Unit IV

Other Contemporary issues in HRM – Employee

Compensation Concept, Factors affecting employee
compensation. Components of employee pay, HR
Audit, Human Resource Information system.
Strategic HRM Overview of SHRM. Integrating HR
Strategy with HR, Corporate and Financial strategy.
 Introduction
Compensation is something that employees receive in exchange
for their contribution to the organization.
Generally employees offer their services for 3 types of rewards.
In addition to these managers have to observe legal formalities
that offer physical as well as financial security to employees.
All these issues play an important role in any HR department’s
efforts to OBTAIN, MAINTAIN & RETAIN an effective
workforce.
 COMPENSATION

PAY INCENTIVES BENEFITS

Wages & Salary Bonuses Insurance

Medical
Commissions Recreational
Retirement
Profit Sharing Plans
Objectives Of Compensation Planning
The most important objective of any pay system is FAIRNESS or EQUITY. The term
equity has 3 dimensions:
• Internal Equity: Difficult jobs are paid more.
• External Equity: Fair compensation to the similar jobs in the labor market.
• Individual Equity: Equal pay for equal work i.e. each individuals pay is fair in
comparison to others doing the similar jobs.

The ultimate goal of compensation administration is to reward desired behaviors

and encourage people to do well in their jobs. Some of the important objectives
that are achieved through effective compensation management are listed below:

• Attract Talent
• Retain Talent
• Ensure Equity
• New and Desired Behavior
• Control costs
• Comply with legal Rules
• Ease of operations
 Equity & Pay Rates
The need for equity is the most important factor in determining pay
rates. This is achieved through following Steps:

• Find the worth of each job through job evaluation

• Conduct a salary survey to find what other employees are paying
for comparable jobs
• Group similar jobs into pay grades
• Price each pay grade through wage curves

Components Of Pay Structure In India

• Basic
• Dearness Allowance
Wage & Salary Administration
The process of managing a company’s compensation program through
designing a cost effective pay structure which will attract, motivate
and retain competent employee’s is known as Wage & Salary
Administration.

Principles Of Wage & Salary Administration

• Wage and salary plan should be sufficiently flexible.

• Job evaluation must be done scientifically.
• W & S plans should be consistent with overall organizational plans and
programs.
• W & S plans should be in conformity with the social and economic
objectives of the country like attainment of equity in income distribution
and controlling inflationary trends.
• W & S plans should be responsive to the changing local and national
conditions.
Objectives Of W & S Administration
For Employees:
• Employees are paid according to the requirements of jobs.
• It helps in eliminating inequalities. The chances of favoritism is
minimized.
• Employees morale and motivation are increased because wage
programs is based upon facts.

For Employers:
• They can systematically plan for and control labor costs.
• A proper wage and salary administration reduces chances of
friction and grievances.
• It attracts qualified employees by ensuring an adequate payment
for all the jobs.
 Wage Determination Process

JOB
WAGE
ANALYSIS
LEGISLATION

JOB
JOB WAGE
DESCRIPTION WAGE
EVALUATION STRUCTURE
& SURVEY
SPECIFICATION
RULES OF
ADMINISTRATION

PERFORMANCE DIFFERENTIAL
STANDARDS EMPLOYEE
APPRAISAL

WAGE PAYMENTS
Factors Influencing Compensation Levels
Job Needs, Ability to Pay, Cost of Living, Prevailing Wage Rates,
Unions, Productivity, State Regulation, Demand and Supply of Labor.

Choises In Designing A Compensation System

• Internal and External Pay

• Fixed v/s Variable Pay
• Performance v/s Membership
• Job v/s Individual Pay
• Below market v/s Above Market Compensation
• Open v/s Secret Pay
What is an HR audit?
An HR audit is a process to review implementation of organization’s
policies and procedures, ensure compliance with employment law,
eliminate liabilities, implement best practices and educate your
managers.
A human resource audit evaluates the personnel activities used in an
organization. The audit may include one division or entire
company.
It gives feedback about :
• The function of operating manager
• The human resource specialists.
• How well managers are meeting their human resource duties.

In short, the audit is an overall quality control check on human

resource activities in a division or company and how those
activities support the organization’s strategy
Human Resource Audit Involves:
• Measurement and evaluation of personnel programs, policies and
practices
• Identification of gap between objectives and results
• Determination of what should or should not be done in future.

