cHAPTER 2 COMPENSATION ANAD PERFORMANCE APPRISAL1515632 (7).ppt

cHAPTER 2 COMPENSATION ANAD PERFORMANCE APPRISAL1515632 (7).ppt

1. Mohan Madgulkar-Compensation Management/2006
Compensation Management
Mohan Madgulkar

2. Mohan Madgulkar-Compensation Management/2006
Introduction to
Compensation and rewards
management

3. Mohan Madgulkar-Compensation Management/2006
Compensation
•Cash and non-cash rewards employees receive in
exchange for their work
•Effective compensation management
–Employees more likely to be satisfied and motivated
•Compensation perceived to be inappropriate
–Performance, motivation and satisfaction may decline
dramatically
–Employee turnover may occur
–Dissatisfaction with absolute or relative pay

4. Mohan Madgulkar-Compensation Management/2006
Total Reward
Financial
rewards
Base
pay
Variable
pay
Share
owner-
ship
Benefits
Total
remuneration
Non-
financial
rewards
Recognition
Skills
Development
Current
opportunities
Quality of
working life
Total
Reward

5. Mohan Madgulkar-Compensation Management/2006
Reward management defined
•“Reward management is concerned with the
formulation and implementation of strategies
and policies the purposes of which are to
reward people fairly, equitably and
consistently in accordance with their value to
the organisation and to help the organisation to
achieve its strategic goals”

6. Mohan Madgulkar-Compensation Management/2006
Objectives of Compensation
Effective
Compensation
LegalLegal
compliancecompliance
AdministrativeAdministrative
efficiencyefficiency
ControlControl
costscosts
RetainRetain
employeesemployees
AcquireAcquire
personnelpersonnel
EnsureEnsure
equityequity
RewardReward
behaviourbehaviour

7. Mohan Madgulkar-Compensation Management/2006
Pay & Organizational Strategy
Areas that impactAreas that impact
pay systemspay systems
Attract &Attract &
retainretain
Identifying Identifying
valued rewardsvalued rewards
MotivatingMotivating
developmentdevelopment
Relating toRelating to
performanceperformance
SettingSetting
goalsgoalsConsequencesConsequences
MotivatingMotivating
performanceperformance

8. Mohan Madgulkar-Compensation Management/2006
The concept
•Wages and salaries constitute the greatest single cost
of doing business.
•Establishing equitable and competitive pay structure
is important from attracting point of view . the
organization can also hold out the possibility of
varying compensation, the payment of which is
dependant on specific behavior. Supplementary pay
plans ( fringe benefits ) can retain the employees in
the organization on a long term basis

9. Mohan Madgulkar-Compensation Management/2006
The concept
•Development, implementation, maintenance ,
communication and evaluation of reward
processes
•Assessment of relative job values, the design
and management of pay structures,
performance management, paying for
performance, competence or skills , the
provision of employee benefits and pensions,
management of reward procedures

10. Mohan Madgulkar-Compensation Management/2006
Aims of Compensation and reward
management
•Support the achievement of organizations strategic and short
term objectives
•Support culture management and change
•Drive and support desired behavior
•Encourage value added performance
•Promote continuous development
•Compete in employment market
•Motivate all members of the organization
•Promote teamwork
•Promote flexibility
•Provide value for money
•Achieve fairness and equity

11. Mohan Madgulkar-Compensation Management/2006
The Reward Management Context
•The cultural environment
–Values ( what is believed to be important )
–Norms ( accepted way of behavior )
–Management style ( how managers manage their staff )
•The organizational structure
•Employee relations
•Technology
•Operational processes and working methods
•Management practices as a function of business strategy,
culture, technology and operations
•Employment practices
•External environment

12. Mohan Madgulkar-Compensation Management/2006
Significant factors affecting
compensation policy
•Supply and demand
•Labor unions
•Ability to pay
•Productivity
•Cost of living
•Government

13. Mohan Madgulkar-Compensation Management/2006
•Statutory minimum wage – Wage determined
in accordance with the provisions of the
Minimum Wages Act, 1948
•Minimum Wage
•Living Wage

14. Mohan Madgulkar-Compensation Management/2006
Compensation issues
•Wage and salary levels
•Wage and salary structures
•Individual wage determination
•Incentive payments
•Fringe benefits
•Compensation of mangers and professionals
•Control

15. Mohan Madgulkar-Compensation Management/2006
Strategic compensation policies

16. Mohan Madgulkar-Compensation Management/2006
Compensation strategy defined
•The deliberate utilization of the pay system as an essential
integrating mechanism through which the efforts of various
sub-units and individuals are directed towards the achievement
of an organizations’ strategic objectives
•The business strategy in particular, serve as a critical guide in
designing organizations’ systems, because it specifies what the
company wants to achieve, how it wants to behave, and the
kind of performance and performance levels it must
demonstrate to be effective. The strategy should strongly
influence an organization’s design and management style, both
of which should drive the design of reward system. These
reward systems in turn, help to drive performance by
influencing important individual and organizational behavior.

17. Mohan Madgulkar-Compensation Management/2006
Compensation strategies &
corporate goals
•The compensation strategy will be mainly
concerned with the direction the organization
should follow in developing the right mix and
levels of financial and non financial rewards in
order to support the business strategy
•It should be backed up by a realistic action
plan .

18. Mohan Madgulkar-Compensation Management/2006
How reward strategy contributes to the
achievement of corporate goals?
•Provides for the integration of reward policies and processes with key
strategies for growth and improved performance
•Underpins the organizations’ values, especially those concerned with
innovation, teamwork,flexibility , customer service and quality
•Fits the culture and management style of the organization as it is or as it is
planned to be.
•Drives and supports desired behaviors at all levels by indicating to
employees what type of behavior will be rewarded, how this will take
place and how their expectations will be satisfied.
•Provides the competitive edge required to attract and retain the level of
skills the organization needs
•Enables the organization to obtain value for money from its reward
practices

19. Mohan Madgulkar-Compensation Management/2006
Characteristics of reward strategy
•The demand of the business strategy including cost constraints
•How performance can be driven by influencing important individual and organizational
behaviors
•Helping to achieve culture changes
•Meeting objectives for ensuring the organization gets and keeps high quality employees
•Aligning organizational core competence and individual competence
•Underpinning organizational change
•Development of competitive pay structure
•Ensuring that reward policies are used to convey messages about the expectations and values
of the organization
•Achieving the right balance between reward for individuals, team and organizational
performance
•Evolving total reward processes which incorporate the best mix of financial rewards and
employee benefits
•Achieving the flexibility required when administering rewards processes within fast changing
organizations in highly competitive or turbulent environments
•Fitting reward processes to the individuals needs and expectations of employees

20. Mohan Madgulkar-Compensation Management/2006
Pay and motivation
•Maslow
•Herzberg
•Mclelland
•Adams
•Vroom
•Pay is a flexible reward which can satisfy a number of needs
•Primarily a hygiene factor
•For high achieving individuals pay a form of feedback; for high
affiliation, group targets can motivate; high power, pay confirms
status
•Pay is one of the most important ‘yardsticks’; based on
individual assessment, work effort may be altered accordingly
•If individual believes that improved performance will lead to
more pay, higher levels of motivation will result; if extra effort
required to attract more pay (expectancy) individual can make a
decision whether or not to work harder.

