Qualification Graduate Diploma in Management

Module Name Managing People

Module Number GDM 402

Ensuring the success of UBC through effective

Assignment Title
compensation and reward system

Name of Candidate R S D Pauluarachchi

Candidate No. 443111718

Submission Date 12.08.2018

Word Count 2254

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Table of Contents

1.0 Introduction ..................................................................................................................... 3

2.0 Literature Review ............................................................................................................ 4
2.1 What is total rewards and its trends ............................................................................... 4
2.1.1 Benefits and limitations of total rewards ..................................................................... 4
2.2 Reward Types / Components........................................................................................... 5
2.2.2 Variable pay .................................................................................................................. 5
2.2.3 Benefits .......................................................................................................................... 6
2.2.4 Non financial rewards ................................................................................................... 6
3.0 Analysis and Recommendations ...................................................................................... 7
3.1 Company Background and Current Situation ............................................................... 7
3.2 Suggestions and Implementation .................................................................................... 8
4.0 Conclusion ..................................................................................................................... 10
5.0 References ...................................................................................................................... 11

List of abbreviations

UBC – Union Bank of Colombo

IBSL – Institute of Bankers Sri Lanka
CBSL – Central Bank of Sri Lanka

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1.0 Introduction

According to Singh (2012) compensation and rewards refers to all forms of financial
returns and tangible services and benefits employees receive as part of an employment
relationship. Compensation and rewards are critical components in employee recruitment,
performance and satisfaction in current business era. Compensation includes both direct
cash payments and indirect payments such as benefits and incentives to motivate
employees to achieve higher performances. This is a tool used by management for variety
of purposes to further the existence and growth of the company. The main purpose of this
report is to ensure the success of the UBC through effective compensation and reward
system. Creating effective compensation and reward system will help the UBC to attract
new employees and retain their experienced employees. This will create more
opportunities in the market and growth of the company can be assured. This report will
consist of literature review of the rewards and compensation, analysis of current
compensation and rewards and finally with the recommendation that ensuring the success
of the company through implementing the system.

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2.0 Literature Review

2.1 What is total rewards and its trends

According to Golwa et al, (2016) total rewards can be identified as everything an

employee receives from the employer for the contribution made to achieve set targets. It
can be divided in to three categories, such as compensation and benefits, work life
balance and rewards for performances. Compensation is applicable for every employee in
an organization and benefits may differ from grade wise. Furthermore, Caproni (1997)
state that work life balance is how to balance the work and the personal life during office
time and beyond that. Appraising the performance of employees is also something that
important in current era since employees do care about the recognition that they are
getting for their hard work done towards the company.

According to Lyons and Ora (2002) total rewards strategy is essential for a company to
maintain pay for performance successfully and it may have an impact of future HR
planning such as recruitment, retention and work force planning. It may useful in attract
applicants and retain experienced employees. According to Agarwal (1998) companies
are maintaining rewards systems and there are some alternatives such as skilled based
pay, team rewards and variable pay, and those are some trends in total rewards.

2.1.1 Benefits and limitations of total rewards

According to Zigon (1994) through total rewards are benefitted for both employees and
employer such as improved productivity of employees, job satisfaction, improved
employee happiness, employee retention and make loyal employees to the company.
Through that team spirit will go up and company standards also maintained. According to
Rumpel and Medcof (2015) total rewards consider as all the rewards available in the

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workplace which include training and development and quality work environment. Total
rewards will helpful to tap the unrealised potential of the employees and it will improve
the productivity. According to Chapman and Kelliher (2011) having a mix reward system
is more benefitted to both employees and employer since each and every employee is
benefitted from mix rewards system and company also benefitted from that. According to
Solmon and Podgursky (2000) if compensation is based on performance it could lead to
grow jealousies among employees and they tend to make judgments about others.
Managers must keep this in mind when deciding the reward packages and they have to
adjust the budgets and resource allocations accordingly.