Benefits of Human Resource Audit

• Identifies the contribution of the personnel departments to the
organization
• Improves professional image of the personnel department
• Encourages greater responsibility and professionalism among
members of the personnel department
• Clarifies the personnel department’s duties and responsibilities
• Finds critical personnel problems

The audit should be: Proactive, Reactive, Informative,

Developmental
Need of HR audit
Ensure compliance, Improve HR practices, Train your managers,
Prepare for potential government audit or litigation, Gain an
understanding of department’s environment, Show a “good faith
effort”, Correct errors
The Scope of Human Resource Audits
•Audit of Corporate Strategy. Corporate Strategy concerns how the
organization is going to gain competitive advantage.
•Audit of the Human Resource Function and employee satisfaction.
•Audit touches on HRIS, Staffing and Development, and Organization
Control and Evaluation.
•Reviews how well managers comply with HR policies & procedures.
•Audit of Managerial Compliance and need of employees.
Audit of Corporate Strategy
• Human resource professionals do not set corporate strategy, but
they strongly determine its success.
• By assessing the firm’s internal strengths and weaknesses and
its external opportunities and threats, senior management
devises ways of gaining an advantage, such as : stresses
superior marketing channels, low-cost production, etc.
• Understanding the strategy has strong implications for human
resource planning, staffing, compensation, employee relations,
and other human resource activities
• Audit of the Human Resource Function
1. Human resource Information System
2. Staffing & Development
3. Organization Control & Evaluation
1. Human Resource Information System
Human Resource Plans : Supply and demand estimates; skill inventories; replacement
charts and summaries
Job Analysis Information : Job standards, Job descriptions, Job specifications
Compensation Management : Wage, salary, and incentive levels; Fringe benefit package;
Employer-provided services
2. Staffing and Development
Recruiting : sources of recruits, availability of recruits, employment applications
Selection : selection ratios, selection procedures, equal opportunity.
Training and development : orientation program, training objectives and procedures,
learning rates
Career development : internal placement, career planning program, human resource
development efforts
3. Organization Control and Evaluation
Performance appraisals : standards and measures of performance, performance appraisal
techniques, evaluation interview.
Labor-Management Relations : Legal compliance, management rights, dispute resolution
problems.
Human Resource Controls : employee communications, discipline procedures, change
and development procedures,
Tasks of Auditors
• Identify who is responsible for each activity.
• Determine the objectives sought by each activity.
• Review the policies and procedures used to achieve these
activities.
• Prepare a report commending proper objectives, policies, and
procedures.
• Develop an action plan to correct errors in each activity.
• Follow up the action plan to see if it solved the problems found
through the audit.
Audit of Managerial Compliance
• Compliance with laws is especially important. When safety,
compensation, or labour laws are violated, the government
holds the company responsible.
• If managers ignore policies or violate employee relations laws,
the audit should uncover these errors so that corrective action
can be started.
Audit of Employee Satisfaction
• Employee satisfaction refers to an employee’s general attitude
toward his or her job.
• When employee needs are unmet, turnover, absenteeism, and union
activity are more likely. To learn how well employee needs are met,
the audit team gathers data from workers.
• The team collects information about wages, benefits, supervisory
practices, career planning assistance, and other dimensions of job
Before you begin the audit process…
1. Determine who will conduct the audit: Internal vs. External
• Secure senior management commitment.

• Are they ready to fix what’s broken, even if it costs highly?

2. Do they agree with the methodology?

• Will they allow access to all departments/information?

• Will they publicly support the process?

3. Define the parameters.

• Who will be audited?

• What do you want to audit?

• What audit tools will you use?

• How will the process be rolled out?

• How will results get reported?

• Who will get the results?

4. Introduce the audit process to your managers.

 Departmental Audits
What should you be concerned about?
Record Keeping Employee Files
•Sick and vacation tracking •What is and isn’t in the
•Overtime reporting employee file
•Temporary worker tracking •Access to the file
•Accessibility/safety/security of •Safety and security of the files
records
•Accuracy of records

•Audit Tools: Interview, Questionnaire, Historical analysis, External

Information
How do you introduce the HR audit to your managers?
1. Explain the reason for it.
a. To protect them and the institution
b. To help them understand policies, procedures, and laws
c. To gain a better understanding of their department
d. To help them set best practice procedures
e. To avoid costly and time consuming litigation
Human Resource Information System
• A comprehensive data system is required to fulfill the HR informational
needs of an organization. Organizational needs like audit, recruitment ,
planning etc every thing requires considerable amount of data. Gone are
the days when decisions about the future could be based on guesswork.
• HRIS is basically a data base system that offers important information
about employees in a central and accessible location. When such
information is needed, the data can be retrieved and used to facilitate HRP
decisions.
• The Human Resource Information System (HRIS) is a method by which
an organization collects, analyses and reports information about people
and jobs.
• Management Information System is defined as “ a formal method of
making available to management accurate and timely information
necessary to facilitate the decision making process and enable the
organization’s planning, controlling and operational functions to be carried
out effectively”. The system provides information on the past, present and
projected future and on relevant events inside and outside the organization.
 HR & IT
Human Resources Information Technology
Growth
Overtime
Salaries Excel
Executive Comp
Recruiting
& Perqs
Reward
Job PowerPoint
Promotions
Documentation
Succession
Manager Self Development Planning
Service Access
Benefits COBRA
Communications
Job
FLSA/ Measurement
Evaluation HRIS
Compliance
EEOC
Training Incentives Payroll
Severance
Expatriation/
Moving Employee Self
Success Service
HR & IT Together
• HRIT, HRIS, HRMS, etc.

