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Compensation system


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Compensation system

  1. 1. M.Rehman Siddique
  2. 2. <ul><li>Compensation system </li></ul>
  3. 4. What Is Compensation? <ul><li>Compensation is the total reward received by an employee in exchange for services performed for an organization. It can include both direct pay (salary and wages) and indirect pay (benefits programs). </li></ul>
  4. 6. Contd…… <ul><li>Workers' compensation first started in Germany in the 1800's. A need was seen to take care of injured workers so they did not suffer physically or financially from injuries resulting from working for a company. </li></ul>
  5. 7. Contd……. <ul><li>Workers' compensation became common in the US in the 1930's and 1940's. It continues today in all 50 states. Workers’ compensation is similar in Canada. </li></ul><ul><li>Workers' compensation laws and regulations are made by each state and are regulated by state officials. </li></ul>
  6. 8. Contd……. <ul><li>Compensation —the total of all rewards provided employees in return for their services. </li></ul><ul><li>Direct Financial Compensation —Consists of the pay that a person receives in the form of wages, salaries, bonuses, and commissions. </li></ul>
  7. 9. Contd……. <ul><li>Indirect Financial Compensation —all financial rewards that are not included in direct compensation. </li></ul><ul><li>Non-financial Compensation —consists of the satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the person works. All such rewards comprise a total compensation program. </li></ul>
  8. 10. Contd……. <ul><li>Compensate - cover: make up for shortcomings or a feeling of inferiority by exaggerating good qualities; </li></ul><ul><li>Compensate - pay: do or give something to somebody in return </li></ul>
  9. 12. Employee Benefits and Compensation <ul><li>Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. </li></ul><ul><li>Compensation is payment to an employee in return for their contribution to the organization, that is, for doing their job. The most common forms of compensation are wages, salaries and tips. </li></ul>
  10. 13. Compensation management <ul><li>Compensation is the applied form of motivation. It is the most difficult problem of an employee and the touchiest for the employer. The employer wants to save money so that it may be further invested to generate profits and better comforts for self and family. </li></ul>
  11. 14. Objectives of the compensation management <ul><li>Compensation objectives are not the rules, but guidelines to promote fair emoluments of work done. </li></ul><ul><li>Recruit qualified people </li></ul><ul><li>Retain present employees </li></ul><ul><li>Ensure equity of compensation </li></ul><ul><li>Reward smart work </li></ul><ul><li>Appreciate creativity and innovation </li></ul><ul><li>Make work-force cost-effective </li></ul>
  12. 15. Role of Line managers and HRM Department in Compensation: <ul><li>Line managers perform the function of job evaluation that is base for the compensation systems; according to the worth of the job negotiation regarding the salaries and other benefits is negotiated with potential employees through line mangers. </li></ul>
  13. 16. Contd……. <ul><li>Basic compensation packages are mostly recommended by the line managers in the organizations. All these information is communicated to the employees by HRM. </li></ul>
  14. 17. Contd……. <ul><li>All companies with employees must determine how and what to pay their workers and when to offer things like raises, bonuses and other incentives. </li></ul>
  15. 18. What is called a compensation philosophy. <ul><li>This is an actual plan for how employees are to be paid, when payments will rise, and when bonuses are appropriate. Such a plan is often made available to employees, so they have a sense of the organization’s philosophy and can thus determine their treatment by the organization, as it relates to compensation, not just at present but also in the future </li></ul>
  16. 19. Contd……. <ul><li>Some of the things that influence compensation philosophy include present revenue of the company and expected profits in the future, market value of the jobs for which the company is hiring, and degree of competitiveness in the types of jobs a company offers. </li></ul>
