COMPENSATION MANAGEMENT

Review of Previous Lecture

Benefits of Proper Compensation
Consequences of Inadequate Compensation
Concepts of Wages
Components of Remuneration
Theories of Remuneration
Factors Influencing Remuneration
Remuneration Model
Challenges of Remuneration
Skill based and Job based Pay

Consequences of Pay Dissatisfaction

performance
Desire for
more pay

strikes
absenteeism
grievances
Search for
new job

turnover

Psychological
withdrawal
Pay
dissatisfaction

Lower
attractiveness
of job

Job
dissatisfaction

Poor health

absenteeism
Visits to the
doctors

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289

Components of Remuneration
Remuneration

Financial

Wages and
Salary
Hourly
wages and
monthly
rates salary

Incentives
Individual
plans
Group plans

Non Financial

Fringe
benefits
CPF
Gratuity
Medical
etc.

Perquisites

Job content

Company
car
Club
membership
Furnished
house
Stock option
schemes
etc.

Challenging
job
responsibilities
Supervision
Growth
prospects
Working
conditions
Etc.

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286

Remuneration Model
Job description

Job evaluation

Job hierarchy

Pay survey

Pay levels

Pricing Jobs

Pay grades

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 295

Challenges of Remuneration
Skill based pay

Monetary and non

monetary rewards

Salary Reviews

Employee
participation

Remuneration

Pay Secrecy

Below market or
above market pay

Comparable worth

Eliticism or
Egalitarianism

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 300

Lecture Overview

Incentive Payments and Employee Benefits

Chapter 12
INCENTIVES AND PERFORMANCE BASED
PAYMENTS

Incentive Payments

Incentives payments are monetary benefits paid to

employee in recognition of his or her outstanding
performance

Also called variation rewards or payment by results

Unlike wages incentives varies from to time to time and

from individual to individual
Motivation

Reduced
absenteeism and
turnover

Better utilization
of equipment and
competencies

Higher Profits

Reduced
production cost

Increased
Productivity

Prerequisites for Effective Incentive System

1

Employees cooperation and participation

Realistic standards and necessary tools and facilities

Indirect workers like supervisor, helpers and store keepers etc.

should also be given benefit of incentive system

Commitment of top management

Careful Planning (well prepared and implemented)

There should be clear link between output and reward

Setting and reviewing specific objectives and incentives of

each employee periodically

Easy to understand and calculate

Types of Incentive Schemes

1

Incomes Varying in proportion to output

a) Straight piece work Method: Per unit rate is fixed and total
earnings is calculated by multiplying to total unit of output and rate
of per unit

Types of Incentive Schemes

1

Incomes Varying in proportion to output

b) Standard hour system: Standard time for completion of job is
fixed in terms of hours. A worker is paid on the basis of his time
rate

Types of Incentive Schemes

2 Earnings Varying Proportionality less than output
a) Hasley Plan: Bonus is paid to worker on time savings. The
bonus will be half of time saved multiply by rate per hour

Types of Incentive Schemes

2

Earnings Varying Proportionality less than output

b) Rowan Plan: bonus paid to worker is equal to the proportion

of the time saved to the standard time

Types of Incentive Schemes

2

Earnings Varying Proportionality less than output

c) Bedaux Scheme: Standard time for job is fixed. Each minute

of the standard time is called a point or B. Each job has standard
number of Bs. The worker receives bonus which is equal to of
the number of points earned.

Types of Incentive Schemes

3

Earnings differing at different level of out put

a) Taylors Differential Piece Rate System: An efficient worker

(whose out put exceeds standard out) is paid 120 percent of the
piece rate contrary to this inefficient worker receives only 80
percent of the piece

Types of Incentive Schemes

3

Earnings differing at different level of out put

b) Merrick Differential Piece Rate System: Standard piece rate

is given to worker up to 83 percent of the standard output, at which
a bonus of 10 percent of the time rate is payable, with a further 10
percent bonus on reaching the standard output.

Types of Incentive Schemes

3

Earnings differing at different level of out put

c) Gantt Task System: Worker is guaranteed his time rate for

out put below the standard. When standard output is reached
which is set at high level, worker is entitled to bonus of 20 percent
of the time wages. For the out put above the standard out put high
piece rates are paid.