21. Mohan Madgulkar-Compensation Management/2006
•Pay has a strong impact on the employees’ standard
of living, it is a status symbol and important in
comparisons to others
•Employer:
–Critical in attaining strategic goals
•Impact on employee attitudes and behaviours
•Significant organisational cost
•Areas of compensation decisions
–Pay Structure
–Pay Level
–Job Structure
–Pay policies

22. Mohan Madgulkar-Compensation Management/2006
Compensation Challenges
CompensationCompensation
ChallengesChallenges
PrevailingPrevailing
wage rateswage rates
UnionUnion
powerpower
ProductivityProductivity
GovernmentGovernment
constraintsconstraints
Wage & salaryWage & salary
policiespolicies

23. Mohan Madgulkar-Compensation Management/2006
Changing Compensation Systems
TraditionalTraditional ModernModern
Entitlement-baseEntitlement-base
increases increases
Performance-drivenPerformance-driven
gains gains
Pay = 100% basePay = 100% base
salarysalary
Variable componentVariable component
addedadded
Few incentive/bonusFew incentive/bonus
plans, restricted toplans, restricted to
executives executives
Many kinds of plans, Many kinds of plans,
extended throughout extended throughout
the organizationthe organization

24. Mohan Madgulkar-Compensation Management/2006
Compensation Management
Phase IPhase I
Job AnalysisJob Analysis
Identify and study jobs
•Position descriptions
•Job descriptions
•Job standards

25. Mohan Madgulkar-Compensation Management/2006
Compensation Management
•Determine relative worth or
value of jobs
•Provides for internal equity
•Job evaluation methods:
•Job ranking
•Job grading
•Point system
Phase IPhase I
Job AnalysisJob Analysis
Phase IIPhase II
Job EvaluationJob Evaluation

26. Mohan Madgulkar-Compensation Management/2006
Compensation Management
•Discover what other
employers are paying for
specific key jobs
•Provides for external
equity
•Sources of data:
HRDC
•Consultants
•Canada HR Centres
•Associations
•Self-conducted surveys
Phase IPhase I
Job AnalysisJob Analysis
Phase IIPhase II
Job EvaluationJob Evaluation
Phase IIIPhase III
Salary SurveysSalary Surveys

27. Mohan Madgulkar-Compensation Management/2006
Compensation Management
•Establishing the pay level
for each job
•Combines job evaluation
ranking, survey wage rates,
and other considerations e.g.
organization’s pay policy
•Wage-trend line developed
•Grouping the different pay
levels into a structure that
can be managed
•Job classes and rate ranges
Phase IPhase I
Job AnalysisJob Analysis
Phase IIPhase II
Job EvaluationJob Evaluation
Phase IIIPhase III
Salary SurveysSalary Surveys
Phase IVPhase IV
Pricing JobsPricing Jobs
Match

28. Mohan Madgulkar-Compensation Management/2006
Job Evaluation

29. Mohan Madgulkar-Compensation Management/2006
Some conceptual clarity
•What is a job ?
–Collection of tasks, duties , responsibilities which are regarded as a
regular assignment of an employee
•What is a job design ?
–It is the deliberate attempt to structure the technical and social aspects
of work. It comprises of both organizing the components of the tasks to
be done and the interaction patterns among the workgroup members in
order to get the job done.
•What is a job description?
–Clear, concise and understandable description of each job. It describes
n sufficient details each of the main duties and responsibilities and
indicates the extent of directions received and supervision given
•What is job specification?
–Statement of minimum acceptable human qualities necessary to
perform a job properly

30. Mohan Madgulkar-Compensation Management/2006
Job analysis
•The process of collecting, analyzing and setting out
information about jobs in order to provide the basis
for a job description or role definition and the data for
job evaluation , performance management and other
HR management purposes
•Detailed and systematic study of information related
to the operations and responsibilities of a particular
job.
•Anatomy of the job

31. Mohan Madgulkar-Compensation Management/2006
Points covered in Job analysis
•What is the job title
•To whom is the position responsible to ?
•Who is responsible to the position
•What is the purpose of the job? What is the position expected to do?
•To achieve the purpose, what are the main areas of responsibility?What you have to
do and why.
•Dimensions of job in terms of output
•Hoe does the job fit in with other jobs in the department or elsewhere in the
company
•Flexibility requirements in terms of having to carry out a range of different tasks
•How work is allocated and how it is reviewed and approved
•Decision making authority
•Contacts with others- inside or outside the company , equipment, tools used
•Other features like traveling, unsocial hours or unusual physical conditions
•Knowledge and skills required to do the work

32. Mohan Madgulkar-Compensation Management/2006
Job Analysis in Practice
•Job analysis gets the facts about a job from the job
holder, the job holder’s manager and the job holders
team mates. These facts can be obtained by
interviews or by asking the job holders and / or their
managers to write information about the jobs in a
structured format.It is essential to provide guidance
on how the analysis should be carried out and
expressed on paper. Alternatively questionnaires can
also be used – either universal questionnaires or those
designed for job families

33. Mohan Madgulkar-Compensation Management/2006
Role analysis
•Role analysis covers the collection of
information about the job contents and job
demands as in job analysis ,but goes beyond
these details to look at the part people play in
carrying out their roles rather than the tasks
they carry out. It is concerned not only with
the job content, but also the broader aspects of
behavior expected of role holders in achieving
the overall purpose of their roles

34. Mohan Madgulkar-Compensation Management/2006
What is job evaluation?
•Job evaluation can be defined as “a systematic
procedure designed to aid in establishing pay
differentials among jobs…”
•Job Evaluation is a systematic process for ranking
jobs logically and fairly by comparing job against job
or against a pre-determined scale to determine the
relative size of jobs in an organisation.
•“A systematic process or set of techniques used to
assess the relative worth of jobs within the
organisation” (Wright, 2004:46)

