AN EFFECTIVE COMPENSATION MANAGEMENT PLAN-NEED OF THE HOUR
An effective Compensation plan plays a dynamic role in a business organization. Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Land, Labour, Capital and Organization are four major factors of production. Every factor contributes to the process of production/business. It expects return from the business process such as Rent is the return expected by the Landlord. Similarly Capitalist expects Interest and Organizers i.e. Entrepreneur expects profits. The labour expects wages from the process. It is evident that other factors are in-human factors and as such labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labour therefore expects to have fair share in the business/production process.
Compensation may be used to:
- Recruit and retain qualified employees.
- Increase or maintain morale/satisfaction.
- Reward and encourage peak performance.
- Achieve internal and external equity.
- Reduce turnover and encourage company loyalty.
- Modify (through negotiations) practices of unions.
The components of a compensation system include:
- Job Descriptions:
- Job analysis
- job evaluation
- job description
- Pay Structures
- Salary Surveys.
- Policies and Regulations
Various types of compensation include:
- Basic Pay and Dearness allowance.
- Commissions
- Overtime Pay
- Bonuses, Profit Sharing, Merit Pay
- Stock Options
- Travel/Meal/Housing Allowance
- Medi claim Benefits such as: dental, insurance, medical, vacation, leaves, retirement, taxes...
Benefits of Fair Compensation System:
Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following:
- If an ideal compensation system is designed, it will have positive impact on the efficiency and results produced by workmen.
- Such system will encourage the normal worker to perform better and achieve the standards fixed.
- This system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will have transparency, and the standards fixing would be more realistic and achievable.
- Such a system would be well defined and uniform. It will be apply to all the levels of the organization as a general system.
- The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable.
- Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers.
- It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.
- Such system would help company in complying with the various labor acts.
- Such system would also bring about amicable settlement of disputes between the workmen union and company.
- The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to excel.
Compensation Plan: For the Effective compensatory plans Management has to
Develop a program outline.
- Set an objective for the program.
- Establish target dates for implementation and completion.
- Determine a budget.
Designate an individual to oversee designing the compensation program.
- Determine whether this position will be permanent or temporary.
- Determine who will oversee the program once it is established.
- Determine the cost of going outside versus looking inside.
- Determine the cost of a consultant's review.
Develop a compensation philosophy.
- Form a compensation committee (presumably consisting of officers or at least including one officer of the company).
- Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus noncontingent pay).
- Determine whether the company should set salaries at, above, or below market.
- Decide the extent to which employee benefits should replace or supplement cash compensation.
Conduct a job analysis of all positions.
- Conduct a general task analysis by major departments. What tasks must be accomplished by whom?
- Get input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each.
- Interview department managers and key employees, as necessary, to determine their specific job functions.
- Decide which job classifications should be exempt and which should be nonexempt.
- Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary.
- Develop a final draft of job descriptions.
- Meet with department managers, as necessary, to review job descriptions.
- Finalize and document all job descriptions.
Evaluate jobs.
- Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments.
- Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary.
- Prepare a matrix organizational review.
- On the basis of required tasks and forecasted business plans, develop a matrix of jobs crossing lines and departments.
- Compare the matrix with data from both the company structure and the industry wide market.
- Prepare flow charts of all ranks for each department for ease of interpretation and assessment.
- Present data and charts to the compensation committee for review and adjustment.
Determine grades.
- Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level.
- Determine the number of pay grades, or monetary range of a position at a particular level, within each department.
Establish grade pricing and salary range.
- Establish standard for key jobs.
- Review the market price of benchmark jobs within the industry.
- Establish a trend line in accordance with company philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).
Determine an appropriate salary structure.
- Determine the difference between each salary step.
- Determine a minimum and a maximum percent spread.
- Slot the remaining jobs.
- Review job descriptions.
- Verify the purpose, necessity, or other reasons for maintaining a position.
- Meet with the compensation committee for review, adjustments, and approval.
Develop a salary administration policy.
- Develop and document the general company policy.
- Develop and document specific policies for selected groups.
- Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions.
- Develop and document procedures to justify the policy (e.g., performance appraisal forms, a merit raise schedule).
- Meet with the compensation committee for review, adjustments, and approval.
Obtain top executives' approval of the basic salary plan.
- Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.
- Present data to the compensation committee for review, adjustment, and approval.
- Present data to the executive operating committee (senior managers and officers) for review and approval.
Communicate the final program to employees and managers.
- Present the plan to the compensation committee for feedback, adjustments, review, and approval.
- Make a presentation to executive staff managers for approval or change, and incorporate necessary changes.
- Develop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc.
- Make presentations to managers and employees. Implement the program.
- Design and develop detailed systems, procedures, and forms.
- Work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers.
- Have the necessary forms printed.
- Develop and determine format specifications for all reports.
- Execute test runs on the human resources information system.
- Execute the program.
Monitor the program.
- Monitor feedback from managers.
- Make changes where necessary.
- Find flaws or problems in the program and adjust or modify where necessary.
From the above discussion it is felt that and to keep pace with changes in the business environment, the compensation management plan should be properly designed for the benefit of talented and skilled employees to incorporate changes. It should be evolutionary in nature, with mechanisms to synchronise with industry needs. Also, the nodal agency may be designed for the compensatory administration as a non profit organization.
A MACHINE CAN DO THE WORK OF 50 ORDINARY WORKERS, BUT IT CAN NOT DO THE WORK OF ONE EXTRA ORDINARY WORKER.
Dr.R.SRINIVASAN is a Post graduate in commerce and Management. He received his doctoral degree from Alagappa University in 1997. He currently teaches financial management and Research Methodology Subjects in Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ?Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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