302 COMPENSATION

MANAGEMENT
INTRODUCTION
Human Resource is the most vital resource for
any organization.
It is responsible for each and every decision
taken, each and every work done and each and
every result.
Employees should be managed properly and
motivated by providing best remuneration and
compensation as per the industry standards.
The good compensation will also serve the need
for attracting and retaining the best employees. .
COMPENSATION
Compensation is the remuneration received by an
employee in return for his/her contribution to the
organization.
It is an organized practice that involves balancing
the work-employee relation by providing monetary
and non-monetary benefits to employees.


When managed correctly, it helps the organization
achieve its objectives and obtain, maintain, and
retain a productive workforce.
Compensation is a key factor in attracting and
keeping the best employees and ensuring that your
organization has the competitive edge in an
increasingly competitive world.
Without adequate compensation, current
employees are likely to leave and replacements
will be difficult to recruit.
The outcomes of pay dissatisfaction harm
productivity and affect the quality of work life.

EVOLUTION OF MANAGEMENT
Behavioral, labor and
trade union
No space for
psychological and
social needs
Align with business
goals and strategies
OBJECTIVES OF COMPENSATION
MANAGEMENT
NEED OF COMPENSATION MANAGEMENT

A good compensation package is important to motivate the
employees to increase the organizational productivity.

Unless compensation is provided no one will come and work
for the organization.

Thus, compensation helps in running an organization
effectively and accomplishing its goals.

Salary is just a part of the compensation system, the
employees have other psychological and self-actualization
needs to fulfill. Thus, compensation serves the purpose.

The most competitive compensation will help the organization
to attract and sustain the best talent. The compensation
package should be as per industry standards


TYPES OF COMPENSATION MANAGEMENT
Compensation provided to employees can direct in
the form of monetary benefits and/or indirect in the
form of non-monetary benefits known as perks,
time off, etc.
Total Financial compensation = Direct + Indirect
Compensation


DIRECT COMPENSATION
INDIRECT COMPENSATION
COMPONENTS OF COMPENSATION
MANAGEMENT
PAY STRUCTURE
SALARY SURVEYS
REWARD MANAGEMENT
Reward management is concerned with the
strategies, policies and processes required to
ensure that the value of people and the contribution
they make to achieving organizational,
departmental and team goals is recognized and
rewarded.
It is about the design, implementation and
maintenance of reward systems (interrelated
reward processes, practices and procedures) that
aim to satisfy the needs of both the organization
and its stakeholders and to operate fairly, equitably
and consistently.

CHARACTERISTICS OF REWARD
MANAGEMENT

1) Reward management and people
2) A stakeholder approach
3) Integrated reward management (strategic
integration, HRM integration, and Reward
integration)
4) Strategic Reward Management
5) Evidence-based Reward Management

Reward Management Framework
1) Support the achievement of business goals through
high performance;
2) Develop and support the organizations culture;
3) Define what is important in terms of behaviours and
outcomes;
4) Reward people according to the value they create;
5) Reward people according to what the organization
values;
6) Align reward practices with employee needs;
7) Help to attract and retain the high-quality people the
organization needs; win the engagement of people.

THE AIMS OF REWARD MANAGEMENT
A) Achieving the aims in general
1) Reward philosophy ( set of beliefs and guiding principles)
2) Distributive justice
3) Procedural justice (viewpoints of employees, personal bias,
applying consistency, providing early feedback about
outcome of the decisions and adequate explanations)
4) Fairness
5) Equity
6) Consistency
7) Transparency
8) Strategic alignment
9) Contextual and culture fit
10) Performance and reward
11) Segmentation




THE AIMS OF REWARD MANAGEMENT
B) Achieving the specific aims:

1) Support and develop the organizations culture
2) Define the right behaviours and outcomes
3) Reward people according to the value they create
and what the organization values
4) Align reward practices with employee needs
5) Help to attract and retain high-quality people
6) Win the engagement of people
7) Factors influencing the achievement of the aims