2.2 Reward Types / Components

2.2.1 Base pay

According to Bungess (1984) wage can identify as the financial compensation paid by the
employer under some distinction to his staff for the service rendered by them. Wages are
the value rewarded for the service or labor in the production process and it may have two
components, such as basic wage and other allowances. Basic wage is the payment which
is paid or to be paid to an employee in terms of his contract of employment for the work
done by him. Basic wage is a fixed amount and it should be accordance with the laws and
regulations set by the government and currently the basic wage is Rs 10,000/- in Sri
Lanka. Basic wage is essential and it will help to maintain employee’s living standards.

2.2.2 Variable pay

According to David (1972) variable pay means the wages that employees are getting
beyond the basic payment. These variable wages help to attract more employees and
encourage employees currently engaged with the company. Variable pay is not a salary
and it is based on performance of the employee. Currently most companies are using
these variable payments such as attendance allowances, performance bonus, individual
bonus, team bonus, travelling allowances, grants and recognition awards. Common
purpose of these variable payments is to rewarding performance of the employees. It has

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two components, individual and team performance. These variable pay systems may
improve productivity, retention, build teamwork, attract staff members and employees
also can enhance their living standards and work quality, adding value to their
employment contract. To maintain the standards companies must keep the formalities and
avoid any favors happened when deciding the variable payments. Furthermore, Terborg
and Ungson (1985) state that by having well designed variable pay system can motivate
employees and change corporate objectives for succession.

2.2.3 Benefits

According to Freeman (1981) state any service or facility directly or indirectly provided
to employee by an employer as benefits. These are provided in addition to the
compensation paid by the employer and these are not connected with the performance or
productivity. These benefits can be monetary or non monetary and given to employees
during and post employment period which are connected with the employment. These
benefits can be healthcare benefits, insurance, retirement benefits, and savings. Objectives
of providing benefits are, to create industrial relations, boost up employee morale,
provide security, promote welfare among employees and create sense of belongingness
among employees. Furthermore Mitchell (1983) state that if a company offering more and
attractive benefits employees are reluctant to change their job because they are losing
those benefits once they change their employment and employees are more concern about
the insurance and medical benefits offer from employer.

2.2.4 Non financial rewards

Non financial rewards are identified as reward to a worker other than the salary and extra
pay in employment. According to Tausif (2012) non financial rewards are the strong
determinant of job satisfaction and with the age the satisfaction level varied. Old
employees are more satisfied with rewards than younger employees. Furthermore
Schlechter (2015) state that non financial rewards are having an impact of job
attractiveness and job offerings. If the rewards are good attractiveness will rise up and
rewards are not good it will go further down. Such as training and development, job

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enrichment, job empowerment, work life balance, chance to contribute towards the
company management, flexi work roster and recognise the employees can be listed. These
rewards will improve productivity, create loyal employees and improved future financial
performances.

3.0 Analysis and Recommendations

3.1 Company Background and Current Situation

UBC is one of the leading banking institutions in Sri Lanka. It has begun their operations
on 1995 as a private bank and listed under Colombo stock exchange. UBC offers all kinds
of banking products and services to their customers and having a branch network of 67
branches and 55 offsite teller machines. Currently over 1200 employees are engaged with
UBC and enjoying financial benefits such as competitive basic salary, performance
bonus, sales incentives for sales staff, travelling allowance, difficult station allowance,
course fee reimbursement and outstation boarding allowance for employees working
outside of their hometown. These financial benefits are par with the industry and basic
pay will increase annually according to the performance level of the employees. Non
financial benefits also as per the industry standards and with slight changes happened
accordingly. Benefits such as sufficient training opportunities for identified employees,
outdoor and indoor training opportunities, indoor and outdoor medical coverage,
recognition for high performers, skills development programs and recently introduced
web based e learning platform and human resources department releasing courses
accordingly and those are containing power point presentations and followed by a
questionnaire. UBC continued to partner with external training facility providers such as,
IBSL, CBSL and the center for banking studies to provide specialised training for
employees (UB Annual report 2017).