35. Mohan Madgulkar-Compensation Management/2006
Job evaluation
•The purpose of job evaluation is to
–Provide a rational basis for the design and
maintenance of an equitable pay structure
–Help in the management of existing relativities
–Enable consistent decisions to be made on grading
and rates of pay
–Establish the extent to which there is comparable
worth between jobs

36. Mohan Madgulkar-Compensation Management/2006
Job evaluation
•A comparative process
•A judgmental process
•An analytical process
•A structured process

37. Mohan Madgulkar-Compensation Management/2006
Job evaluation relearned
•Job evaluation should reinforce critical
behaviors that the the organization needs to
demonstrate for overall effectiveness.
Traditional job evaluation systems however
focus on characteristics representative of
organizations of the past

38. Mohan Madgulkar-Compensation Management/2006
A new paradigm
Today’s business
environment
Traditional JE JE requirements for
today’s organizations
Role based. Employees
required to do what is
needed rather that what is
prescribed and to manage
themselves
Flatter organizational
structures , little vertical
advancements, need for
employees to gain broader
perspective
Self managed teams
More knowledge workers
Job based. Work is valued based on
narrow job descriptions which are
defined and strict boundaries of
authority and accountability are
delineated
Communicate values of hierarchy
and bureaucracy by driving empire
building behavior , rewarding
vertical , rather than horizontal
growth. Employees may be
reluctant to accept new positions
when the new job has fewer points
Focus on individual contribution
Measure task size
Flexible enough to evaluate job
contents and or role content.
The system should
communicate and encourage
required new behaviors
Encourage employees to gain
broader organizational
perspective through lateral
moves
Ability to rank teams
Measure intangible processes

39. Mohan Madgulkar-Compensation Management/2006
JE – basic methodology
•Benchmark jobs
–For internal assessment and external matching
•Job evaluation factors
–Characteristics common to the range of jobs
•Job and role analysis
•Job evaluation process
•Develop a pay structure

40. Mohan Madgulkar-Compensation Management/2006
Meeting the Needs
Non-
Analytical
Analytical
Basis of
Comparison
Job-job
Simple ranking
Internal benchmarking
Paired comparison
Market pricing
Factor
comparison
Job-scaleClassificationPoint
Factor
Rating

41. Mohan Madgulkar-Compensation Management/2006
Non-analytical job evaluation – job
ranking
•Steps
–Analyse and describe jobs
–Identify key or benchmark jobs
–Rank all other jobs around these
–Divide ranked jobs into grades
•Advantages
–Quick and cheap
•Disadvantages
–Does not measure differences between jobs, not acceptable
in determining equal worth in an equal value case

42. Mohan Madgulkar-Compensation Management/2006
Job classification
•Steps
–Decide on number and characteristics of grades
–Compare whole job with grade definition and allot
jobs to grades
•Advantages
–Easy, cheap, easily understood
•Disadvantages
–Cannot cope with complex jobs or borderline cases
–Not acceptable in equal value cases

43. Mohan Madgulkar-Compensation Management/2006
Analytical JE – point factor schemes
•Break down jobs into factors such as knowledge, skill,
responsibility, dealing with people, working conditions
•Give each factor a range of points or percentage weighting
•Maximum points for each factor are divided between levels or
degrees for that factor
•Select and analyse benchmark jobs
•Allocate points to each job under each factor
•Add together points to give a total score which represents job
size
•Design grade structure
•Analyse, evaluate and grade non-benchmark jobs
•Price job grades

44. Mohan Madgulkar-Compensation Management/2006
Point-Factor Plans
•The most commonly used type of job
evaluation method
•Make the criteria for comparisons explicit,
unlike ranking and classification
•The criteria for classification (the compensable
factors) are related to the strategy of the
business; they are the factors valued by or of
high worth to the firm

45. Mohan Madgulkar-Compensation Management/2006
Point-Factor Plans
•Point factor plans all include three elements:
–Compensable factors are defined
–Degrees or level of each factor are given numerical rankings
–Factors weighted as to their relative value to the organization
•Job worth is measured by the total number of points
•The steps to follow:
–Job analysis
–Determine compensable factors
–Scale the factors
–Weight the factors
–Communications and documentation
–Apply the plan
Compensable Factors
“Characteristics in the
work that the organization
values, that help it pursue
its strategy and achieve
its objectives”

46. Mohan Madgulkar-Compensation Management/2006
Selecting and Weighting
Compensable Factors
•These should be:
–Based on the work performed
–Based on the strategy and values of the organization
–Acceptable and considered to be fair by all concerned parties
•As a result, compensable factors should be developed by each
organization, rather than using an off-the-shelf plan
•Basic group of compensable factors:
–Skill
–Effort
–Responsibility
–Working conditions
•Weighting compensable factors

47. Mohan Madgulkar-Compensation Management/2006
Point-Factor: Pro and Con
•Point-factor systems orderly, rational, and
make criteria for evaluating jobs explicit
•Time consuming to set up (and they do need to
be periodically updated), but very simple to
add new jobs
•Job evaluations may still be affected by what
the evaluator already knows or believes the
market value of the job to be

48. Mohan Madgulkar-Compensation Management/2006
Example factor plan
Levels/
factors
1 2 3 4 5 6
Knowledge
and skills
50100150200250300
Responsibility50100150200250300
Decision
making
4080120140180220
Complexity255075100125150
Contacts 255075100125150

49. Mohan Madgulkar-Compensation Management/2006
Issues in the selection of factors
•Factors express the values of the organisation
•Factors influence the extent to which the
scheme constitutes a fair basis for assessing
relative values
•Consider the whole range of jobs in choosing
factors
•Avoid double counting

50. Mohan Madgulkar-Compensation Management/2006
Hay Guide Chart-Profile Method
©
•Officially known as the Hay Guide Chart-Profile
Method of Job Evaluation©, this system utilizes three
factors to arrive at a job’s evaluation. The job’s
content is the sole basis for the job evaluation.
•The Hay method of job evaluation is generally
understood to be a point plan, although Hay itself
does not define the guide chart-profile method as a
variation of the point method.
•The Hay guide charts have been in existence since
1951 and have been used in over 5,000 different
organizations worldwide.

51. Mohan Madgulkar-Compensation Management/2006
How are jobs evaluated using the
Hay System?
•Job description questionnaires are completed and
signed by the jobholder, the supervisor, and other
managerial staff who have responsibility for the
position.
•The job description questionnaire is given to each
member of the job evaluation committee for his/her
initial evaluation.
•The committee meets with the jobholder and
supervisor to explore questions and clarify content.
•The committee members then compare their
individual evaluations and resolve differences that
might exist.

