EMPLOYEE COMPENSATION AND REWARD MANAGEMENT

Compensation is the sum total of all forms of payments and rewards provided to employees for performing tasks to achieve organizational objectives.

Contributions
Compensation can serve to attract qualified applicants
to the organization
Compensation helps to retain competent employee in
the organization
Compensation serves as an incentive to motivate
employees to put forth their best efforts.
Minimizing the costs of compensation can also
contribute to organizational effectiveness
Objectives
To enable the employee to earn a good and reasonable wages or salary
To pay equitable sums to different individuals, avoiding anomalies.
To reward and encourage high quality work and output
To encourage employees to develop better methods of working and their acceptance
To discourage wastage of materials or equipments
To encourage employees to use their initiative and discretion
To discourage overtime working unless it is very essential
To increase or maintain morale/satisfaction of employees
Align employees effort with achievement of organizational objectives
Enhance co-operation and collaboration among team members
To communicate to the employee his or her worth to the organization.

Total compensation

Financial (Extrinsic Rewards) Non-Financial (Intrinsic Rewards)

Mandatory Voluntary
Variable pay Provident fund Paid holidays
Base pay Individual incentives Gratuity Family-friendly
Direct Maternity leave Indirect (Benefits) benefits
Wage Group incentives
Salary Organization-wide Health plans Retirement
incentives Medical leave benefits
Job-Evaluation

It is a systematic and orderly process of determining the worth/value of a job in relation to other jobs. It is used to determine the base salary

Methods:

Ranking Jobs are compared one with another, and arranged or ranked in order of their importance, their difficulty, or their value to the
organization
Simplest and most basic, can be done quickly and inexpensively
Most appropriate for small organizations and for those with a limited no of different jobs.
Classification Jobs are classified and grouped into no. of grades/classes in an order of increasing amounts of job responsibility, skills, ability, etc.
Also a simple method
Point method The job is broken down into specific components/criteria such as skill, effort, responsibility, etc and numerical values are assigned
to each of these components. The sum of these weights/points provides a qualitative assessment of relative worth of the job. Jobs
with similar point totals are placed in the same pay scale.
Expensive, time-consuming, most complex but yet the most widely used.
Factor comparison Evaluators do not evaluate the complete job, but separate factors of the job, called Compensable factors.
There are 5 universal job factors: Mental effort, Skill, Physical effort, Responsibility and working conditions. Compensable factors
of the job being evaluated are compared with the compensable factors of key jobs within the organization. Key jobs are the
benchmark jobs within the organization, which are widely known in the labour market and are used for wage determination
purposes.
Experts establish the relative degree of the difficulties of each of the compensable factor for each key job. Monetary rates of pay
are assigned to each compensable factor of each key job based on the relative importance of the respective factor to the job.
A factor comparison scale reflecting ranking and money allocation is developed. The monetary rates assigned to each job on each
factor are added to obtain the total monetary value of the job.
Market pricing Relies entirely on the labour market to determine how much jobs should be paid.
It is not concerned with the internal equity of pay, compensable factors, or assigning relative worth to jobs

Incentives

Also used by the organization as a tool for employee retention

 Infosys has evolved a new incentive tool for executives in 2006. It ic called the “Deferred compensation/Bonus Scheme. The company plans to create
a compensation fund and use it to reward employees. The reward will be staggered over a period of time. The objective of this scheme is to
communicate to the employees that the longer they stay with the firm the better their reward will be.
  Wipro asks fresh campus recruits to make a bank deposit of ` 75,000 on signing the employment contract. If the employee stays for 15 months, he
gets back the principal amount with interest as well as ` 6,000 as retention bonus
 HCL offered loans for PCs to its employees that were to be partly written off every year the employee spent with the organization.

Broadbanding

A strategy for salary structures that consolidates a large no of pay grades into a few “broad bands”

Each band covers a pay range that formerly represented several pay grades. It gives manager greater flexibility to encourage employee to move in a horizontal
direction in their careers by broadbanding their skills and competencies.

Broadening bands can have a positive impact on motivation because it can give managers more flexibility in rewarding employee performance within a very
broad band.

It also encourages employees to focus on developing skills that make them more valuable.

COMPENSATION AND REWARD DETERMINANTS

Internal determinants External determinants

Fringe Benefits
Compensation policy PAY Labour market
of the organization
A collection of various benefits provided by an employer, which are exempt from taxation as long as certainconditions
conditions are met. Any employee who receives
Employer’s ability to LEVEL Economic
taxable fringe benefits will have to include the fair market value of the benefit in their taxable income for the year,conditions
which will be subject to tax withholdings,
pay
and social security benefits payments. Area wage rates
Worth of a job Government controls
Employee’s relative Cost of living
worth Union influences
Fringe benefits commonly include health insurance, group term life coverage, education reimbursement, childcare and assistance reimbursement, cafeteria
plans, employee discounts, personal use of a company owned vehicle and other similar benefits

Flexible Benefits

A system whereby employees are presented with a set of benefits and are asked to select, within monetary limits imposed, the benefits they desire.