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3.2 Suggestions and Implementation

When consulting the current situation on the company following ideas are suggested to
implement. Introduce an annual leave allowance as variable income and introduce flexi
work hours for staff members and a retirement plan for employees.

Holidays are important to all of us. In banking sector it is more important since bankers
are going through serious stress situations. So that they are getting annual leaves that they
have to take them every year. It will help employees to relax themselves with their
families and get rid of stress. Providing an annual leave allowance will help to retain the
best talent in the organization and using this allowance employees can visit any place
with their families. The allowance is scaled as per the position of the employee in the
organisation. This is a variable income and it will help UBC to keep employees happy
and engaged to the bank and they will contribute in business growth. Eg – Banking
assistant is getting an annual leave allowance of Rs 8,000/- annually apart from the salary.
According to David (1972) these allowances will help to attract new employees to the
company and company performance also will go up.

According to Shepard et al, (1996) flexible working hours will influence employees to
improve their productivity and will reduce absenteeism and turnover and it will contribute
to improve 10 percent in productivity. So that introducing flexi work hours to UBC and
its employees will also benefitted as above. When introducing that human resource
department will have to decide how to introduce it and maintain the work quality. For
back office employees it can be implemented easily and for branch staff they have to
make some adjustments in implementation. Through that employees can work on roster
basis and use the extra time for productive things such as having good time with family
and to do their studies. Also it will encourage employees to come to work and achieve
goals efficiency and effectively. This will increase the growth of the UBC. According to
the laws and regulations 40 hours has to work during a week and through this flexi
working hours system people can complete their 40 hours by 4days and take an off day.
Eg – Introduce flexi work time schedule for IT operations staff and instruct them to cover
up their work according to the schedule like 10 hours per day they have to work only 4
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days and take an off on next day. For branch staff, introducing a roster and they will able
to leave early from the branch.

As stated by Duflo and Saez (2002) age, gender and status of employees are main pillars
in retirement plan and an organisation has to collect data by dividing the company in to
departments and sub divisions. There are many retirement plans available, such as profit
sharing systems, employee stock ownership plan and pension plan. By having a
retirement plan it is in benefitted both employee and employer. Through that can attract
and retain valuable employees, reduce companies tax burden and can invest money for
your own retirement. By implementing this UBC can retain their valuable staff members
and can attract more candidates for future vacancies. Also these plans will motivate
employees and it will help to growth of the business. Introducing a pension plan is the
most attractive retirement plan for UBC. Employer will contribute sum of money
according to the basic salary and the age of the employee and at the age of 55 employee
will able to withdraw the full amount of money as retirement benefit. So that can be used
for their future expenses. This will create the security for retired employees and its more
likely a social welfare work, Eg – 25 year old banking assistant is getting a basic salary of
Rs 25,000 and 10 percent of that will contributed by the employer as pension plan
deduction

Rewarding and recognising employees will create productivity, job satisfaction, employee
happiness, retention, loyalty and team culture. These will help an organisation to perform
well in their industry and bring success to company.

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4.0 Conclusion

Reward systems actually develop in both global and local context. This gives rise to a lot
of challenges. In addition to the various methods of total rewards financial and non
financial means of rewarding will be more critical. It also consist of what are the main
pillars in deciding it, how to implement it and develop it in sustainable manner. When
achieving business goals it is important to keep the work force motivated and engaged to
the company. Using an effective compensation and rewards system will strengthen the
business growth and ensure the success of the organisation. Basic pay, variable pay,
benefits and non financial benefits are main components of total rewards and each of
them having an impact on business growth expanding and improving productivity.
Compensation is a tool used by management for a variety of purposes to further the
existence and growth of the company. It is identified to implement variable pay, benefits
and non financial benefits to ensure the success of UBC and through this study discussed
the stages and how to implement those in UBC. Reward management is also having an
impact on recruitment and retention of talented employees.

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5.0 References

Singh, B.D. (2012) compensation and rewards management, Excel books, New Delhi.

