Reference no: EM133018418

REWARDING EMPLOYEES

Compensation is a comprehensive term which includes wages, salaries and all other allowance and benefits."

A compensation package is an important part of the overall strategic HRM plan, since much of the company budget is for employee compensation.

Importance of using reward in a strategic role:
1) Compensation package should be positive enough to attract the best people for the job. An organization that does not pay as well as others within the same industry will likely not be able to attract the best candidates, resulting in a poorer overall company performance.
2) Compensation to be competitive enough to motivate people to stay with your organization.
3) Compensation can be used to improve morale, motivation, and satisfaction among employees
4) Employees who are fairly compensated tend to provide better customer service, which can result in organizational growth and development.

Elements that make up the employee reward package:
• To establish and maintain an equitable rewards system.
• The establishment and maintenance of an equitable compensation structure i.e an optimal balancing of conflicting personnel interest so that the satisfaction of employees and employers is maximized and conflicts minimized,
• The compensation management is concerned with the financial aspect of employees need, motivation and rewards

Objectives of Compensation Planning:
To Employees:
1) Employees are paid according to requirement of their jobs i.e highly skilled jobs are paid more compensation than low skilled jobs. This eliminates inequalities.
2) The chances of favoritism are minimized.
3) Jobs sequence and lines of promotion are established wherever they are applicable.
4) Employee's moral and motivation are increased because of the sound compensation structure

To Employers:
1) They can systematically plan for and control the turnover in the organization.
2) A sound compensation structure reduces the likelihood of friction and grievance over remunerations.
3) It enhances an employee morale and motivation because adequate and fairly administrative incentives are basis to his wants and need.
4) It attracts qualified employees by ensuring and adequate payment for all the jobs.
5) In dealing with a trade union, they can explain the basis of their wages programme because it is based upon a systematic analysis of jobs and wages facts.

Factors Affecting Compensation Planning:
1. Supply and Demand of Labour - Whatever the organization produces as commodity they desire services, and it must pay a price that of workers acting in concert
2. Ability to Pay - Trade Unions has often demanded an increase in compensation on the basis that the firm is growing and able to pay.
3. Management's Philosophy - Management's desire to maintain or improve moral, attract high calibre employees, reduce turnover, and improve employee's standard of living also affect wages, as does the relative importance of a given position to a firm
4. Legislation - Legislation related to plays a vital role in determining internal organization practices (ERA 2007 & Wage Council)

Job evaluation is defined as the process of determining the relative worth of jobs to determine pay structure.
Job Evaluation Systems:
1. Job ranking system - In this type of evaluation, job titles are listed and ranked in order of importance to the organization. Apaired comparison can also occur, in which individual jobs are compared with every other job, based on a ranking system, and an overall score is given for each job, determining the highest-valued job to the lowest-valued job.
2. Point-factor system - which determines the value of a job by calculating the total points assigned to it. The points given to a specific job are called compensable factors. These can range from leadership ability to specific responsibilities and skills required for the job.
3. Hay profile method - This proprietary job evaluation method focuses on three factors called know-how, problem solving, and accountability.

Various Modes of Compensation:
Wages and Salary- Wages represent hourly rates of pay and salary refers to monthly rate of pay irrespective of the number of hours worked. They are subject to annual increments. They differ from employee to employee and depend upon the nature of jobs, seniority and merit.
Incentives - These are also known as payment by results. These are paid in addition to wages and salaries. Incentive depends upon productivity, sales, profit or cost reduction efforts.
Incentive scheme are of two types:
• Individual incentive schemes.
• Group incentive schemes.
Kinds of Incentives:
o Individual and Organizational Incentives
o Financial and Non-Financial Incentives
o Positive and Negative Incentives
Fringe Benefits - These are given to employees in the form of benefits such as provident fund, gratuity, medical care, hospitalization, accident relief, health insurance, canteen, uniform etc.
Kinds of Fringe Benefits:
o Old Age and Retirement
o Workman's Compensation
o Employee Security
o Payment for Time Not
o Safety and Health
o Health Benefits
Non- Monetary Benefits - They include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working condition, job sharing and flexi time

Difference between conventional pay systems and broad-banded pay systems
The traditional pay system (conventional) is based on:
o Cost of living and labor market
o Base wage or salary
o Evenly distributed between employees
o Correlated with seniority
o Individual performance

• Increases are meant for promotions, merit, cost of living, etc. There is less distinction between merit increases and cost of living increases.
• This "base pay" system is one that most people are familiar with. Often, it includes a set salary or wage, a set schedule for merit increases, and a set benefits package.

The modern pay system is based on:
o Variable pay
o Based on business performance
o Differentiated
o Based on individual performance
o Based on team and organisational performance
o Used as a means of communicating values

• In other words, the base wage is seen as what the job is worth on the open market (determined by surveys, supply and demand, specialty, etc.)
• while merit pay is a reward for the results by employee each year. With this system, an employee can get a raise either by increasing his job's value or by performing well.
• Rewards, in general could be described as important motivators. Their effectiveness depends upon three factors: drives, preference value and satisfying value of goal objects.

Attachment:- strategic HRM plan.rar