EXAMPLE GOOGLE
Objectives
Emphasis on innovation
Commitment to cost containment
Recognize contributions
Attract and reward the best
Internal alignment
Minimize hierarchy
Everyone wears several hats
Emphasize collaboration
Externally competitive
Explore novel ideas in benefits and compensation
generous
Unique benefits
Employee contributions
Recognize individual contributions
Unrivaled stock programs
Management
Love employees
Want them to know it
Technology support
INTERNAL CONTEXT EXTERNAL CONTEXT
The organizations culture Globalization
The organizations business or
sector
Rates of pay in the market
place
Work environment The economy
People Societal factors
Business strategy The trade unions
Political and social climate
1) The resource based view
2) Human capital management (manage & develop)
3) Human Process advantage (best practices)
4) Motivation theory (instrumentality, content,
process and cognitive)
5) Principle agent theory
6) The psychological contract (through reward and
PMS)
7) Pay level concepts

FUNDAMENTAL CONCEPTS
1) The resource based view
The resources in an organization, including its human
resources, produce its unique character and create
competitive advantage.
2) Human capital management
The development of human potential to achieve high
performance.
3) Human process advantage
Results from the establishment of difficult-to-imitate,
highly evolved processes within the firm.

4) Motivation theory
Motivation the force that energizes, directs and
sustains behaviour.
Motivation theory, which explains the factors that
affect the strength and direction of peoples
behavior. The main theories are instrumentality,
content (needs) and process. The latter
(expectancy, goal and equity) are particularly
significant.

Instrumentality theory:
Instrumentality is the belief that if we do one thing it will
lead to another. It states that people only work for
money.
It assumes that people will be motivated to work if
rewards and penalties are tied directly to their
performance; thus the awards are contingent upon
effective performance.
Instrumentality theory has its roots in the scientific
management methods of Taylor (1911), who wrote: It is
impossible, through any long period of time, to get
workmen to work much harder than the average men
around them unless they are assured a large and
permanent increase in their pay.

Content theory:
This theory focuses on the content of motivation in the
shape of needs.
It provides guidance on what needs should be satisfied by the
reward system if motivation is to occur.
The basis of content theory is the belief that an unsatisfied
need creates tension and a state of disequilibrium.
To restore the balance a goal is identified that will satisfy the
need, and a behavior pathway is selected that will lead to the
achievement of the goal and the satisfaction of the need.
All behavior is therefore motivated by unsatisfied needs.

The main needs identified by these and other
writers are those for achievement, recognition,
responsibility, autonomy and the opportunity to
develop and use skills.
These have to be taken into account in deciding
how people should be rewarded and also in
achieving motivation through job design. But a note
of caution is necessary.
Process Theory
Expectancy theory (Vroom, 1964 and Porter and Lawler,
1968), which states that motivation will be high when
people know what they have to do to get a reward,
expect that they will be able to get the reward and expect
that the reward will be worthwhile.
Goal theory (Latham and Locke, 1979), which states that
motivation and performance are higher when individuals
are set specific goals, when goals are difficult but
accepted, and when there is feedback on performance.

Equity theory (Adams, 1965), which states that people
will be better motivated if they are treated equitably, and
demotivated if they are treated inequitably.
There are two forms of equity distributive and procedural
justice.

Cognitive evaluation theory:
Cognitive evaluation theory (CET) as devised by
Deci (1975) and Deci and Ryan (1985) argues that
placing strong emphasis on monetary rewards
decreases peoples interest in the work itself, thus
dampening a powerful alternative source of
motivation. In other words, extrinsic rewards erode
intrinsic interest.

5) Principal agent theory
The principals (owners) do not have complete control
over their agents (managers). The latter may therefore
act in ways that conflict with what the principals want.
6) The psychological contract
Set of unwritten expectations that exist between
individual employees and their employers.
7) Pay level concepts
There are a number of explanations of how levels of pay
are determined and, therefore, the factors that need to be
taken into account in deciding on the value of jobs and
the design of grade and pay structures. Economic
theories of pay and efficiency wage theory are perhaps
the more influential ones but there are other concepts
such as human capital, principal agent theory,
tournament theory and the effort bargain.
1) It is fit for purpose
2) It is appropriate
3) It is design accordingly
4) It must function in line with well-defined guiding principles.
5) Process for valuing and grading jobs and rewarding people
6) Impact on performance through PMS
7) Attract and retain people
8) Maintains competitive and equitable rates of pay
9) Incorporates total rewards approach
10) Manages reward processes carefully
11) Taking corrective actions
12) Communicates to all concerned
13) Reasonable degree of authority to line managers

EFFECTIVE REWARD MANAGEMENT