Caproni, P. J. (1997) ‘Work life balance’. Journal of Applied Behavioral Science, 33(1),
pp. 46-56 [Online] Available at: https://doi.org/10.1177/0021886397331003 (Accessed:
27 July 2018).

Lyons, F.H., Ora, D.B. (2002) ‘Total Rewards Strategy: The Best Foundation of Pay for
Performance’, Compensation & Benefits Review, 34(2), pp. 34-40 [Online] Available at:
DOI: 10.1177/0886368702034002006 (Accessed: 27 July 2018).

Agarwal, N.C. (1998) ‘Reward systems: Emerging trends and issues’, Canadian
Psychology/Psychologie canadienne, 39(1-2), pp. 60-70 [Online] Available at:
http://dx.doi.org/10.1037/h0086795 (Accessed: 27 July 2018).

Zigon, J. (1994) ‘Rewards and performance incentives’, Nonprofit Management

Leadership, 33(10), pp. 3-8 [Online] Available at: https://doi.org/10.1002/pfi.4160331003
(Accessed: 27 July 2018).

Freeman, R.B. (1981) ‘The Effect of Unionism on Fringe Benefits’, ILR Review, 34(4),
pp. 489-509 [Online] Available at: https://doi.org/10.1177/001979398103400401
(Accessed: 27 July 2018).

Duflo, E., Saez, E. (2002) ‘Participation and investment decisions in a retirement plan:
the influence of colleagues choices’. Journal of Public Economics, 85(1), pp. 121-148
[Online] Available at: https://doi.org/10.1016/S0047-2727(01)00098-6 (Accessed: 27
July 2018).

Shepard, E.M., Clifton, T.J. and Kruse, D. (1996) ‘Flexible Work Hours and Productivity:
Some Evidence from the Pharmaceutical Industry. Industrial Relations’, A Journal of
Economy and Society, 35 pp. 123-139 [Online] Available at:
https://doi.org/10.1111/j.1468-232X.1996.tb00398.x (Accessed: 27 July 2018).

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Mitchell, O.S. (1983) ‘Fringe Benefits and the Cost of Changing Jobs’, ILR Review,
37(1), pp. 70-78 [Online] Available at: https://doi.org/10.1177/001979398303700105
(Accessed: 27 July 2018).

Annual report, (2017) Union bank of Colombo PLC.

Schlechter, A. (2015) ‘Attractiveness of non-financial rewards for prospective knowledge

workers: An experimental investigation’, Employee Relations, 37(3), pp. 274-295
[Online] Available at: https://doi.org/10.1108/ER-06-2014-0077 (Accessed: 27 July
2018).

Tausif, M. (2012) ‘Influence of non financial rewards on job satisfaction’, Asian Journal
of Management Research, 2(2), pp. 1-9.

Rumpel, S., Medcof, J.W. (2006) ‘Total Rewards: Good Fit for Tech Workers’, Research
Technology Management, 49(5), pp. 27-35 [Online] Available at:
https://doi.org/10.1080/08956308.2006.11657395 (Accessed: 27 July 2018).

Terborg, J.R., Ungson, G.R. (1985) ‘Group-administered bonus pay and retail store
performance: A two-year study of management compensation’, Journal of Retailing,
61(1), pp. 63-77

Chapman, J., Kelliher, C. (2011) ‘Influences on reward mix determination: reward

consultants perspectives’, Employee Relations, 33(2), pp. 121-139 [Online] Available at:
https://doi.org/10.1108/01425451111096677 (Accessed: 27 July 2018).

Solomon, L.C., Podgrusky, M. (2000) ‘The Pros and Cons of Performance-Based

Compensation’, 1, pp. 1-28 [Online] Available at: https://eric.ed.gov/?id=ED445393
(Accessed: 27 July 2018).

Bungess, L.R. (1984) ‘Wage and Salary Administration’, Charles E.Merril Pub.Co.
Columbus.

David, B.W. (1972) ‘Wage and Salary administration’, Prentice Hall, Eaglewood Cliffs.

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