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HRM
is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.
HRM
Compensation Management
Compensation
systems are designed keeping in minds the strategic goals and business objectives. Compensation systems are designed on the basis of certain factors after analyzing the job work and responsibilities
HRM
Compensation Philosophy
HRM
Compensation Goals
Attracting
good employees Retaining good employees Motivating employees Complying with the law Having a cost effective compensation system
HRM
Salary compression
Geographic costs of living differences
HRM
External Equity
Internal Equity
Individual Equity
Procedural Equity
HRM
HRM
Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). Determine the worth of each job in your organization through job evaluation (to ensure internal equity).
3 4 5
Group similar jobs into pay grades. Price each pay grade by using wage curves.
Fine-tune pay rates.
HRM
Equity
Internal
Equity
Individual
or Employee Equity
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External Equity
Attracting
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Internal Equity
Retaining
Ranking
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Classification method
Grade Grade Grade Grade Grade Grade Grade 1 2 3 4 5 6 7
Jobs are classified into a grade/category structure. Each tier of the structure has a description and associated job titles. For example, the Westinghouse system had:
Unskilled ex. File clerk Skilled ex. Typist, lathe operator Interpretive ex. Chief clerk Creative ex. Engineers, sales reps Executive ex. Department heads Administrative ex. Chief engineer, Director of R&D Policy ex. Vice-president of Marketing
Each job is assigned to the grade/category providing the closest match to the job. Standards are developed mainly along occupational lines. The standards help identify and describe key characteristics of occupations that are important for distinguishing different levels of work. Pay ranges are then assigned to grades. The advantages of this method are that it is simple and has been in use for many years. Its disadvantages include the fact that classification judgments are subjective, and the standard used for comparison may have built-in biases. Also, some jobs may fit into more than one grade/category or their descriptions are so broad that they do not relate to specific jobs.
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Factor Comparison
Select benchmark jobs. Sets of compensable factors are identified as determining the worth of jobs. The number of factors is usually four or five and typically relate to skill, responsibility, effort and working conditions. Jobs are then ranked on each factor. Wages are then allocated to the factors. The organizations other jobs are then compared to the benchmark jobs and rates of pay for each of the other jobs. Factor comparison has the advantage that the value of the job is expressed in monetary terms, and the method is applicable to a wide range of jobs. The methods disadvantages are that the pay points for each factor is based on subjective judgments.
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Point Method
The point method is an extension of the factor comparison method. Usually between eight and fourteen compensable factors (typically related to skill, effort, responsibility, and working conditions) are identified as determining the worth of jobs. Factors are divided into degrees Points are assigned the degrees Benchmark jobs are compared to market rates
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Ranking Method
Classification Methods
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Curve
Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.
Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades.
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Pay Rates
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Wage Structure
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Compensation Management
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Compensation Management
Compensation
provided to employees can be 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.
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Direct Compensation
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Direct Compensation
Direct
compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, PF/Gratuity, etc.
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Salary HRA (House Rent Allowance) CA (Conveyance Allowance) LTA (Leave Travel Allowance) Medical Reimbursement Bonus (Salary Bonus) SA (Special Allowance) Other Allowances
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Components of Direct Compensation 1) HRA (House Rent Allowance): Organizations either provide accommodations to its employees who are from different location or country or they provide house rent allowances to its employees
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Indirect Compensation
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Indirect Compensation
Indirect
compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.
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Policy Overtime Policy Hospitalization Insurance Leave Travel Retirement Benefits Holiday Homes Flexible Timings
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Components of Indirect Compensation 2) Overtime Policy : Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc.
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Payroll Management
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Payroll Management
Payroll
refers to the administration of employees' salaries, wages, bonuses, net pay, and deductions. It consist of the employee ID, employee name, date of joining, daily attendance record, basic salary, allowances, overtime pay, bonus, commissions, incentives, pay for holidays, vacations and sickness, value of meals and lodging etc. There are some deductions such as PF, taxes, loan installments or advances taken by employee.
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Payroll Management
Deductions
such as tax and loan/advances taken by the employee from organizations are deducted only where applicable. Dearness Allowance and House rent allowance is provided at a fixed rate stated by the employment law. Provident fund is deducted from the gross salary of employee on the monthly basis as per the employment law, which is provided later to the employee. Organizations also contribute the same amount to the provident fund of the employee.
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Incentive Management
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Incentive Management
In
todays strategic compensation systems, incentives forms an integral part of the performance based compensation packages. It is a challenge for organizations to formulate strategies to maintain the internal equity and external equity and provide the most competitive compensation packages to attract and retain the talented workforce
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Incentive Management
For
the purpose effective incentives programs are undertaken. Employees are involved in the process so as to deliver un-biased packages to all the employees. The compensation strategies should be effective. All the employees should be aware of the organizational goals and objectives.
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Benefits of Incentives
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Benefits of Incentives
Deserving
employees should receive significant rewards . Incentives accounts for employees high productivity. Today youngsters believe in performance based pay, thus incentives will help to motivate them to produce more. In the hospitality and retail industry it is the incentive that accounts for the overall package of the employee.
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certain behavior Differentiate best and the rest Reward achievement Hedge financial risk
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Target Audience
Individual
Target to strive for Sense of fulfillment Sense of differentiation Healthy competition Sharing success Super ordinate goals
Team
Entire
Company
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Types
Long
Shared ownership Wealth creation Risk sharing Promoting a certain behavior/ pattern
Term
Sales
Short
Term
Non
Sales
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Framework Design
Life
cycle & culture of the company Operating Industry Product/Service/Solution stage Operating Geographies Incentive ROI
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Industry Trend
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HRM
Guiding Principles
KISS
(but realistic) Communicate clearly Align with strategy & job role Integrate with the total rewards package Reward for results, not activities Link to quantifiable measures
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Understanding Linkages
Business strategy Selling roles
Inputs
Performance measures and weights Incentive form Pay mix Payout frequency
Process
Payout mechanics
Output
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Retain and grow accounts Identifying and addressing customer needs Significant post-sale effort
Farmer
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Consultative
Product or services have known value to customers Sales cycle is short Price is a key component of the purchase decision Customers want an efficient buying process Sales focus on generating maximum revenue at minimum cost
Customers need help making the purchase decision The sales cycle is moderate to long Value is a key component of the purchase decision Customers want a solution Sales focus on creating longterm, profitable customer relationships
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2D Framework
Transactional Hunter Consultative
Service reps who tend the crop to keep from losing customers Farmer
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Contd
Transactional Hunter
Mastery of sales process execution Minimal to modest sales experience
Consultative
Mastery of sales process execution Deep technical knowledge Significant hunter model selling experience
Excellent problem-solving skills Able to use technology to facilitate the process Minimal experience required
Excellent relationshipbuilding skills Deep customer/industry knowledge Functional management experience Deep industry experience (may have been a customer)
Farmer
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Typical examples
Transactional Hunter Consultative
Insurance Agent
Service Rep
Farmer
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Introduction
Growth
Maturity
Time
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Elements-Sales Incentive
Commission Bonus
Incentive form
Pay levels
$
2011
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mix
Payout frequency
Payout
Mechanics
// 0% 80% 100% 120% 140%
Performance
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Communication
From
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Measurement Parameters
Gross
Margins Incremental Margins Sales Product Mix Distribution effectiveness CSAT DSO ROI
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