7 MANAGING PEOPLE Compensation & Incentive Plans MATHISHA - PowerPoint PPT Presentation

7 MANAGING PEOPLE Compensation & Incentive Plans MATHISHA HEWAVITHARANA Managing Human Resources MBA (Col),BBA Sp.Mktng (Col), PPG DIP. In Mktng (UK), MCIM (UK), Chartered Marketer 14 th edition (UK), Practicing Marketer (SL), ACMA, CGMA CIMA (UK), DBF (IBSL), AIB (IBSL), Bohlander • Snell MSLIM(SL), PowerPoint Presentation by Charlie Cook Head of Branches - Siyapatha Finance PLC The University of West Alabama

Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 – 2

Compensation & Incentive Plans What is Compensation: • "Employee compensation refers to all forms of pay / benefits going to employees and arising from their employment." • The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer whilst employer gets the best outcome for the incurred cost. 2 – 4

Compensation & Incentive Plans Components of a Compensation Package:  Direct Compensation - Wages / Salary - Incentives - Bonuses - Commissions  Indirect Compensation - Other Financial benefits  Non Financial Compensation - Recognition - Organizational Support - Work Environment - Carrier Guidance 2 – 5

Compensation & Incentive Plans What is Strategic Compensation: • “Compensation of employees in ways that enhance motivation & growth while alligning employee efforts with the objectives of the organization" • According to the above view, a compensation strategy has become a tool of securing a competitive advantage for the business. - Finalization of Organizational Objectives - Identifying what kinds of behaviors and skills to be rewarded - Deciding on the Compensation base for the organization 2 – 6

Compensation Management Components of a Compensation Allignment: 2 – 8

Compensation Management Linking Compensation to Organizational Objectives; Common Goals of a Strategic Compensation Policy:  To reward employees’ past performance  To remain competitive in the labor market  To maintain salary equity among employees  To allign employees’ future performance with organizational goals  To control the compensation budget  To attract new employees  To reduce unnecessary turnover 2 – 9

Compensation Management Pay for Performance Standard; Standard by which managers tie compensation to employee effort and performance & this refers to a wide range of compensation options  Merit-based pay  Bonuses  Salary commissions  Job and pay banding  Team/group incentives  Gainsharing programs 2 – 10

Compensation Management Pay for Performance Standard; • Pay equity : Employee’s perception that compensation received is equal to the value of the work performed 2 – 11

Compensation Management Pay for Performance Standard; • Pay equity : Employee’s perception that compensation received is equal to the value of the work performed Relationship between Pay Equity and Motivation 2 – 12

Compensation Management Pay for Performance Standard; • Expectancy Theory : A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value / expect. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward. Pay-for-Performance and Expectancy Theory 2 – 13

Compensation Management Pay for Performance Standard; • Pay Secrecy : An organizational policy prohibiting employees from revealing their compensation information to anyone which Creates misperceptions and distrust of compensation fairness and pay-for-performance standards . 2 – 14

Compensation Management Bases for Compensation; • Hourly work - Work paid on an hourly basis • Piece work - Work paid according to the number of units produced • Salaried employees - Employees whose compensation is computed on the basis of weekly, or monthly pay periods • Non-exempt employees - Employees covered by the overtime provisions • Exempt employees - Employees who not covered in the overtime provisions 2 – 15

Compensation Management Compensation Design – Internal & External Factors ; Factors Affecting the Wage Mix 2 – 16

Compensation Management Compensation Design – Job Evaluation Syatems ; The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.  Job Ranking System - Jobs are arrayed on the basis of their relative worth. Directions: Place an X in the cell where the value of a row job is higher than that of a column job. 2 – 17

Compensation Management Compensation Design – Job Evaluation Syatems ;  Job Classification System A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.  Point System A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.  Work Valuation A job evaluation system that seeks to measure a job’s worth through its value to the organization. Jobs are be valued relative to financial, operational, or customer service objectives of the organization. 2 – 18

Compensation Management Compensation Design – Job Evaluation Syatems ;  Job Classification System for Management Positions Job evaluation technique uses three factors to evaluate executive and managerial positions.  Knowledge  Mental activity  Accountability 2 – 19

Compensation Management Compensation Implementation – Pay Tools  Wage & Salary Survey • Survey of the wages paid to employees of other employers in the surveying organization’s relevant labor market • Labor market - Area from which employers obtain certain types of workers • Collecting available survey data • HRIS and web based salary surveys • Employer-initiated surveys 2 – 20

Compensation Management Compensation Implementation – Pay Tools  Wage Curve, Pay Grades, and Rate Ranges 2 – 21

Compensation Management Compensation Implementation – Pay Tools  Wage Curve, Pay Grades, and Rate Ranges Freehand Wage Curve 2 – 22

Compensation Management Compensation Implementation – Pay Tools  Wage Curve, Pay Grades, and Rate Ranges Single Rate Structure 2 – 23

Compensation Management Compensation Implementation – Pay Tools  Competence-Based Pay Compensation for the different skills or increased knowledge employees possess rather than for the job they hold in a designated job category. Greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover. Broadbanding Collapses many traditional salary grades into a few wide salary bands. 2 – 24

Compensation Management Compensation Assessment Assessing the effectiveness of compensation system is important to linking compensation with corporate strategy; • Compensation Assessment Will;  Help the company detect potential compensation problems  Make compensation decisions more transparent  Improve the alignment of compensation decisions with organizational objectives 2 – 25

Compensation Management Compensation Assessment • Compensation scorecard : This displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units Creates a comparative tool within the organization that can reinforce desired outcomes that are unique to the company’s strategy 2 – 26

Compensation Management Government Regulation Factors Davis-Bacon Act Required minimum wage, prevailing wage rates, 1½ 1931 overtime premium payments by federal contractors. Walsh-Healy Act Required overtime payments after 8 daily or 40 regular work 1936 hours for workers on federal contracts. Fair Labor Standards Interstate commerce clause used to cover workers except Act (FLSA) 1938 agricultural and exempted (managerial) employees, child (as Amended) labor (under 16) is prohibited. Wage & Hour Provisions Minimum Wage & Pay Compression Chils Labour Provisions Exemption from Overtime Provisions Pay Equity Provisions 2 – 27