52. Mohan Madgulkar-Compensation Management/2006
The Hay Methodology Background
•Most widely used method for total job populations
•Adopted by a large number and range of
organisations
•Manageable and coherent number of factors used
•Successfully used for a huge range of jobs
•Relies on simple job descriptions and contextual information
•Methodology combined with process aids equal value
•Manageable process in relation to resources required
•Facilitates:
–external pay comparison
–pay structure development
–analysis of organizational and career structures

53. Mohan Madgulkar-Compensation Management/2006
Jobs Exist to
achieve an end
result
AccountabilityAccountabilityAccountability
Problem Solving
Therefore, the job holder
requires a level of knowledge
and experience commensurate
with the scale and complexity
of the deliverable
Know-How
Problem Solving
To achieve this end
result, job holders must
address problems, create,
analyse and apply
judgement
1 32
The Underlying Principle of the Hay
Methodology

54. Mohan Madgulkar-Compensation Management/2006
Elements of Job Size
Technical
Know-How
Planning and
Organising
Communicating and
Influencing
Freedom
to Act
Area of
Impact
Nature of
Impact
Thinking
Environment
Thinking
Challenge
PROBLEM
SOLVING
KNOW-HOW ACCOUNTABILITY
}

55. Mohan Madgulkar-Compensation Management/2006
Hay System Factors
•KNOW-HOW
–The sum total of every kind of skill, however acquired,
needed for acceptable job performance.
–This sum total which comprises the overall “fund of
knowledge” has three dimensions – the requirements for:
•Practical procedures, specialized techniques, and learned
disciplines.
•Active, practicing skills in the area of human relationships.
•Know-how of integrating and harmonizing the diversified functions
involved in managerial situations (operating, supporting, and
administrative). This know-how may be exercised consultatively as
well as executively and involves in some combination the areas of
organizing, planning, executing, controlling, and evaluating.

56. Mohan Madgulkar-Compensation Management/2006
Hay System Factors
•PROBLEM SOLVING
–The original “self starting” thinking required by the job for
analyzing, evaluating, creating, reasoning, arriving at and
making conclusions. To the extent that thinking is
circumscribed by standards, covered by precedents, or
referred to others, problem solving is diminished and the
emphasis correspondingly is on know-how.
•Problem solving has two dimensions:
–The environment in which the thinking takes place.
–The challenge presented by the thinking to be done.

57. Mohan Madgulkar-Compensation Management/2006
Hay System Factors
•ACCOUNTABILITY
•The answerability for an action and for the
consequences thereof. It is the measured effect of the
job on end results. It has three dimensions in the
following order of importance:
–Freedom to Act – the degree of personal or procedural
control and guidance the jobholder has.
–Job Impact on End Results – ranges from direct to indirect
impact on end results by auxiliary, contributory, shared, or
primary effects.
–Magnitude – indicated by the general dynamic dollar size
or accountability area(s) most clearly affected by the job.

58. Mohan Madgulkar-Compensation Management/2006
•A guide chart is used for each of the three
factors containing descriptive scales for each
element and a numbering pattern based on a
15 % step difference , which is an important
building block in making comparisons
between jobs. Job size is the sum of the results
from the three factors. In addition , an explicit
judgment is made about the balance between
the factors in each job – the profile – which
provides a valuable consistency check.

59. Mohan Madgulkar-Compensation Management/2006
The Hay Methodology
Checks and Balances
• Profiles – how do the elements fit together
• Step differences – internal relativities
• ‘Sorethumbing’ – common sense
• Panel process – challenge perceptions
• Focus on jobs – not people or performance

60. Mohan Madgulkar-Compensation Management/2006
Compensation structure

61. Mohan Madgulkar-Compensation Management/2006
•A pay structure provides framework within
which an organization defines the different
levels of pay for jobs or groups of jobs on the
basis of their relative internal value and of
external relatives.

62. Mohan Madgulkar-Compensation Management/2006
Criteria for pay structures
•Be appropriate to the characteristics and need of the
organization
•Flexible in response to market rates and skill shortages
•Facilitate operational and role flexibility
•Scope for rewarding performance
•Ensure that consistent decisions are made on pay in relation to
job size, contribution, skill and competence
•Clarify career ladders
•Logically and clearly constructed
•Enable the organizations to exercise control over the
implementation of p[ay policies and budgets

63. Mohan Madgulkar-Compensation Management/2006
Principles of pay structure design
•Is in accordance with the organization's philosophy and policies
concerning differentials, relationships with market rates, and the scope for
and methods of progressing the pay in jobs.
•Designed on a logical basis and helps in the application of equitable and
consistent reward management process.
•Assist the management and maintenance of appropriate internal and
external relativities
•Flexible enough to enable the organization to respond to change
•Reward competence and performance
•Can be implemented with minimum amount of efforts and cost.
•Is likely to be acceptable to management and every other member of the
organization

64. Mohan Madgulkar-Compensation Management/2006
Methodology of developing pay
structures
•Analyze present arrangement
•Set objectives and timetable
•Decide who is going to conduct the review
•Estimate the likely cost of conducting and implementing the review
•Decide the extent of employee involvement
•Brief employees
•Make preliminary decision about the type of structure required
•Analyze and evaluate jobs
•Make a final decision on the type of structure (s) required and the main design and
operational features
•Prepare a detailed design for the structure and how it will be managed and
maintained.
•Communicate with the staff the details of the structure and how it will affect them
•Train managers on hoe to operate the structure
•Monitor the implementation of the structure
•Evaluate the application and impact of the structure.

65. Mohan Madgulkar-Compensation Management/2006
Three important types of pay
structures
•Graded
•Job family
•Broad banded

66. Mohan Madgulkar-Compensation Management/2006
Graded pay structure
•A graded pay structure consists of a sequence of job grades to
each of which is attached a pay range.
•A pay grade is a grouping of different jobs that are considered
substantially equal for pay purposes. Grades enhance the
organizations’ ability to move people among jobs that are
within a pay grade without changing their pay.
•Jobs are allotted to grades on the basis of their relative size.
•A pay range is attached to each grade. This defines the
minimum and maximum rate payable to any job in a grade and
indicates the scope provided for job holders to progress
through the range

67. Mohan Madgulkar-Compensation Management/2006
Job family structures
•Market rate pressures operate differently on
particular occupations or categories of employees
•There are significant variations in the type of work
carried out and the competencies required by
different occupational groups , which can not be
easily centered for in a single pay structure
•A job family structure consists of separate graded pay
structures for each of the job families which have been
identified for this purpose. These structures are aligned
individually to market rates and contain a number of pay
ranges which reflect the particular levels of work within the
job family.

