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    Compensation Methods and Policies

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    chiragst
    This document discusses compensation and incentive programs. It outlines the objectives of an effective compensation system, including being adequate, equitable, balanced and cost-effective. It also describes different methods of payment such as flat rates, time-based salaries, and people-based pay. The document then examines various types of incentive compensation including individual, team, and organization-wide incentives like suggestion systems, gain sharing, and profit sharing. It concludes by discussing issues around pay secrecy, security, and compression.

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    Compensation Methods and Policies

    Uploaded by

    chiragst
    248 views17 pages
    This document discusses compensation and incentive programs. It outlines the objectives of an effective compensation system, including being adequate, equitable, balanced and cost-effective. It also describes different methods of payment such as flat rates, time-based salaries, and people-based pay. The document then examines various types of incentive compensation including individual, team, and organization-wide incentives like suggestion systems, gain sharing, and profit sharing. It concludes by discussing issues around pay secrecy, security, and compression.

    Original Description:

    For HR Professionals to know about Compensation Methods & Policies

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    This document discusses compensation and incentive programs. It outlines the objectives of an effective compensation system, including being adequate, equitable, balanced and cost-effective. It also describes different methods of payment such as flat rates, time-based salaries, and people-based pay. The document then examines various types of incentive compensation including individual, team, and organization-wide incentives like suggestion systems, gain sharing, and profit sharing. It concludes by discussing issues around pay secrecy, security, and compression.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    248 views17 pages

    Compensation Methods and Policies

    Uploaded by

    chiragst
    This document discusses compensation and incentive programs. It outlines the objectives of an effective compensation system, including being adequate, equitable, balanced and cost-effective. It also describes different methods of payment such as flat rates, time-based salaries, and people-based pay. The document then examines various types of incentive compensation including individual, team, and organization-wide incentives like suggestion systems, gain sharing, and profit sharing. It concludes by discussing issues around pay secrecy, security, and compression.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    Introduction

    Compensation is a HRM function that deals with every


    type of reward individuals receive in exchange of
    performing organizational tasks.

    It can be financial or non financial


    Objective of compensation
    According to Pattron effective compensation should
    have following factors :
    1. Adequate
    2. Equitable
    3. Balanced
    4. Cost-effective
    5. Secure
    6. Incentive-providing
    7. Acceptable to the employee
    Pay Differential
    Allows firms to recognize contribution of different
    employees towards organization goals

    Provides organizations with an important tool for
    emphasizing norms of enterprise

    Helps in maintaining internal equity

    Allows firms to recognize market changes between jobs in
    the same grade

    Methods of Payment
    Flat Rates
    Single flat rates are often paid
    Seniority and experience do differ
    Performance differentials are ignored

    Payment for Time Worked
    Wage pay calculated at an hourly rate
    Salary pay calculated at an annual or monthly rate
    Wages and salaries are adjusted once a year

    Methods of Payment
    People-Based Pay
    Skill-based Pay
    Knowledge-based pay
    Credential-based pay
    Feedback Pay
    Competency-based pay

    Executive Pay
    Growing dramatically for the past two decades
    Managers use their power over boards to obtain higher
    compensation

    Variable Pay
    Any compensation plan that emphasizes a shared focus
    on organizational success, broadens opportunity for
    incentives to nontraditional groups (such as
    nonexecutives or managers), and operates outside the
    base pay increase system
    Component of successful variable pay
    system
    Support by management : Executives and line mangers
    must demonstrate commitment
    Acceptance by employees: Employees must accept the
    plan as equitable
    Supportive organizational culture: Must be based on
    teamwork, trust and involvement of employees when
    setting goals
    Timing: Must be launched when there is minimal risk of
    economic downturn

    Incentive compensation
    Merit Incentive
    Pay increases based on rated performance over a time period
    Can work in circumstances where the job is well designed
    and the performance criteria is assessable
    Problems
    Employees fail to make connection between pay and
    performance
    Secrecy of reward is perceived as inequity
    Size of merit award has little effect on performance
    Incentive compensation
    Individual Incentives
    Straight piecework: Pay determination is based on
    units of production per time period
    Standard-hour plan: Wages based on completion of a
    job in some expected period of time
    Taylor Plan: Uses two separate piecework rates
    Production Bonus System: Bonus when employee
    exceeds the standard
    Commission: Based on percentage of sales

    Incentive compensation
    Team Incentives

    Difficult to measure individual output
    Cooperation is needed to complete a task
    Reduce administrative cost
    Small-group incentives
    Organization wide Incentives
    Organization wide Incentives: Suggestion Systems

    Oldest Management tool
    Formal method of obtaining employees advice about
    improvement in organizational effectiveness
    Key to successful systems is employees involvement
    Essential elements: Management commitment, Clear goals,
    Designated administrator, structured award system, Regular
    Policy and Immediate response to suggestions


    Organization wide Incentives
    Organization wide Incentives: Gain sharing
    Company wide group incentive plans for distributing gains
    Lincoln Electric plan: Employees are paid for what they
    individually produce
    Scanlon Plan: Group incentive and employee participation
    scheme
    Rucker Plan: Based on employees involvement and
    suggestion
    Impro Share: Ties economic rewards to performance
    without any attempt at participation

    Organization wide Incentives
    Organization wide Incentives: Profit sharing
    Distribute a fixed amount of total organizational profit
    to employees
    Ways
    Current distribution plans
    Deferred plans
    A Combination of both
    Advantages
    Do not need elaborate cost accounting system
    Easily implemented by companies of any size


    Issues in compensation
    Pay Secrecy
    Open System
    Secret System
    Pay Security
    Guaranteed annual Wage
    Supplementary unemployment benefits
    Cost of Living Adjustments
    Severance Pay
    Pay Compression
    References
    Human Resource Management Text and Cases VSP
    Rao
    Human Resource Management John M Ivancevich

    Thank you

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