COMPENSATION MANAGEMENT

(or Reward Management

or
Compensation & Benefit Management )

Session on 01
MBA
 PART 1 THE FUNDAMENTALS OF REWARD MANAGEMENT

PART 2 THE CONCEPTUAL FRAMEWORK

PART 3 ESTABLISHING JOB VALUES AND RELATIVITIES

PART 4 GRADE AND PAY STRUCTURES

PART 5 REWARDING AND REVIEWING CONTRIBUTION AND

PERFORMANCE

PART 6 REWARD MANAGEMENT FOR SPECIAL GROUPS

PART 7 EMPLOYEE BENEFITS AND PENSION SCHEMES REWARD

MANAGEMENT PROCEDURES
 Reward management defined
The aims of reward management
Achieving the aims
The reward system Elements of a reward System
Factors affecting reward management policy and practice

The development of reward management .

Question??????

Dear students do you know?

WHAT IS REWARD MANAGEMENT ?

Or
Compensation & Benefit Management ?
 Compensation?
Benefit ?
Management?
 something, typically money,
awarded to someone in
COMPENSATION
recognition of loss, suffering, or
injury.

an advantage or profit gained

BENEFIT from something.

the process of dealing with or

Management controlling things or people.
 REWARD MANAGEMENT
DEFINED:

Reward management deals with the strategies, policies and

processes required to ensure that the contribution of people
to the organization is recognized by both financial and non-
financial means.

(strategies, policies and processes recognize to give financial

and non-financial reward.)
 Reward people according to the value they create;

Align reward practices with business goals and with employee values
and needs;

Reward the right things to convey the right message about what is
important in terms of behaviours and outcomes;

develop a high-performance culture.

motivate people and obtain their engagement and commitment;

help to attract and retain the high-quality people the organization

needs;
ACHIEVING THE AIMS

The aims of reward management are

achieved by developing and implementing
strategies, policies, processes and practices.
 ACHIEVING THE AIMS:

By
Reward philosophy
Distributive justice
Procedural justice
Fairness
Equity
Consistency
Transparency
Strategic alignment
Contextual and culture fit
Fit for purpose
Developing a high-performance culture
Reward philosophy
Reward management is based on a set of beliefs and guiding
principles.

Reward management is based on a well-articulated philosophy

a set of beliefs and guiding principles that are consistent with the
values of the organization and help to enact them.
HR initiatives designed to achieve the motivation, commitment,
engagement and development of employees at long term .
Distributive justice

Distributive justice refers to how rewards are provided to

people
(They receive what was promised to them and that they
get what they need.)
Procedural justice refers to the ways in
which managerial decisions are made
and reward policies are put into
practice.
 Fairness

A fair reward system is one that

operates in accordance with the
principles of distributive and
procedural justice. It also
conforms to the felt-fair
principle formulated by Eliot
Jaques (3). This states that pay
systems will be fair if they are
felt to be fair.
Equity

Equity is achieved when

people are rewarded
appropriately in relation
to others within the
organization.
Consistency

A consistent approach to
reward management means
that decisions on pay do not
vary arbitrarily without due
cause between different
people or at different times.
Transparency

Transparency exists
when people
understand how reward
processes function and
Strategic alignment

The strategic alignment of reward

practices ensures that reward
initiatives are planned by reference
to the requirements of the business
strategy and are designed to support
the achievement of business goals.
Contextual and culture fit

The design of reward

processes should be
governed by the context
.either university level or
college etc.
Fit for purpose

The formulation of reward strategy

and the design of the reward system
should be based on an
understanding of the objectives of
reward management and should be
developed to achieve that purpose.
Developing a high-performance culture
A high-performance
culture is one in which
people are aware of the
need to perform well and
behave accordingly in
order to meet or exceed
expectations.
THE REWARD SYSTEM

What is the
reward
system?????
THE REWARD SYSTEM,
This consists of

Reward Reward Reward Reward Reward

strategies, policies, practices, processes, procedures,
 REWARD STRATEGIES,

Are set out what the

organization intends to do
in the longer term
to develop and For example, an
Reward implement reward organization may
policies, practices, have a strategy to
strategies processes and maintain competitive
procedures rates of pay.
that will further the
achievement of its
business goals.
 Reward policies,

Reward policies, which set guidelines for decision making and

action.