  17. 20. Contd……. <ul><li>Having a clearly stated compensation philosophy may in part solve this issue; if the company has a policy of no raises, employees who work for it know in advance this policy exists but employee retention may still be difficult. </li></ul>
  18. 21. How is compensation used? <ul><li>Recruit and retain qualified employees. </li></ul><ul><li>Increase or maintain morale/satisfaction. </li></ul><ul><li>Reward and encourage peak performance. </li></ul><ul><li>Achieve internal and external equity. </li></ul><ul><li>Reduce turnover and encourage company loyalty. </li></ul><ul><li>Modify (through negotiations) practices of unions. </li></ul>
  19. 22. Different types of compensation: <ul><li>Morale and job satisfaction are affected by compensation. </li></ul><ul><li>Base Pay </li></ul><ul><li>Commissions </li></ul><ul><li>Overtime Pay </li></ul><ul><li>Bonuses, Profit Sharing, Merit Pay </li></ul><ul><li>Stock Options </li></ul><ul><li>Travel/Meal/Housing Allowance </li></ul>
  20. 23. The equal pay act of 1963 <ul><li>The equal pay act (EPA) required that men and women who work for the same organization be paid the same for work that is equal in skill (such as experience or retaining), efforts (mental or physical), responsibility (the degree of accountability), and working conditions (the physical surroundings and hazards) </li></ul>
  21. 24. Contd……. <ul><li>Some people believe that the wage gap should not be closed because women are less qualified than their male counter parts. However, research appears not to support this claim. </li></ul>
  22. 25. Reward and compensation system: <ul><li>Reward and compensation systems are seen to be particularly important in view of their potential for encouraging certain aspects of functional flexibility such as multi-skilling (via pay for knowledge schemes) and team working (via group performance payments) </li></ul>
  23. 26. Contd……. <ul><li>According to leading compensation theorists there should ideally be a two way relationship between reward systems and strategic planning, which requires and organization to consider the essence its compensation philosophy. </li></ul>
  24. 27. Contd……. <ul><li>Reward system is to enhance the motivation of individual employees, and hence their current on-the-job performance. </li></ul><ul><li>There is ample evidence that a poorly designed and administered reward system can do more harm Rewards can come in the form of verbal rewards (i.e. telling someone </li></ul><ul><li>“ Good job!”), physical rewards (i.e. a pat on the back), or tangible rewards (i.e. </li></ul><ul><li>giving someone money, food, or a medallion), among others </li></ul>
  25. 29. The effect of intrinsic and extrinsic rewards on employee motivation <ul><li>Every person is motivated by different factors in their workplace. Some are motivated primarily by external factors such as salary, promotion and bonuses </li></ul><ul><li>these are known as extrinsic rewards and some are motivated primarily by internal factors such as job satisfaction, recognition and the desire to learn, which are referred to as intrinsic rewards. </li></ul>
  26. 30. Types of rewards <ul><li>Intrinsic rewards </li></ul><ul><li>Extrinsic rewards </li></ul>
  27. 32. Intrinsic Reward <ul><li>An intrinsic reward or motivation is something a person feels after they've accomplished something. Prides, joy, etc. </li></ul><ul><li>Rewards that are part of the job itself and the personal satisfaction of accomplishing something worthwhile, i.e., responsibility, challenge, autonomy, purpose and feedback; or rewards that are self-administered. </li></ul>
  28. 33. The Four Intrinsic Rewards <ul><li>A Sense of Choice </li></ul><ul><li>A Sense of Competence </li></ul><ul><li>A Sense of Meaningfulness </li></ul><ul><li>A Sense of Progress </li></ul>
  29. 34. Extrinsic rewards <ul><li>Extrinsic rewards can also be used to maintain or strengthen intrinsic motivation. </li></ul>
  30. 36. Contd……. <ul><li>Rewards that are external to the job, i.e., pay, bonuses, promotion, incentives, fringe benefits or tangible awards; or rewards that are administered by someone else (i.e. the carrot.) Extrinsic rewards may weaken or strengthen the intrinsic motivation. Extrinsic rewards can also be used to maintain or strengthen intrinsic motivation. </li></ul>
  31. 37. <ul><li>? </li></ul>
  32. 38. <ul><ul><ul><li>Thank You </li></ul></ul></ul>