COMPENSATING PEOPLE

Dr Vaneeta Aggarwal
 COMPENSATION MANAGEMENT DEFINED

 Compensation management is concerned with

the strategies, policies and processes required
to ensure that the value of people and the
contribution they make to achieving
organizational, departmental and team goals is
recognized and compensated

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 AIMS OF COMPENSATION
MANAGEMENT
 Compensate people according to what the
organization values, wants to pay for and for the
value they create.
 Support the achievement of business goals
 Promote high performance & Develop a
performance culture.
 Support and develop the organization’s culture

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 AIMS OF COMPENSATION
MANAGEMENT
 Define the right behaviors and outcomes
 Align compensation practices with employee
needs
 Help to attract and retain high quality people
 Compensate the right things to convey the right
message about what is important in terms of
behaviors and outcomes.
 Motivate people and obtain their commitment
and engagement.
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 AIMS OF COMPENSATION
MANAGEMENT
 Help to attract and retain the high quality people the
organization needs.
 Develop a positive employment relationship and
psychological contract.
 Align compensation practices with both business goals
and employee values.
 Operate fairly – people feel that they are treated justly in
accordance with what is due to them because of their
value to the organization
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 AIMS OF COMPENSATION
MANAGEMENT
 Apply equitably – people are compensated appropriately in
relation to others within the organization, relativities
between jobs are measured as objectively as possible and
equal pay is provided for work of equal value.
 Function consistently – decisions on pay do not vary
arbitrarily and without due cause between different people
or at different times.
 Operate transparently – people understand how
compensation processes operate and how they are affected
by them.
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 THE COMPENSATION SYSTEM

 A compensation system consists of the

interrelated processes and practices that
combine to ensure that compensation
management is carried out effectively to the
benefit of the organization and the people who
work there

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COMPENSATION SYSTEM PROCESSES
Business strategy

Compensation strategy

Total compensation

Financial compensation Non-financial compensation

Pay determination Performance Recognition

management

Base pay management Job design

Opportunity to
Contingent pay
develop

Employee benefits Work environment

Performance
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 THE COMPENSATION STRATEGY

 sets out what the organization intends to do in

the longer term to develop and implement
compensation policies, practices and processes
which will further the achievement of its
business goals.

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 COMPENSATION POLICIES

 Compensation policies address the following

broad issues:
 the approach to total compensation;
 the scope for the use of contingent compensations
related to performance, competence, contribution or
skill;
 the role of line managers;
 transparency – the publication of information on
compensation structures and processes to
 employees.
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 TOTAL COMPENSATION

 Total compensation is the combination of financial and

non-financial compensations available to employees.

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 TOTAL REMUNERATION

 Total remuneration is the value of all cash payments

(total earnings) and benefits received by employees.

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 BASE OR BASIC PAY

 The base rate is the amount of pay (the fixed

salary or wage) that constitutes the rate for the
job.
 It may be varied according to the grade of the
job or, for manual workers, the level of skill
required.
 Influenced by internal and external relativities.

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 BASE PAY

The management of base pay uses the information

from market pricing and job evaluation to design
and operate grade and pay structures that cater for
job-based pay and allow scope for pay to progress
within the structure through person-based pay

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Theories of renumeratiom
 Reinforcement theory
 Expectancy theory
 Agency theory
 Equity theory

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 PAY DETERMINATION

Pay determination is the process of deciding on the level

of pay for jobs or people. Its aims, which frequently
conflict, are:
1. To be externally competitive in order to attract,
engage and retain the people required by the
organization ( External Equity )
2. To be internally equitable in the sense that rates of
pay correctly reflect the relativities between jobs
( Internal Equity )
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 EXTERNAL EQUITY

 Employees’ perception of external equity—which

concerns the fairness of what the company is paying
them compared with what they could earn elsewhere
—are critical in such employment relationships.
 Organizations with an external labor orientation
must assess how their compensation compares with
the compensation offered by other organizations.

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 INTERNAL EQUITY
 Employees’ perceptions of internal equity—their beliefs
concerning the fairness of what the organization is paying
them compared with what it pays other employees.
 Organizations with an internal orientation spend time and
effort comparing and analyzing pay differences among their
own employees.
 Pay practices, such as how much each person makes, are
usually less secretive in these organizations than in
organizations with an external orientation.