68. Mohan Madgulkar-Compensation Management/2006
What are job families?
•A job family consists of jobs in a function or discipline such as
research scientists, development engineers or personnel
specialists. The jobs will be related in terms of fundamental
activities carried out and the basic skills required , by they will
be differentiated by the level of responsibility, skill or
competence involved.
•A job family is a group of jobs. Their essential nature and
purpose is similar but the work is carried out at different
levels. Job families may be functional, in that they cover
specific work groups within a function such as marketing,
finance or personnel. Or they may be generic , in that they
cover similar types of work across functional boundaries e.g.
administrators, managers or team leaders

69. Mohan Madgulkar-Compensation Management/2006
Broadbanding
•Collapse narrow salary grades into wide
bands.
–20 grades reduced to 4 to 5 bands.
–40-60% ranges increased to 100-250%
•Increased emphasis on market pricing jobs
•Decreased emphasis on job evaluation

70. Mohan Madgulkar-Compensation Management/2006
Broadbanding
•Compressing a hierarchy of pay grades or
salary ranges into a number of wider bands
•Typically no more than five or six bands
•Wide pay spans
•Market pricing used to define reference points
•Focus on lateral career development and
competence growth

71. Mohan Madgulkar-Compensation Management/2006
Broadbanding
•What are the advantages and disadvantages of
broadbanding?

72. Mohan Madgulkar-Compensation Management/2006
Technical Band
160%
Broadbanding
Salary grades
for Engineers
I
II
III
IV
$35K
$85K
40%
40%
40%
40%

73. Mohan Madgulkar-Compensation Management/2006
Advantages of Broadbanding
•Facilitate Lateral career moves
– Enhanced flexibility for transfers
–Cross-functional teams with fluid duties
•More flexible pay decisions
–Few control points such as midpoints or salary
caps.
–More pay opportunities based on skills

74. Mohan Madgulkar-Compensation Management/2006
Salary Surveys

75. Mohan Madgulkar-Compensation Management/2006
Why Conduct Salary Surveys?
•To create and adjust pay structure
•Adjust actual pay in response to the market
•Monitor other forms of pay, such as shift
differentials, bonuses, incentives, overtime
practices

76. Mohan Madgulkar-Compensation Management/2006
What Is The Market?
•Who?
–Employers who compete for the same occupations and skills
–Employers who compete for employees in the same geographic area
– Employers who compete with the same products
• How to determine this?
–Who are our competitors?
–Where do we recruit?
–Where are employees going?
•Interaction of skill/place/product
–If labor market is rich in a particular skill, may recruit/price locally
–If labor market does not include skills, recruiting and pricing are on a wider
scale
–Commuting time within a market may also be a factor

77. Mohan Madgulkar-Compensation Management/2006
Guidelines for Salary Surveys
•Make or buy?
•How many firms to include
•Price fixing issues
•What jobs to survey
•What data to collect
•How to survey

78. Mohan Madgulkar-Compensation Management/2006
Putting it Together: The Pay
Regression Line
•Job evaluation (internal equity) gives us
relative value of jobs within the organization
•Salary surveys (external equity) gives us value
of selected jobs outside the organization

79. Mohan Madgulkar-Compensation Management/2006
Contingent Pay

80. Mohan Madgulkar-Compensation Management/2006
•Contingent pay covers the various methods of
providing additional rewards for individuals or
teams

81. Mohan Madgulkar-Compensation Management/2006
Types of contingent pay
•Contingent pay for individuals
•Service related pay: provides fixed increments which
are usually paid annually to people on the basis of
continued service either in a job or in a grade
•Competence related pay: Links pay to an assessment
of competence achieved
•Contribution related pay: Links pay both to
performance as measured by results and competence
•Skill based pay: Which provides additional payments
that reflect the level of skill attained

82. Mohan Madgulkar-Compensation Management/2006
Types of contingent pay contd.
•Contingent pay for teams
–Payments to members of a formally established team or the provision
of other forms of non-financial reward which are linked to the
performance of that team. The rewards are shared by the team
members in accordance with a published formula.
•Contingent pay based on organizational performance:
–Profits sharing: Provides a cash payment related to the level of profits
–Profit related pay:Provides for a proportion of pay to go up or down in
line with profits
–Gain sharing :Shares gains in terms of added value or some other
measure between the company and its employees , and includes
various forms of its involvement

83. Mohan Madgulkar-Compensation Management/2006
Performance related pay
•Provides individuals with financial rewards in
the form of increases to basic pay or cash
bonuses which are linked to an assessment of
performance , usually in relation to agreed
objectives.

84. Mohan Madgulkar-Compensation Management/2006
Reasons for introducing performance
related pay
•To attract the right type of applicant and to send
strong messages to those employees the organization
wanted to loose as well as those they wanted to retain
•To achieve organizational transformation by
promoting values suggesting that the company was
performance-driven , cost conscious and flexible ,
and by encouraging commitment- locking individuals
in through objectives cascading from the company’s
business plan.

85. Mohan Madgulkar-Compensation Management/2006
Stages in development of PRP
program
•Define the objectives
•Analyze the existing situation
•Decide on the involvement of line managers, team leaders,
employees , trade unions.
•Consider alternative designs
•Consider process elements
•Produce overall design
•Prepare implementation program
•Implement communication and training programs
•Implement the plan
•Evaluate the impact of the plan

86. Mohan Madgulkar-Compensation Management/2006
Advantages and disadvantages of
PRP
Advantages Disadvantages
Motivates
Is a lever of change
Links rewards to results
Delivers message that performance is important
Helps to attract and retain staff
Meets basic human need-to be rewarded for
achievement
Is not the only motivator
Is not an effective motivator
Can demotivate
May deliver the wrong message
Problems of measuring performance
Relies on managerial judgment which may be partial
Emphasizes quantity at the expense of quality
Is prejudicial to teamwork
May be discriminatory
May not deliver value for money
May not be appropriate
Is too often taken on trust
May be right in principle but is hard to make work in
practice

87. Mohan Madgulkar-Compensation Management/2006
Advantages and disadvantages of
Competence related pay
Advantages Disadvantages
Encourages competence development
Fits de-layered organizations by
facilitating lateral career moves
Helps to integrate role and
organizational core competence
Forms part of an integrated,
competence based approach to people
management
Delivers message that competence is
important
Relies on appropriate relevant and
agreed competence profile
Assessment of competence levels may
be difficult
Might pay for irrelevant competencies
Link to pay may be arbitrary
Costs may escalate if inappropriate or
unused competencies are rewarded

88. Mohan Madgulkar-Compensation Management/2006
Competence related pay
•Method of rewarding people wholly or partly
by reference to the level of competence they
demonstrate in carrying out their roles. It is a
method of paying people for the ability to
perform.