For example, an organization may have a policy that sets the levels of pay
in the organization compared with median market rates.
 REWARD PRACTICES,

It consist of the grade and pay structures, techniques such as job

evaluation, and schemes such as contingent pay used to
implement reward strategy and policy.

For example, the policy on pay levels will lead to the practice
of collecting and analyzing market rate data, and making pay
adjustments that reflect market rates of increase.
Reward processes,

Reward processes, which consist of the ways

in which policies are implemented and practices carried
out,

for example the way in which the outcomes of

surveys are applied and how managers manage
the pay adjustment and review process.
 REWARD PROCEDURES,

Reward procedures, which are operated in order to maintain the

system and to ensure that it operates efficiently and flexibly
and provides value for money.

For example, a procedure will be used for conducting the

annual pay review.
ELEMENTS OF A REWARD SYSTEM
Business strategy
Reward strategy and policy
Base or basic pay
Contingent pay
Employee benefits
Allowances
Total earnings
Total remuneration
Job evaluation
Market rate analysis
Grade and pay structures
Performance management
Non-financial rewards
Total reward
 Business strategy
The starting point of the reward system is the business strategy of
the organization.
This identifies the business drivers and sets out the business goals.
It include items such as
high performance,
profitability,
productivity,
innovation,
customer service,
quality, price/cost leadership and the need to satisfy stakeholders
investors, shareholders, employees and, in local authorities,
elected representatives.
 Reward strategy and policy
The reward strategy flows from an analysis of the business
drivers
The reward strategy will define longer-term intentions in
such areas as pay structures, contingent pay, employee
benefits, steps to increase engagement and commitment and
adopting a total reward approach.
 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
shop floor workers, the level of skill required.
Contingent pay

Additional financial
rewards may be
provided that are related
to performance, competence,
contribution, skill or
experience.
 Employee benefits
Employee benefits include
pensions,
sick pay,
insurance cover,
company cars and a number of other bonus.
They consist of elements of remuneration additional to the
various forms of cash pay and also include provisions for
employees that are not strictly remuneration, such as annual
holidays
 Allowances
Allowances are paid in addition to basic pay for special
circumstances (e.g. living in London) or features of
employment (e.g. working unsocial hours).
 Total earnings

Total earnings (financial rewards) consist of the value of all

cash payments
(base pay, contingent pay and allowances, i.e. total earnings).
 Total remuneration
Total remuneration consists of the financial rewards
represented by total earnings plus the value of the benefits
received by employees.
 Job evaluation
Job evaluation is a systematic process for defining the relative
worth or size of jobs within an organization in order to
establish internal relativities and provide the basis for
designing an equitable grade structure, grading jobs in the
structure and managing relativities.
 Market rate analysis
Market rate analysis is the process of identifying the rates of
pay in the labour market for comparable jobs to inform
decisions on levels of pay within the organization and on pay
structures.
 Grade and pay structures
Jobs may be placed in a graded structure according to their
relative size. In such a structure, pay is influenced by market
rates, and the pay ranges attached to grades provide scope for
pay progression based on performance, competence,
contribution or service.
 Define individual performance and contribution
expectations, assess performance against those expectations,
provide for regular constructive feedback, and result in
agreed plans for performance improvement, learning and
personal development.
 Non-financial rewards
Non-financial rewards do not involve any direct payments
and often arise from the work itself,

for example
achievement,
autonomy,
recognition,
scope to use and develop skills,
training,
career development opportunities and high-quality leadership.
Total reward

Total reward is the

combination of financial
and non-financial rewards
available to employees
FACTORS AFFECTING REWARD MANAGEMENT
POLICY AND PRACTICE

These consist of contextual factors and

conceptual factors
 CONTEXTUAL
FACTORS

External The internal

environment environment

The internal environment:

consists of the organizations culture and its
business, technology and people
The external environment :
competitive pressure, globalization, and changes
in demographics and employment.
 conceptual factors
Are relating to theories and beliefs about
strategic management,
total reward,
human capital management,
the factors affecting pay levels,
motivation,
engagement,
commitment and the psychological contract.
COMPENSATION MANAGEMENT
(or Reward Management
Compensation & Benefit Management )

Session on 02
MBA