Group Incentive Plans

1

Advantages

Better cooperation among team members

Less supervision

Reduce absenteeism

Disadvantages

An efficient worker may suffer from inefficiencies of team

members

Rivalry among the workers

Incentives for Indirect workers

Difficult to measure the output of indirect workers like security

staff, maintenance staff, and canteen employees

Merit rating: Rewarding employees on other qualities in

addition to output

Chapter 13
MANAGING EMPLOYEE BENEFITS AND SERVICES

Employee Benefits
Employee Benefits: Any other benefits that employee receive in
addition to direct compensation. These are not related directly to
performance
Often words used are benefits and services, fringe benefits and
hidden payroll
Benefit and Services: The direct cost of benefits can be calculated
like pension and medical facility, however the cost of services are
difficult to calculate like company newspaper, car parking facility,
and club membership

Employee Benefits
Reasons for Employee Benefits:
The direct compensation is taxable
Employer can purchase health insurance facility as group rate
Reflect corporate social responsible behavior of employer
Employee prefer to work for companies who offer fringe benefits
Housing schemes and medical/disability insurance, pension
reduce burden on public expenditure for providing such facility
Employees feel relax, less fatigue, socially secure, loyal to
organization and motivated

Employee Benefits
Types of Employee Benefits
Old age, disability, and health
insurance

Pension plans

Maternity leave

Sick leave

Medical leave

Child care leave

Children tuition fee

Vacations

Holidays

Travel allowance

Company car

Moving expenses

Meal allowances

Discount on product and services

Child care facilities

Loan facility

Employee Benefits
Treats
Free lunches
Coffee breaks
Picnics
Dinners
Birthday treats

Knick Knacks
Desk accessories
Company
watches
Diaries/Planners
Wallets
T-shirts/Ties

Awards
Trophies
Certificates
Letter of
appreciation

Office
Environment
Redecoration
Flexible hours
Furniture
Assistant

On the job
Tokens
Social
More
Movie tickets
Acknowledgement
responsibility
Vacation trips
Informal recognition
Special
Coupon
Recognition at
assignments
redeemable at
official party
Training
stores
Membership of
Early time offs
clubs
Anniversary or
Use of company
birthday presents
facilities for personal
events
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 333

Principles of Fringe Benefit

The benefits must fulfill the real needs of employees
The benefits must be in interest and welfare of employees
The benefits must be planned and cost effective
The interest and demands of employees must be incorporated in
benefits
The employees must be taught and educated to used these
benefits in fair way

Principles of Fringe Benefit

The benefits must fulfill the real needs of employees
The benefits must be in interest and welfare of employees
The benefits must be planned and cost effective
The interest and demands of employees must be incorporated in
benefits
The employees must be taught and educated to used these
benefits in fair way

Administration of Fringe Benefit

Establish objectives of benefits

Assess environment factors

Assess competitiveness

Communicate benefits

Control benefit cost evaluation

Common Employee Benefits Applicable in

Pakistan
Common Employee Benefits Applicable in Pakistan
Medical Insurance
Hiring Facilities
Paid Leaves
Cost of Living Allowance
CPF/GPF
Benevolent Fund
Retirement Programs
Pension
Employee Old Age Benefit
Institution (EOBI)

Example: Indoor and outdoor medical facilities

Example: Payment for rented house or self hiring
Example: Facility to avail leave with pay
Example: Adjustment of salary based on inflation
Example: Deduction from employees salary and part of it
is contributed form employer
Example: Financial assistance to employees in case of
special events (death/marriage of children)
Example: Gratuity
Example: Monthly payment to employee after retirement
calculated based on last pay drawn
Example:

Long Term Benefits

Advantages

Disadvantages

Employee remain associated for

longer time period with
organization (low turnover)

Cost to organization

Organization Loyalty

Employees are less motivated if

long term benefits associated
with permanent employment

Job satisfaction

Employee do not feel to work hard

as in case of short term reward

Chapter 14
REMUNERATING TOP BRASS

Components of Top Executives Remuneration

No

Components

Description

Salary

Salary is based on job evaluation and

capabilities of top executives

Bonus

Extra salary or lump-sum amount normally at

the end of year based on corporate earning or
any other criteria/success

Commission

Percentage of corporate profit

Long term incentives

Option to purchase stock at fixed price

Perquisites

Major part of executive income. Provident

fund, gratuity, special parking, well furnished
house, car with driver and fuel, membership in
clubs, utility bills, servants etc.

Issues in Executives Remuneration

No

Justification

They are very important in organization and key decision maker

They are more knowledgeable

They are in short supply

Difficult to attract and even more difficult to retain

They must be motivated to work with dedication and

commitment

Expectations and desires of people have gone up

Social prestige and respect in society

To eliminate corruption