89. Mohan Madgulkar-Compensation Management/2006
Process of competence related pay
•Competency analysis
•Agreeing competency requirements in a
particular role
•Assessing levels of competence for individuals
against the requirements
•Relating pay of individuals to the assessment

90. Mohan Madgulkar-Compensation Management/2006
Appropriateness
•Well researched competency framework exists
•Criteria are available for the
measurement/assessment of competencies
•The organization is concerned with the
development of competence levels
•Managers and staff are properly briefed and
trained on the assessment of competence

91. Mohan Madgulkar-Compensation Management/2006
Performance Management
•A business process intended to ensure
alignment of group and individual efforts for
achievement of continuous business
improvement
•How much and how??

92. Mohan Madgulkar-Compensation Management/2006
Critical success factors
•Ongoing tracking
•Direct linking to company’s mission
•Timely communication and skills training
•Connection between reward and performance
•Objective feedback and review
•Employee ownership – I own the direction in
which I go
•Senior leadership involvement

93. Mohan Madgulkar-Compensation Management/2006
Mission
Why does the company
Exist ?
Vision of future Where is it going?
Strategic organizational
goals
How will it
Get done? Esp.
Focusing on
Values.
Core
Organizational
Capabilities
Performance
Development
& planning

94. Mohan Madgulkar-Compensation Management/2006
Four stages of performance
•Contribute by following direction
–Contribute demonstrating individual competency
•Contribute through people
–Contribute by shaping the organization

95. Mohan Madgulkar-Compensation Management/2006
Performance management at a
glance
Business strategy & goals
Unit performance
Goal setting
Individual / team goal setting
And planning
Write performance goals/ plans
Write development plan for current
Performance goal and future interest
Select coaches
Ongoing progress review
And coaching
Formal assessment
And pay link
1
2
3

96. Mohan Madgulkar-Compensation Management/2006
Performance management &
rewards
•Not purely for what you DO but also HOW
you do it.
•Integration of demonstrated development ,
performance , results and competitive market
to determine total compensation
•Performance and incentive compensation
linked to business results

97. Mohan Madgulkar-Compensation Management/2006
Productivity linked incentive
schemes

98. Mohan Madgulkar-Compensation Management/2006
Objectives
•Achieve competitiveness through pay
increases which are more related to productive
measures as a way of absorbing increased
labor costs, while at the same time rewarding
and motivating employees

99. Mohan Madgulkar-Compensation Management/2006
Types
•Individual based
•Profit sharing
•Gain sharing
•Employee share ownership

100. Mohan Madgulkar-Compensation Management/2006
Elements
•Adequate criteria to measure performance which is
understood communicated and accepted
•Appropriate performance appraisal system
•Regular feedback of performance
•Appropriate quantum of pay which is subjected to
performance criteria
•Periodic evaluation
•Recognition to factors outside the control of
employees

101. Mohan Madgulkar-Compensation Management/2006
Benefits of productivity linked
incentive
•The benefits to management and employees are:
 
•where performance/profits increase, higher pay is an incentive
to employees
•where profits reduce, the reduction in the performance-related
pay can cushion employees against redundancies
•employee identification with the success of the business is
enhanced
•variations in pay lead to employees becoming more familiar
with the fortunes (or misfortunes) of the business. This would
depend on the information-sharing practices of the
management.

102. Mohan Madgulkar-Compensation Management/2006
Guidelines
•A performance pay system should be designed to promote the
kind of performance an organization needs. In order to do so
•an analysis should first be made of the objectives and results
sought
•the principles/policies and practices needed to obtain the
results (e.g. team work) should be established
•these policies and practices should form part of an overall
human resource management strategy.
•Employees should be consulted in the formulation of the plan
(to ascertain the type of rewards most likely to have
motivational effect), in regard to its operation and distribution
of rewards, and in monitoring the scheme.

103. Mohan Madgulkar-Compensation Management/2006
Guidelines ( contd.)
•The criteria for the determination of performance pay should be
•objective
•measurable and measure only what is important
•that it is operated along with an appraisal system which measures
performance appropriately
•designed to feed back information to employees, and not only to
management
•easily understood
•related to what is controllable, so as to exclude what is beyond the control
of employees.
•The intrinsic reward system should be strengthened if need be, e.g. through
•consultation, communication, participatory systems
•training
•job satisfaction and responsibility
•reorganization of work processes

104. Mohan Madgulkar-Compensation Management/2006
Guidelines ( Contd.)
•How the performance pay is shared is as important as the quantum,
because the manner of sharing affects employees' perceptions as to
whether the scheme is equitable.
•The impact of the scheme also depends on the frequency of the payment.
Therefore the reward should follow the performance as soon as possible.
•The scheme should be given wide publicity within the enterprise.
•The performance level should be achievable or else the scheme will have
no motivational impact.
•The quantum of pay on account of performance which is placed at risk (i.e.
the amount that can be lost due to poor performance) should be carefully
determined. At the same time the scheme should be sufficiently flexible to
absorb downturns and adequately reward when performance is good.

105. Mohan Madgulkar-Compensation Management/2006
Paying for Contribution

106. Mohan Madgulkar-Compensation Management/2006
Rewarding Contribution
•What do we really mean by Contribution
related pay and how is it different from PRP?
•What are the key building blocks?
•What do you have to do to get this right?

