PRESENTATION ON STRATEGIC COMPENSATION PLANNING
Oct 27, 2014
PRESENTATION ON
STRATEGIC COMPENSATION PLANNING
Contents of presentation
Review of meaning of compensationTotal compensation why employees leave the organisation?Two ways to address this problem: Reviewing Employement Deal Or go for Strategic Compensation PlanningGoals and areas of concerns for strategic
compensation planningIn detail the whole concept of Strategic
Compensation PlanningProcess of strategic compensation planning
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Review of Compensation meaning:3
In simple words: Compensation is the remuneration which employee
receives in return for his or her contribution to the organization.
compensation occupies an important place in the life of an employee. His or her standard of living, status in the society, motivation, loyalty, and productivity depend upon the compensation he or she receives.
For the employer too, employee compensation is significant because of its contribution to the cost of production.
Also it is a perception of worth by an employee.
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Total CompensationTotal CompensationTotal CompensationTotal Compensation
DirectDirectDirectDirect IndirectIndirectIndirectIndirect
BonusesBonusesBonusesBonuses
GainsharingGainsharingGainsharingGainsharingSecurity Plans• Pensions
Security Plans• Pensions
Employee Services• Educational assistance• Recreational programs
Employee Services• Educational assistance• Recreational programs
CommissionsCommissionsCommissionsCommissions
Wages / SalariesWages / SalariesWages / SalariesWages / Salaries
Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife
Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife
Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays
Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays
Still Employees are Dissatisfied,why??
Reason why employees choose to leave their company: Most of Employees believe their pay is linked to their
company’s performance But, they are neither satisfied with their pay nor their
benefits
13% 9%
More Meaningful Work 17%
10% Better Benefits
30% 15%
Better Opportunities to Utilise My Skills Success
60% 19%
Better Career Opportunities 62%
24% Better Compensation Package
REASONS CITED FOR WANTING TO LEAVE COMPANY --INDIA*
So what can be done to address
this issue?
Review the employment deal…
Employer
Value Creation Through People:• Attract• Develop• Focus and engage• Build commitment,
ownership and loyalty
Employee
A meaningful work experience:• Personal fulfillment• Wealth
accumulation• Competitive Pay• Security
OR
GO FOR A BETTER STARTING
BY “PLANNING COMPENSATION
STRATEGICALLY”
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Strategic Compensation Planning9
Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization.
Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard.
Seeks to motivate employees through compensation.
Strategic Compensation Goals10
To reward employee’s performanceTo remain competitive in the labor marketTo maintain salary equity among employeesTo fit together employees’ future
performance with organizational goalsTo control the compensation budgetTo attract new employeesTo reduce unnecessary employee turnover
Strategic Compensation planning Concerns
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The rate of pay within the organization and whether it is to be above, below, or at the prevailing market rate.
The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities.
The pay level at which employees may be recruited and the pay gap between new and more senior employees.
The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises.
The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered.
Issues in Developing Benefits Plans
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Benefits to be offered.Coverage of retirees in the planDenial of benefits to employees during
initial “probationary” periodsFinancing of benefits. Benefit choices to give employees.Cost containment procedures to use.Communicating benefits options to
employees.
1.Linking Compensation to Organizational Objectives
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Value-added Compensation Evaluating the individual components of the
compensation program (pay and benefits) to see if they advance the needs of employees and the goals of the organization. “How does this compensation practice benefit the
organization?” “Does the benefit equal to the cost incurred by the
company or more or less?”
Significant Goals Driving Pay and Reward Changes
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2.The Pay-for-Performance Standard15
Pay-for-Performance Standard The standard by which managers tie compensation to
employee effort and performance. Refers to a wide range of compensation options,
including merit-based pay, bonuses, salary commissions,team/ group incentives, and various gain sharing programs.
Designing a Pay-for-Performance System
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How will performance be measured?Which employees will be eligible?How will payouts be made?How often will payouts occur?How large will the payouts be?Will employees perceive the rewards as
valued?
3.Compensation Management and Other HRM Functions
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Pay rates affect selectivityPay rates affect selectivityPay rates affect selectivityPay rates affect selectivitySelectionSelectionSelectionSelection Selection standards affect Selection standards affect
level of pay requiredlevel of pay required
Selection standards affect Selection standards affect level of pay requiredlevel of pay required
Pay can motivate trainingPay can motivate trainingPay can motivate trainingPay can motivate training Training and Training and DevelopmentDevelopment
Training and Training and DevelopmentDevelopment
Increased knowledge leads Increased knowledge leads to higher payto higher pay
Increased knowledge leads Increased knowledge leads to higher payto higher pay
support or damage recruitmentsupport or damage recruitmentsupport or damage recruitmentsupport or damage recruitment RecruitmentRecruitmentRecruitmentRecruitment Supply of applicants Supply of applicants affects wage ratesaffects wage rates
Supply of applicants Supply of applicants affects wage ratesaffects wage rates
Low pay encourages Low pay encourages unionizationunionization
Low pay encourages Low pay encourages unionizationunionization Labor RelationsLabor RelationsLabor RelationsLabor Relations Pay rates determined Pay rates determined
through negotiationthrough negotiation
Pay rates determined Pay rates determined through negotiationthrough negotiation
4.Motivating Employees through Compensation
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Pay Equity (also Distributive Fairness) An employee’s perception that compensation received is equal
to the value of the work performed. A motivation theory that explains how people respond to
situations in which they feel they have received less (or more) than they deserve. Individuals form a ratio of their inputs to outcomes in their
job and then compare the value of that ratio with the value of the ratio for other individuals in similar jobs.
Relationship between Pay Equity and Motivation
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The greater the perceived disparity between my input/output ratio and the comparison person’s input/output ratio, the greater my motivation to reduce the inequity.
Relationship b/w Expectancy Theory and Pay
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Expectancy Theory A theory of motivation that holds that
employees should exert greater work effort if they have reason to expect that it will result in a reward that they value.
Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward.
Pay-for-Performance and Expectancy Theory
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Strategic compensation planning process
Strategic compensation planning allows an organization to focus on its strategic objectives and develop a comprehensive plan, considering base pay, short- and long-term incentives, benefits and growth opportunities. This kind of planning helps to ensure that the compensation system will support the organization's long-and short-term objectives.
The ultimate objective of this process is to ensure that the compensation system attracts and retains the desired employees and that it motivates them to do those things that support the business plan.
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The steps involved are:
Step 1: Identify business objectives.Begin the process by focusing on the strategic objectives of the organization. What does the company plan to do in the short and long term to gain and to keep a competitive advantage? Will it increase its market share? Expand into new markets? Develop new products? Flatten its structure?
Next, the focus is on the tactical level: How will the organization achieve these objectives? Will it work in teams? Will it reduce materials or overhead costs? Will it focus on customer service? Will it improve the quality of its goods or services?
Some specific objectives can be extracted from the strategic plan—quality,productivity, service, team-work, cost reduction and so forth. The potential list is long and different for each organization.
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Continue….
Step 2: Assess the current compensation system. Look at the current pay system to assess the level at which it supports the objectives and the people necessary for the business. By taking this step, we will discover gaps or holes in the current system and uncover areas that are "overfunded."
Step 3: Identify potential plan types which can fill the gaps. Finally, we can look at the gaps in the current system and identify new or existing pay systems and their funding sources. This step can help close the gaps and make the pay system work effectively.
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“So this is how the whole concept and process of strategic compensation
planning works”
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