Name SAM.C.B.

DAVID
Role No.520960228
L.C .No.00120

Master of Business Administration -MBA Semester IV

Subject Code – MU0006
Subject Name – Compensation Benefits

Assignment Set- 1

Question-1: Explain the objective of compensation planning?.

The most important objective of any pay system is fairness or equity.
The team equity has three dimensions:
a) Internal equity: This ensures that more difficult jobs are paid more.
b) External equity: This ensures that jobs are fairly compensated in comparison to
similar jobs in the labour market.
c) Individual equity: It ensures equal pay for equal work, i.e. each individual’s pay is
fair in comparison to others doing the same jobs.

In addition, there are other objectives as well. The ultimate goal of compensation
administration (the process of managing a company’s compentation program) is to
reward desired behaviours and encourage people to do well in there jobs. Some of the
important objectives that are sought to be achieved through effective compensation
management are listed below:

a) Attract Talent: compensation needs to be high enough to attract talented people.

Since many firms copete to hire the services of competent people, the salaries
offered must be high enough to motivate them to apply.
b) Retain Talent: If compensation levels fall below the expectations of employees or
are not competitive, employees may quit in frustration.
c) Ensure Equity: Pay should equal the worth of a job. Similar jobs should get
similar pay. Like wise, more qualified people should get better wages.
d) New and Desired Behaviour: pay should reward loyalty, commitment,
experience, risk-taking, initiative and other desired behaviours. Where the
company fails to reward such behaviour, employee may go in search of greener
pastures outside.

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 e) Control costs: The cost of hiring people should not be too high. Effective
compensation management ensures that workers are neither overpaid nor
underpaid.
f) Comply with legal rules: Compensation programs must invariably satisfy
governmental rules regarding minimum wages, bonus, allowances, benefits, etc.
g) Ease of operation: The compensation management system should be easy to
understand and operate. Then only will it promote understanding regarding pay
related matters between employees, unions and managers.

Question-2: Apex is an ITES service provider Company. It is startup (new)

company, which is trying to woo talent from the market. Being a new company it
might face difficulty in hiring highly talented candidates. As remuneration plays an
important role, what will be the strategic incentives plans organization can offer to
persuade talented employees besides providing good salary?

Ans.

(a) Proper Climate

In the absence of mutual trust and understanding between management and workers, a
wage incentive system may be viewed as an attempt on the part of management to
coerce for production. Therefore, management must develop sound industrial relations
before introducing the plan. For this purpose, sound policies regarding recruitment,
selection, placement, training, transfer, promotion, etc. are required.

(b) Workers’ Participation

A wage incentive plan should be installed in consultation with workers and their union.
Involvement of employees will ensure that they fully understand the objectives and
mechanism of the plan.

(c) Scientific Standards

The standards of performance for payment of incentives should be established through

scientific work study free from bias and favouritism.

(d) Guaranteed Minimum Wage

A minimum wage should be guaranteed to every worker irrespective of his performance.

This is necessary to ensure a sense of security and confidence among workers.

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(e) Simplicity

The incentive plan should be easy to understand and simple to operate so that a worker
can calculate his own earnings. The linkage between pay and performance should be
clear. Complicated plans and formulae create suspicion and distrust in the mind of
workers.

(f) Equitable

The plan should provide equal opportunity to all workers to earn incentive pay.
Otherwise, it will cause dissatisfaction and jealousy among workers who have no
opportunity to earn more. Some benefit of increased productivity should be given to
indirect workers so as to avoid any disparity. In other words, the plans should be
comprehensive so as to cover all the employees.

(g) Economical

The plan should not be very costly in operation. Need for detailed records and
complicated calculations increase costs. The potential benefits of the scheme should
exceed its costs.

(h) Flexibility

There should be scope for making changes in the scheme to rectify errors and to take
care of changes in technology, market demand, etc. However frequent changes should
be avoided as these create confusion and doubt among workers.

(i) Prompt Payment

The time gap between actual performance and incentive payment should be as small as
possible. Once the job is completed, incentive should be paid as soon as possible.

(j) Adequate Incentive

Incentive payments under the scheme should be large enough to motivate the worker.
For example, an incentive payment of Rs.100 to a worker getting Rs.1,000 per month is
more meaningful than to a worker drawing a monthly salary of Rs.5.000.

(k) Ceilings on Earnings

A ceiling on the maximum incentive earnings should be laid down to prevent over-
exertion and to ensure quality. Otherwise, the plan may become detrimental to the health
and welfare of employees.
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(l) Reasonable Standards

The standards should be of average difficulty, neither too low nor too high. Moreover,
standards should be guaranteed against unnecessary changes. Working conditions and
work methods should be standardized so that standards are just and fair to all.
Management must avoid all bottlenecks in workflow.

(m) Grievance Machinery

Suitable machinery for quick and fair redressal of grievances arising from the
implementation of the scheme should be installed.

(n) Appraisal System

A clear system for inspecting, counting and recording output of each worker should be
developed. The results should be made known to the workers.

(o) Follow-up

The operation and effectiveness of the scheme should be reviewed periodically. Any
deficiency in the scheme or in its administration should be properly rectified.

Question-3: Explain the steps involved in designing a Remuneration Plan.

Designing a remuneration plan involves the followings:

1. Job Analysis: The main purpose of conducting job analysis is to prepare job
description and job specification which in turn helps to hire the right quality of
workforce into the organization.

