average

invest decline control cash with few
somewhere else incentives that
too tied with cost
control efforts.
Standard benefits

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

Job description

Job evaluation

Job hierarchy

Pay survey Pay levels

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 or

above market pay Egalitarianism

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300
 Skill Based and Job Based Pay

Factors Skill based Job based

Pay structure Based on ability to Based on job
perform performance
Employers focus Employee carriers Job carries wages.
wages, Employee Employee linked to
linked to skills job
Employee focus Skill acquisition for Job promotion for
more pay better pay
Procedures required Skills assessment, Job content
Value skills assessment, Value
jobs
Advantages Flexibility, Reduced Pay based on value
workforce of job and work
performed
Disadvantages Cost controls Inflexibility

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 301.
 Summary

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