• Major HRIS Vendors:

– Oracle, PeopleSoft, SAP, etc.
– Lawson, ADP, Best, Ultimate, etc.

• Payroll
– PeopleSoft, Lawson, SAP, Oracle
– ADP, ProBusiness, Ceridian

• Other systems
– Compensation Management - AIM, Kadiri, Workscape, etc.
– Planning – Aon, Mercer, Watson Wyatt, Towers Perrin, etc.
– Incentives - Centive, Synygy, Westport Software, etc.
– Benefits – Aon, PeopleClick, Workscape, SynHRgy, etc.
– Portals, Recruiting, Learning Management, Talent Management, etc.
History of HRMS

• DBMS Storage

Transactions
• Payroll

Analysis
• HRIS

Access
• Enterprise Resource Planning
Examples of HRIS to support business strategies?
• Manager Self Service
• Employee Self Service
• Executive Information System
(Check all that apply)
• Payroll feeds
• Benefit calculations
• Reporting (including Managerial/Legal)
• Compensation Program Administration
• History
• Globalist
• Budgeting/Planning
• Headcount
• Recruiting
• Skills Inventory, Career Development, Succession Planning,
Training, Competencies
• Job History and Employee Background
• Market Pricing/Matching/Survey Management
System Design

IT/Infrastructure Compensation
Finance
Recruiting Benefits

Managers/
Employees History Security
Calculations

Data
Legal/ Reporting HR Strategy &
Audit Planning

Training Payroll

Executives Headcount Facilities

Manager Self Service
Employee Self Service
Recommended HRIS Architecture
Current HRIS/Payroll Architecture*

Campus Satellite PPS UCOP

Systems Infrastructure

Training Employee
Admin Database
CPS
Focus/
Sybase
Academic
Personnel History
Database
UC
Retirement
Workers
System
Comp
Payroll
Audit
Record
BenCom
Monthly Batch Sybase
Database UC for
Daily Batch 9 Instances
Varied Batch
yourself
HRIS Benefits
 Enhanced Reporting Capabilities  Accurate and Up to Date
Consolidated HR Data
 Enhanced Ability to Track and
Report History  Increased Flexibility for Analysis

 Reduction in Costs of Satellite  Fully Web Enabled Architecture

Systems
 Fully Integrated HR Functionality
 Enhanced Process Efficiencies
 Capable of Fully Integrating
 Enhanced User Friendliness Payroll Into a Single HR/Payroll
Solution
 Improved Data Accuracy

Disadvantages of HRIS:
 Inaccurate.
 Fragmentation.
 Difficult to analyze.
Important Uses Of HRIS
• Labor relations.
• Health safety and security.
• Performance appraisal.
• HR planning and analysis.
• Compensation and Benefits.
• HR development.
• Staffing.
Process of HRIS:
• Initiation
• Discovery - Requirements Definition
• Design
• Construction
• Testing
• Rollout Planning
• Turn-Over
• Post-Implementation Support
 Technology and Business Changes
Drive Need for HR Change