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 Factors affecting employee
renumeration
 Labour market
 Cost of living
 Labour unions
 Labour laws
 Society
 Economy
 Business strategy
 Job evaluation
 Performance appraisal
 Employee
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MARKET PRICING & MARKET RATE ANALYSIS

Market rate analysis

The process of identifying the rates of pay in the
labor market for com-parable jobs to inform decisions
on levels of pay within the organization.
Market pricing
The process of making decisions on pay structures
and individual rates of pay and obtaining information
on market rates (market rate analysis).

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 JOB EVALUATION

 Job evaluation is a systematic and formal

process for defining the relative worth or size
of jobs within an organization to establish
internal relativities.
It is carried out through either an analytical or
a non-analytical scheme.

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 Devising a renumeration
plan
 Job description
 Job evaluation
 Job hierarchy
 Pay surveys
 Pricing jobs
 Determining pay grades

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 GRADE AND PAY STRUCTURES

Jobs may be placed in a graded structure according

to their relative size.
Pay levels in the structure are influenced by market
rates.
The pay structure may consist of pay ranges
attached to grades which provide scope for pay
progression based on performance, competence,
contribution or service.
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 OTHERS FACTORS
Contingent pay - Additional financial compensations may be
provided that are related to performance, competence,
contribution, skill or service in the grade.
Employee benefits - pensions, sick pay, insurance cover,
company cars.
Performance management
Non-financial compensations - achievement, autonomy,
recognition, scope to use and develop skills, training, career
development opportunities and high quality leadership.

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THE COMPONENTS OF TOTAL REWARD

Base pay
Transactional Total
Contingent pay
rewards remuneration
Employee benefits
Total reward
The work itself (job design)
Relational Non-financial
rewards The work experience rewards

Recognition, achievement, growth

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TOTAL COMPENSATION MODEL (TOWERS
PERRIN)
TRANSACTIONAL (TANGIBLE)

PAY/COMPENSATION BENEFITS
• Base pay • Pensions
• Contribution pay • Health care
• Shares/profit sharing • Perks

COMMUNAL
INDIVIDUAL

• Recognition • Flexible benefits

LEARNING AND DEVELOPMENT WORK ENVIRONMENT

• Workplace learning • Core values
• Training • Leadership
• Performance management • Employee voice
• Career development • Job/work design

RELATIONAL (INTANGIBLE)
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 FINANCIAL COMPENSATIONS

Financial compensations comprise all compensations

which have a monetary value and add up to total
remuneration:
 base pay
 pay contingent on performance, contribution,
competency or skill
 pay related to service
 financial recognition schemes
 benefits such as pensions, sick pay and health
insurance

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NON-FINANCIAL COMPENSATION

Non-financial compensations are those that focus on

the needs people have to varying degrees for
recognition, achievement, responsibility, autonomy,
influence and personal growth

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 GRADE AND PAY STRUCTURES

Grade and pay structures provide the framework for

base pay management so that an organization’s pay
policies can be implemented

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 TYPES OF GRADE AND PAY
STRUCTURES

 Narrow-graded
 Broad-graded
 Broad-banded
 Career family
 Job family
 Pay spine

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 Challenges of remuneration

 Skill based pay

 Pay reviews
 Pay secrecy
 Comparable worth
 employee participation
 Eliticism vs. egalitarianism
 Below market vs. Above market remuneration
 Monetary vs. Non- monetary rewards

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Renumerating special employees

 Team based pay

 Remunerating top management
 Contract employees
 Expatriates

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e-Compensation

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 Need for e-compensation
To maintain uniform ,error free , accurate
compensation
To calculate easily
To protect the data
To manage the pay package for international
workforce
To retrieve past records within seconds

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35
Thank You

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 Remuneration and
strategy
 Grow- stimulate
entrepreneurship
 Manage earning-reward
management skills
 Reinvest-Cost control

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 MODEL OF A NARROW-GRADED
STRUCTURE ( MULTI GRADED STRUCTURE )

consists of a sequence of job

grades into which jobs of
broadly equivalent value are
placed.

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MODEL OF A BROAD-GRADED STRUCTURE

Have six to nine grades rather

than the 10 or more grades
contained in multi-graded
structures

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MODEL OF A BROAD-BANDED STRUCTURE

multi-graded
structures into four or
five ‘bands

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MODEL OF A CAREER FAMILY STRUCTURE

Operation Finance IT

Level 1 Level 1 Level 1

Level 2 Level 2 Level 2

£ JE points
Level 3 Level 3 Level 3

Level 4 Level 4 Level 4

Level 5 Level 5 Level 5

jobs in the corresponding levels

Career families
across each of the career families
are within the same size range
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MODEL OF A JOB FAMILY STRUCTURE

Different
job
families
are
£
identified

Finance

Operation
Job families
IT
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