COMPENSATION MANAGEMENT

Payroll Home Compensation Management 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 lucrative compensation will also serve the need for attracting and retaining the best employees. 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. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Components of Compensation System Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors aft

Types of Compensation 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.

Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity. Direct Compensation Indirect Compensation 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.

Strategic Compensation Strategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In todays competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems.

HR Guide to the Internet: Compensation: Outline and Definitions

Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. Chapter Highlights 1. How is compensation used? 2. What are the components of a compensation system? 3. What are different types of compensation? How is compensation used? Compensation is a tool used by management for a variety of purposes to further the existance of the company. Compensation may be adjusted according the the business needs, goals, and available resources. Compensation may be used to:

recruit and retain qualified employees. increase or maintain morale/satisfaction. reward and encourage peak performance. achieve internal and external equity. reduce turnover and encourage company loyalty. modify (through negotiations) practices of unions.

Recruitment and retention of qualified employees is a common goal shared by many employers. To some extent, the availability and cost of qualified applicants for open positions is determined by market factors beyond the control of the employer. While an employer may set compensation levels for new hires and advertize those salary ranges, it does so in the context of other employers seeking to hire from the same applicant pool. Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be reached between the monetary value the employer is willing to pay and the sentiments of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the expence of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, profit sharing, gain sharing.

What are the components of a compensation system? Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures. The components of a compensation system include:

Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families. Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining. Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Policies and Regulations

Principles of Compensation Discussed Compensation will be perceived as fair if it is comprised of a system of components developed to maintain internal and external equity. What are different types of compensation? Different types of compensation include:

Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

What are regulations affecting compensation?

FLSA

Compensation Plans
Develop a program outline.

Set an objective for the program. Establish target dates for implementation and completion. Determine a budget.

Designate an individual to oversee designing the compensation program.

Determine whether this position will be permanent or temporary. Determine who will oversee the program once it is established. Determine the cost of going outside versus looking inside. Determine the cost of a consultant's review.

Develop a compensation philosophy.

Form a compensation committee (presumably consisting of officers or at least including one officer of the company). Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus noncontingent pay). Determine whether the company should set salaries at, above, or below market. Decide the extent to which employee benefits should replace or supplement cash compensation.

Conduct a job analysis of all positions.

Conduct a general task analysis by major departments. What tasks must be accomplished by whom?

Get input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each. Interview department managers and key employees, as necessary, to determine their specific job functions. Decide which job classifications should be exempt and which should be nonexempt. Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary. Develop a final draft of job descriptions. Meet with department managers, as necessary, to review job descriptions. Finalize and document all job descriptions.

Evaluate jobs.

Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments. Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary. Prepare a matrix organizational review. On the basis of required tasks and forecasted business plans, develop a matrix of jobs crossing lines and departments. Compare the matrix with data from both the company structure and the industrywide market. Prepare flow charts of all ranks for each department for ease of interpretation and assessment. Present data and charts to the compensation committee for review and adjustment.

Determine grades.

Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level. Determine the number of pay grades, or monetary range of a position at a particular level, within each department.

Establish grade pricing and salary range.

Establish benchmark (key) jobs. Review the market price of benchmark jobs within the industry. Establish a trend line in accordance with company philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).

Determine an appropriate salary structure.

Determine the difference between each salary step. Determine a minimum and a maximum percent spread. Slot the remaining jobs. Review job descriptions. Verify the purpose, necessity, or other reasons for maintaining a position. Meet with the compensation committee for review, adjustments, and approval.

Develop a salary administration policy.

Develop and document the general company policy. Develop and document specific policies for selected groups. Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions. Develop and document procedures to justify the policy (e.g., performance appraisal forms, a merit raise schedule). Meet with the compensation committee for review, adjustments, and approval.

Obtain top executives' approval of the basic salary program.

Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels. Present data to the compensation committee for review, adjustment, and approval. Present data to the executive operating committee (senior managers and officers) for review and approval.

Communicate the final program to employees and managers.

Present the plan to the compensation committee for feedback, adjustments, review, and approval. Make a presentation to executive staff managers for approval or change, and incorporate necessary changes. Develop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc. Make presentations to managers and employees. Implement the program. Design and develop detailed systems, procedures, and forms. Work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers. Have the necessary forms printed. Develop and determine format specifications for all reports. Execute test runs on the human resources information system. Execute the program.

Monitor the program.

Monitor feedback from managers. Make changes where necessary. Find flaws or problems in the program and adjust or modify where necessary.

here are two different types of compensation management: direct and indirect. Compensation is the combination of monetary and other benefits provided to an employee in return for their time and skill. The field of compensation management provides management with the ideal combination of the different remuneration types. The purpose of this type of program is to retain and motivate good employees. Direct compensation is typically comprised of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. The evaluation of the employee and employer portions of benefit costs is an important part of a compensation package. Effective compensation plans are routinely compared with other firms in the same industry or against published benchmarks. Although some jobs are unique within a specific firm, the vast majority of positions can be compared to similar jobs in other firms or industries. Direct compensation that is in line with industry standards provides employees with the assurance of fair compensation. This process helps the employer avoid the costly loss of trained staff to a competitor. Ads by Google mba @MAPS, Delhi & Bangalore Campus Admissions Open. Apply Now ! www.maps.edu.in/MBA Leading global CSR Consultancy ISO 26000-CSR StrategyCSR Company Measurement International www.csr-company.com Improve outcomes using integrated workforce management Human Capital solutions. Management www.apihealthcare.com Pioneers in Employee Development Skills, Attitude & Corporate Training Behavioral Trg www.stepconsulting.org Peer feedback and opinions on salary structure & other HR Salary Structure Guidance issues. www.CiteHR.com/Salary Human Resource Management Indirect compensation focuses on the personal motivations of each person to work. Although salary is important, people are most productive in jobs where they share the companys values and priorities. Common types of indirect compensation include free staff development courses, subsidized day care, opportunity for promotion or transfer

within the company, public recognition, ability to effect change in the workplace and service to others. An effective compensation package has a combination of direct and indirect compensation. Compensation management programs often include a salary range for each position, with incremental increases and annual reviews. During these review sessions both type of compensation management are addressed and presented to the employee as part of the total package. Regular evaluation of the total compensation program and continual modifications is necessary to meet the changing needs of employees. Many firms invest time and resources to ensure that all employees are aware of the total compensation package that is available. This encourages employees to provide valuable feedback on the types of compensation programs that are most important to them. Human resources departments are responsible for the creation and management of the compensation program. A compensation management professional usually has a degree in human resources and skills with data management, statistics, and report creation. Creative compensation packages must be in keeping with the companys vision and identify to be effective.