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Lecture 7 Compensation Management

People may be compensated differently in the same organization based on factors like their job role and responsibilities, experience level, performance, skills and qualifications. Senior or management level roles tend to be compensated more than entry-level jobs. Employees who have been in the organization longer and taken on more responsibilities over time may also earn higher pay.

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8 views

Lecture 7 Compensation Management

People may be compensated differently in the same organization based on factors like their job role and responsibilities, experience level, performance, skills and qualifications. Senior or management level roles tend to be compensated more than entry-level jobs. Employees who have been in the organization longer and taken on more responsibilities over time may also earn higher pay.

Uploaded by

Akum oben
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Compensation/

Reward
Management
Objectives of Compensation
Management
• For the employees, the reward system should:
• Treat them as stakeholders who have a right to be involved in
the development of the reward policies that affect them.
• Meet their expectations that they will be treated equitably,
fairly and consistently in relation to the work they do and their
contribution.
• Be transparent – they should know what the reward policies of
the organization are and how they are affected by them.
Objectives of Compensation Management …
( For the Organization )
• Support the attainment of its strategic and shorter-term
objectives by helping to ensure that it has the skilled,
competent, committed and well-motivated workforce.
• Provide value for money.
• Play a significant role in the communication of the
organization's values, performance standards and
expectations.
• Support the realization of the key values of the organization in
such areas as quality, customer care, teamwork, innovation,
flexibility and speed of response.
Compensation or Reward
Management
• Compensation management is concerned with the
formulation and implementation of strategies and policies,
whose purpose is to compensate or reward people fairly,
equitably and consistently in accordance with their value to
the organisation and thus help the organisation to achieve its
strategic goals (Armstrong, 2006).

• It is concerned with both financial and non-financial rewards,


depending on the timing and organisational direction.
Reward Management System
• Financial Rewards
Fixed and variable pay, employee benefits, which altogether
comprise total remuneration.

•Non-Financial Rewards
Recognition, praise, achievement, responsibility and personal
growth.
Elements of compensation
Management
Base Pay:
The fixed salary or wage which constitutes the rate for the job.
• Base pay may be expressed as an annual, weekly or hourly rate and
it may be adjusted to reflect increases in cost of living.
• It is usually a reflection of what has been determined after job
evaluation and tracking results of market rates.
• It could also be negotiated, based on skill/competencies of
individuals and what the organization can afford.
Elements of Compensation
Management
• Bonuses: Rewards for successful performance, paid as lump
sums related to results obtained by individuals, teams or the
organization.
• Incentives: Rewards offered in addition to the base wage or
salary and usually directly related to performance.
•Commission: A special form of incentive in which payments to
sales representatives are made on the basis of a percentage of
the sales value they generate.
Elements of Compensation Management

•Skill-Based Pay: (or Knowledge-based pay). This pay varies


according to the level of skill achieved by individual.
•Service-Related Pay: Pay that increases by fixed increments on a
scale depending on the service in the job.
•Allowances: These are elements of pay that are provided as
separate sum of money for such aspects of employment as
overtime, shift working, etc.
Some Terms or concepts in Compensation Management

•Total Earnings: Base Pay + Additional Payment


• Simply put, Total Earnings = Total amount paid into bank account
of employee
•Employee Benefits (Indirect Pay): Elements of remuneration in
addition to cash, such as annual holidays, sick pay, insurance cover,
company cars, pensions.
•Total Remuneration: The value of cash payments + Benefits
received.
•Job Evaluation: The systematic determination of the value of each
job in relation to other jobs in the organization.
•Pay Structures: Provides a framework for managing base pay,
pay progression and sometimes benefit provision. This defines
the pay levels for individual jobs in an organization, which could
be classified into grades to each of which is attached a pay range.
•Pay Grades: Classes or grades of jobs that for pay purposes are
grouped on the basis of their worth to an organization.
•Pay Range: Refers to pay progression related to performance,
skill, competence or time.
•Pay Spine: Consists of a series of incremental points extended
from the lowest to the highest-paid jobs covered by the structure.
Progression up the spine is based on service in the post, usually
one increment per year.
Factors Determining Pay Levels
a. The Organization's Ability to Pay: Organization's that have high
profits tend to pay higher wages.
b. Supply and Demand for Labour: When the demand for workers
is high and the supply is low, the result is a rise in the wages to be
paid to these workers.
c. prevailing Market Rate: An organization's compensation policies
generally tend to conform to the wage rates payable by the
industry. It is also known as “going wage rate” and is used by most
organization's for fixing wages.
d. Cost of Living: This criterion calls for pay adjustments based on
increase in the cost of living index.
e. Trade Union’s Bargaining Power: The stronger and more
powerful the trade union is, the higher the wages.
Assignment :

• Why are some people compensated more


than other even in the same organization?

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