It helps to understand the qualities needed by employees,defined through behavioral

descriptors, to provide optimum work performance.

It obtains answers to such questions such as: 1. Why does job exists? 2. What physical
and mental activities does the worker undertake? 3. When is the job to be performed? 4.
Where is the job to be performed? 5. How does the worker do the job? 6. What
qualifications are needed to perform the job? 7. What are the working conditions (such
as levels of temperature, noise, offensive fumes, light) 8. What machinery or equipment
is used in the job? 9. What constitutes successful performance?

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There are several ways to conduct a job analysis, including: interviews with incumbents
and supervisors, questionnaires (structured, open-ended, or both), observation, critical
incident investigations, and gathering background information such as duty statements
or classification specifications. In job analysis conducted by HR professionals, it is
common to use more than one of these methods.

2. Job Documentation: To evaluate job content, it provide objective criteria for making
pay comparison, ensure that jobs are classified according to content as opposed to
individual personalities, effectively communicate the job duties to both supervisor and
employees and help the organization defend it self against charges and discrimination.

3. Development of a job worth hierarchy: It is a result of job evaluation. There are six
major methods which are divided in two groups according to their nature.

a) Whole job evaluation and are non-quantitative in nature

i- Ranking
ii- Classification
iii- Slotting

b) Factor evaluation and are quantitative in nature

i- Point factor
ii- Factor comparison
iii- Scored questionnaires

4. Pay survey: Wages and salary surveys ensure external equity. A wage and salary
survey provides information as to what other organizations that compete for employees
are paying. The survey could cover all jobs within an organization or limited to
benchmark jobs.
The benchmark jobs have the following basic characteristics
i- Many workers in other companies have these jobs.
ii- They will not be changing in the immediate future in terms of tasks,
responsibilities etc.
iii- They represent the full range in term of salary such that some are among the
lowest paid in the group of jobs, others are in the middle range and some are at
the high end of the pay scale.

Formal and informal surveys could be undertaken to collect data on benefits like
insurance, medical leave, vacation pay etc. and offer a basis on which to take decision
regarding employee benefits. Published sources also provide valuable information.
Published sources also provide valuable information regarding industry-wise trends in
salary structures in and around the country.

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The published sources in India include:

i. Reports published by the Ministry of Labour

ii. Pay Commission Reports
iii. Reports of wage Bonds appointed by Government
iv. Reports of employee and employer’s organization
v. Trade journals of specific Industry

5. Pricing the Job: Establishment of pay Ranges:

In order to actually establish a pay structure, an organization needs to set rates of pay for
the jobs in the job hierarchy. This will depend on the number of different levels of
relative job value that are recognized by the organization and the difference in pay
between the highest and lowest paid jobs in the pay structure. The focal point pf the pay
range is the midpoint, an organization can determine the range minimum and maximum.

6. Pay rates and Pay Increases: This means deciding how to pay new employees, how
and when to give employee increases, including how to move existing employees from
minimum to maximum of their assigned pay grades, how to determine the pay increase
for an employee being promoted from one job to another and what influence, if any, cost
of labour increases will have on the determination of pay increases for employees.

7. Starting pay for new Employees: In order to avoid paying new employees the same as
more experienced employees, most employers choose to start new employees closer to
the minimum of the pay range. In general, an employee with minimum qualifications
should be paid the minimum of the range. This general rule is not true when a new hire
has skills which are in great demand or has skills or other expertise substantially above
the minimum.

8. Employee Increases: There are several different types of base pay increases: General
(across the board) increases, cost of living/ labour increases, promotion increases, step
increases (based on longevity) and merit increases.

9. Performance appraisal: A performance appraisal, employee appraisal, performance

review, or (career) development discussion[1] is a method by which the job performance
of an employee is evaluated (generally in terms of quality, quantity, cost, and time)
typically by the corresponding manager or supervisor[2]. A performance appraisal is a
part of guiding and managing career development. It is the process of obtaining,
analyzing, and recording information about the relative worth of an employee to the
organization. Performance appraisal is an analysis of an employee's recent successes and
failures, personal strengths and weaknesses, and suitability for promotion or further

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training. It is also the judgement of an employee's performance in a job based on
considerations other than productivity alone.

10. Maintaining and Auditing a Compensation plan: Changes in the external market or
internally within the organization can cause one or more parts of a compensation plan to
become outdated. Part of the challenge in creating a compensation plan is to build in
mechanisms that facilitate change when necessary, yet maintain control on a regular
basis. Some actions an organization can take to maintain an updated compensation plan
include regular review of job descriptions, monitoring of compensation levels versus
companies with which there is competition for employees, and regular review of the pay
structure including pay ranges and pay increase budgets. An audit is an excellent means
to ensure that a compensation plan is being properly administered and maintained.

When planning to audit a compensation plan, an organization needs to consider the

following:
Process measures - Are procedures and practices in place to ensure the compensation
plan is being administered smoothly and efficiently?

Policy compliance - Are there procedures or other mechanisms in place to ensure that
the compensation plan is being administered in accordance with policy?

Documentation adequacy - Is there adequate documentation in place to ensure that the

administration of the compensation plan and compliance issues can be audited?

Overall results - Are there measures that can assess how well the compensation plan is
achieving its goals and objectives?

After reviewing audit results, management can make recommendations on any

improvements that may be necessary, allocate the necessary resources and follow-up to
make sure the work is completed.

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