107. Mohan Madgulkar-Compensation Management/2006
What Do We Mean By
Contribution Related Pay?
•‘a new concept in contingent pay design which
links pay both to performance, as measured by
results, and competence’

108. Mohan Madgulkar-Compensation Management/2006
How Much Of It Is There About?
(2)
‘Paying for contribution will be the most popular method of
rewarding managers and staff. Such an approach reflects a
general dissatisfaction with flat rate market rises ……. but it
also reflects problems experienced with pay progression
linked solely to individual performance (outputs) with no
appreciation of how they are achieved, and with progression
exclusively linked to skills or competencies (inputs) with no
recognition of results.’
CIPD Reward Management Survey 2004

109. Mohan Madgulkar-Compensation Management/2006
A New Direction?
•People as costs
•Tends to focus on individual
•One Dimensional results focus
•Rewards immediate past performance
•Little recognition of motivation
research
•Or the key role of line managers
•Simplistic
•Tends to be controlled by HR
•Pay links usually a fixed formula
•Discretionary effort-people as assets
•Focus on team and individual
•Investment in skills/behaviours for
the future
•Results matter too – but look at
interdependencies
•Draws on commitment/
engagement/motivation research
•Capability is crucial
•Tends to be owned by users
•Variety of reward methods
FROM
Pay for performance
TO
Pay for Contribution

110. Mohan Madgulkar-Compensation Management/2006
Key Elements
•Constructive focus
•Clear rules of the game on personal and pay progression
•Based on:
–an agreement on deliverables/results
–and
–acquisition and use of competences required for current role e.g. IT
skills
–behaviours acknowledged as key to success (e.g. customer orientation,
respect for others, partnership working, developing others)
–base pay progression and variable pay – best fit for level/role
•Performance management as the key vehicle for continuing
dialogue on delivery and development

111. Mohan Madgulkar-Compensation Management/2006
•Establishing individual/team objectives
•Describing job expectations
•Describing competencies and planning
improvements
•Describing tasks
•Training and development planning
•Agreeing performance standards
•Coaching
•Counselling
•Feedback and day-to-day planning
meetings
•Self monitoring
•Monitoring training & development
activities
•Formal review of performance
•Performance measurement
•Formal team feedback sessions
•Individual self-review
•Peer group and upwards appraisal
•360 degree
•Praise
•Promotion/Job enrichment
•Links to individual and/or team pay
•Prizes
•Special Awards
•Other forms of recognition
Managing
Performance
Reviewing
Performance
Planning
Performance
Rewarding
Performance
AA
‘‘Virtuous Cycle’Virtuous Cycle’
A Reminder About Performance
Management

112. Mohan Madgulkar-Compensation Management/2006
High
High
Impact on the
Organisation
Low
An ongoing
Management Process
(2)
Competency Based
(‘Mixed Model’)
(3)
Organisation/Culture
Change Process
(5)
Level of Intervention
Degree of integration with other
HR and related processes/
Management Capability
‘A once a Year
Event
(1)
Holistic
Process
(4)
The Impact of Performance Management
AIMS
Feature
of PM
Process
‘We want to
improve our skills
in objective
setting/appraising
’
‘Once a year
event’
•Not integrated
•Little managing
of performance
‘We want to
improve our
appraisal scheme’
‘We want to
integrate
competencies
and/or skills in our
appraisal process’
‘We want to ink up our
PM process to other
initiatives/ processes
e.g. Investors in
People, Business
Process Re-design,
Business Planning,
EFQM
‘We want to transform
how we operate’
Business Process Re-
engineering
‘An integrated
management
process covering four
phases – Planning,
Managing, Reviewing
and Rewarding
A competency-
based integrated
PM process
A holistic process with
explicit links to other
initiatives/ processes
360 feedback usually
involved
PM process part of an
integrated HR project
– Pay, Work Definition,
Organisation Change,
Benefits Management

113. Mohan Madgulkar-Compensation Management/2006
And The Impact On Pay ….
Not
Relevant
Manage
Exceptions
Only
Decisions
on Rating
Rating
and Pay
Total
Ownership
Fixed
Increments
Flexible
Increments
Pay
matrix
Flexible
Guidelines
Line
Management
held Budget
Strength
of Message
Management
Capability
HIGH
HIGH
Pay Progression Mechanism
LOW

114. Mohan Madgulkar-Compensation Management/2006
Making Contribution related pay
work requires:
•Clarity about organisational strategy and plans and
requirements they will make on:
–Departments, teams and individuals
•Values that recognise that ‘how’ can be as or more important
as ‘what’
•Skill/competence frameworks that support delivery and are
well understood
•Learning and development resources
•Sound performance management processes
•Clear pay progression rules linked to roles/levels (often in job
families)
•Capable managers who praise achievement and confront
contribution shortfalls

115. Mohan Madgulkar-Compensation Management/2006
Getting The Detail Right (1)
•Are your skill/competence/competency frameworks
good enough? i.e.
– specific to role/job or career family
– linked to skills/behaviours associated with high
quality delivery
– designed and used to support learning and
development, recruitment AND assessment of contribution
– supportive of your organisation’s change and
transformation agenda
– Clearly communicated and understood

116. Mohan Madgulkar-Compensation Management/2006
Competencies – A Reminder
Social Role
How I see my job
Self Image
What I value in myself
My Traits
My non-conscious patterns ofbehaviour
My Motives
Where my excitement comes from
Expert
Best in field
Aloof
Achievement
Helps people get better
Healer
Sitting by bed
Power
OutcomesMore re-admissions Earlier discharge
Dr Sharpe Dr Hart
2.2/8
SameSame
Skills
What I can do
Knowledge
What I know
Social Role
How I see my job
Self Image
What I value in myself
My Traits
My non-conscious patterns ofbehaviour
My Motives
Where my excitement comes from
Expert
Best in field
Aloof
Achievement
Helps people get better
Healer
Caring
Power
OutcomesMore re-admissionsMore re-admissions Earlier dischargeEarlier discharge
Dr Sharpe Dr HartDr Sharpe Dr Hart
SameSame
Skills
What I can do
Knowledge
What I know

117. Mohan Madgulkar-Compensation Management/2006
Getting The Detail Right (2)
•Performance Management
•‘Just in time’ Training/Communication, Competence – Confidence – Trust
– Engagement.
•Focus on coaching/regular feedback.
•Appreciative enquiry –’what would be happening if this area of
contribution was going well – what would you/others be doing to create
success?
•Focus on raising rather than rating contribution (a besetting sin of PRP).
•Recognition that managers and their people raise contribution levels – pay
systems and performance management forms/systems cannot do this.
•It is the quality of dialogue not the elegance of the paperwork that matters.
•Reward should support this.

118. Mohan Madgulkar-Compensation Management/2006
Contribution Rating
•Rating is only important where contribution level is directly linked to pay decisions.
•The approach to “rating” depends on the purpose and emphasis of the performance management
process:-
Organisational
Contribution
Individual Development
Quantitative Judgments
Qualitative Indicators
Individual Remuneration
A1 + 2Outstanding Exceptional contribution
B2 + 1Superior Consistently high level of contribution
C3 0Fully AcceptableA good year’s work
D4 - 1Incomplete Acceptable contribution, some shortcomings
E5 - 2Marginal/Not ProvenContribution less than acceptable/learner/ achiever
•Where rating is judged essential, a 5-point scale is often used. This may be expressed in
numbers, letters and descriptors e.g.
•Words and psychology matter a lot!