Old HR Model New HR Model

10% 10%
Admin.
Strategy
60%
60%
Admin Delivery Delivery Strategy
30% 30%
 Strategic HRM
Strategic HRM is an approach to making decisions on the intentions and plans of the organization
concerning its recruitment, training, development, performance management, reward and employee
relations strategies, policies and practices and the employment relationship generally.
The defining characteristic of strategic HRM is that it is integrated – HR strategies are integrated
vertically with the business strategy and horizontally with one another. The HR strategies developed
by a strategic HRM approach are essential components of the organization’s business strategy.
Strategy determines the direction in which the organization is going in relation to its environment. It
is the process of:
• defining intentions (strategic intent)
• allocating or matching resources to opportunities and needs (resource-based
strategy)
• achieving strategic fit between corporate and functional strategies
• achieving competitive advantage
• developing the strategic capability of the organization which will include the
ability not only to formulate strategic goals but also to develop and implement
strategic plans through the process of strategic management – strategy is
about implementation, which includes the management of change, as well as
planning.
The Meaning of Strategic HRM
Strategic HRM has four meanings:
1. The use of planning.
2. A coherent approach to the design and management of personnel systems based on an
employment policy and manpower strategy and often underpinned by a ‘philosophy’.
3. Matching HRM activities and policies to some explicit business strategy.
4. Seeing the people of the organization as a ‘strategic resource’ for the
achievement of ‘competitive advantage’.
The aims of strategic HRM are to:
• generate strategic capability by ensuring that the organization has the skilled,
committed and well-motivated employees it needs to achieve sustained
competitive advantage
• provide a sense of direction in an often turbulent environment so that the
business needs of the organization and the individual and collective needs of its
employees can be met by the development and implementation of coherent and
practical HR policies and programmes
• provide ‘unifying frameworks which are at once broad, contingency based and
integrative’.
 Strategic Review Sequence
Analysis
• What is the business strategy and the business needs emerging from it?
• What are the cultural and environmental factors we need to take into account?
• What are the key HR weaknesses and issues?
• What are the gaps between what we are doing and what we ought to do?

Diagnosis
• Why do the HR issues and weaknesses exist?
• What is the cause of any gaps?
• What factors are influencing the situation (cultural, environmental, competition, political etc)?

Conclusions and recommendations

 What are the conclusions from the analysis and diagnosis?
 What do we need to do to fill the gaps?
 What alternative strategies are available?
 Which alternative is recommended and why?
Action planning
• What actions do we need to take to implement the proposals?
• What problems might we meet and how would we overcome them?
• Who takes the action and when?
• How do we ensure that we have the committed and capable line managers we need?
Resource planning
• What resources do we need and, how will we obtain them and how will we convince management that they are necessary?
• What supporting processes are required?

Costs and benefits

• What are the costs and benefits to the organization?
• How will employees benefit?
• What business needs will the strategy satisfy?
Linking HR & Competitive Strategies
Competitive strategy HR strategy HR strategy HR strategy
Resourcing Human resource development Reward

Achieve competitive advantage Recruit and retain high quality Develop strategic capability Provide financial incentives and
through innovation. people with innovative skills and provide encouragement and other rewards (eg recognition)
and experience. facilities for enhancing for successful innovations.
innovative skills and
intellectual capital.
Achieve competitive advantage Use sophisticated selection Develop a learning Link rewards to quality
through quality. procedures to recruit people organization; implement performance and the
who will deliver quality and knowledge management achievement of high levels of
high levels of customer service. processes; support total quality customer service.
and customer care initiatives
with focused training.

Achieve competitive advantage Develop core/periphery Implement productivity Review all reward practices to
through cost-leadership. employment structures; recruit improvement and just-in-time ensure that they add value.
people who will add value; if training linked to immediate
unavoidable, plan and manage business needs which will
downsizing humanely. generate measurable
improvements in cost-
effectiveness.
Achieve competitive advantage Use sophisticated recruitment Develop organizational Develop performance
by employing people who are and selection procedures based learning processes; encourage management processes which
better than those employed by on a rigorous analysis of the self-managed learning through enable both financial and non-
competitors. special capabilities required by the use of personal financial rewards to be related
the organization. development plans as part of to competence and skills;
performance management. ensure that pay levels are
competitive.
 Common Elements In HR Strategy Areas
Overall HR strategy Resourcing HR development Reward

Improve performance. Use competence-based Use competence-based training; Implement competence-related

recruiting; assessment centres. development centres. pay.

Extend skills base. Use targeted recruitment based Use skills analysis and focused Use skills-based pay.
on analysis of skills training in areas of identified
requirements. need.

Develop competence and Develop competency Use performance management Develop career family structures
careers. frameworks and role profiles; to define learning needs; in which career paths are
identify competence levels and implement personal clarified by definitions of the
potential through performance development planning to meet levels in each career family in
management. defined needs; establish career terms of the knowledge and
paths in job families defined in skills (competences) required.
competence terms.

Increase commitment. Use sophisticated selection Provide learning experiences Reinforce value-driven
methods to recruit people who which enhance understanding behaviour by providing rewards
are likely to fit well into the and acceptance of core values; which are based on evidence
organization; define and use performance management to that core values are being
communicate the organization’s reinforce values and encourage upheld.
mission and core values. value-driven behaviour.

Increase motivation. Analyse characteristics of well- Provide learning opportunities Use ‘total reward’ approach to
motivated employees and which reinforce characteristics recognize achievement and
structure selection procedures to of well-motivated employees. encourage discretionary
identify people with those behaviour and effort.
characteristics.