119. Mohan Madgulkar-Compensation Management/2006
Pulling It All Together
•Capability building will be key especially for line
managers.
•Decide how this approach fits with the current
culture, strategy and existing processes.
•Start paying for personal contribution as soon as this
makes sense.
•Consult, involve and put ‘L plates’ on what you do –
everyone stands to learn.
•Communicate early and often.
•Top team clarity & commitment is crucial.

120. Mohan Madgulkar-Compensation Management/2006
Team Based Pay

121. Mohan Madgulkar-Compensation Management/2006
Team-based Pay
•Team Definition (Katzenbach & Smith, 1993)
•Group of employees whose members are
mutually accountable to each other for
common goals.
•Team members interact on a regular basis.
•There is the possibility of synergy between
team members.
•Size of team is between 2 and 25 members.

122. Mohan Madgulkar-Compensation Management/2006
Types of Teams
(Cohen & Bailey, 1997)
•Work Team
–Controls a business process such as customer service or
manufacturing. Product or service quality is a key criteria.
–Permanent work assignment and full-time commitment.
•Project Team
–Project is limited by completion time such as new product
design or construction project. Delivery time, budget
variance and design quality are some criteria.
–Full-time commitment; after project team members are
reassigned to different projects.

123. Mohan Madgulkar-Compensation Management/2006
Types of Teams (Cont’d)
•Parallel Teams
–Used to solve specific problems such as quality,
safety, employee grievances or impact of
technology change.
–Used in parallel to functional units where
employees spend most of their work time.
–Requires only a part-time commitment as team
member.

124. Mohan Madgulkar-Compensation Management/2006
Why Use Team Pay?
•To Encourage Behaviors such as…
•Peer Cooperation
•Information Sharing
•Unselfish behavior supportive of team
–Sacrifice personal interest for good of team such as
giving up leisure time on weekend to work for an
important team goal.
•Mutual Monitoring
–Provide performance feedback to team members.

125. Mohan Madgulkar-Compensation Management/2006
Monetary Team Rewards
(Gomez-Mejia & Balkin, 1992)
•Team Bonus - Cash payment to tied to achieving major team
performance outcome and allocated on non-recurring basis.
•Team Merit Pay - Cash adjustment to salary tied to achieving
team behavioral and performance outcomes.
•Skill-based Pay - Adjustment to base pay rate of team
members tied to team competence level.
•Gainsharing - Share gains of unit/department with
interdependent teams.
•Spot Cash Rewards - Discretionary basis.

126. Mohan Madgulkar-Compensation Management/2006
Non-monetary Team Rewards
•Team Recognition Reward - Public ceremony or
announcement in company newsletter.
•Team Celebration - Celebrate team “win”; includes
special dinner, ticket to sports event,etc.
•Merchandise - Team jacket, pin, emblem to build
team identity and “espirit de corps.”
•Travel - Team members (and possibly spouses) travel
to resort for relaxation and fun - often used for sales
teams after successful marketing “push.”

127. Mohan Madgulkar-Compensation Management/2006
Team Pay: Design Issues
•Eligibility - full or part time? managers? Newcomers?
•Size of Reward - large or small?
•Individual’s shares - equal or equitable shares?
•Frequency of rewards - one time only? recurring?
•Criteria for Reward - performance metric? Outcome?
Milestone? Behavior/
•Funding the reward - self-funding: costs savings, profits,
customer goodwill.
•Administration of rewards - team? managers? HR?
customers?

128. Mohan Madgulkar-Compensation Management/2006
Team Pay: Controversies
•Dealing with Free Riders
•Inhibiting High Individual Performers
•Interdependent Teams may Compete rather
than Cooperate with each other.

129. Mohan Madgulkar-Compensation Management/2006
Benefits and perquisites

130. Mohan Madgulkar-Compensation Management/2006
Meaning of fringe benefits
•Those benefits which are supplied by an employer to
or for the benefits of an employee and which are not
in the form of wages, salaries and time rates payment
•Any wage cost not directly connected with the
employees productive effort, performance or
sacrifice.
•Benefit is primarily a means in the direction of
ensuring, maintaining and increasing the income of
the employee. It is a benefit which supplements
ordinary wages and which is of value to them and
their families in so far as it materially increases their
retirement.

131. Mohan Madgulkar-Compensation Management/2006
Meaning of perquisites
•An element of compensation provided in
addition to cash which can directly facilitate
more effective performance for the job, as well
as augmenting the total value of compensation
•The term perquisites should be reserved for
those benefits which are not fundamentally
catering personal security and personal needs.

132. Mohan Madgulkar-Compensation Management/2006
Objectives of benefits
•To increase the commitment of the employees to the
organization
•To provide for the actual or perceived needs of
employees
•To demonstrate that the company cares for its
employees
•To ensure that an attractive remuneration package is
provided which attracts and retains high quality staff
•To provide tax-efficient method of remuneration
which reduces tax liabilities with those related to
equivalent cash payments

133. Mohan Madgulkar-Compensation Management/2006
Goals of fringe benefits
•Social goal
•Human relations goals
•Macro economic goals

134. Mohan Madgulkar-Compensation Management/2006
Benefits policies
•Range of benefits to be provided
•Scale of benefits provided
•Proportion of benefits to total remuneration
•Allowing choice
•Allocation of benefits
•Harmonization
•Market considerations
•Government policy
•Trade unions

135. Mohan Madgulkar-Compensation Management/2006
Major categories
•Payment for time not worked
•Hazard protection
•Employee services
•Legally required payment

136. Mohan Madgulkar-Compensation Management/2006
Cost to the company
•Cost to the company includes the value of all
the perks and benefits one gets from the
company in addition to ones salary. All the
components of the salary may not be always
apparent. In order to arrive at a comprehensive
figure one has to carefully add the value of all
components or their cash equivalent.

137. Mohan Madgulkar-Compensation Management/2006
Tax considerations
•A tax efficient remuneration package can benefit both
employers and employees. From the employees perspective it
can enhance the benefits of working for that employer, from
the employers point of view, it can mean reduced costs.
•In the past , tax efficiency was one of the main reasons for the
proliferation of benefits, but it has become progressively less
important as governments have tightened up the fiscal rules
relating to employee benefits.
•Because fiscal regulations are constantly changing, it is
essential to update the information related to tax law for
salaried persons.