Module 1 (3rd part)
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This document discusses compensation management and outlines how to devise an effective compensation plan that aligns with a company's business strategy. It covers topics such as linking compensation to business goals, job evaluation, broadbanding salary structures, and challenges in compensation like skill-based pay and maintaining pay secrecy. Examples are provided of companies like GE and Toyota that have implemented broadbanding compensation approaches.
Module 1 (3rd part)
- 2. Learning objectivesCompensation Plan And Business Strategy
- 3. Devising A Compensation Plan
- 4. Broadbanding
- 5. Challenges Of CompensationCOMPENSATION PLAN AND BUSINESS STRATEGYRemuneration plans, like any other HR activity, must become an input to formulating a business strategy. Wage and salary plans must derive from an assessment of what must be paid to attract and retain the right people, what the organisationcan afford, and what will be required to meet the organisation’s strategic goals. Remuneration strategy must jell with corporate strategy.
- 6. Linkage of compensation strategy to business strategy
- 7. Market Wage LevelsCompany A’s Wage LevelMarket Wage LevelCompany B’s Wage LevelWhich company is leading the market?
- 8. Which company is lagging the market?
- 9. What would the wage level line look like for a company that was meeting/matching the market?DEVISING A COMPENSATION PLANAny compensation plan must be understandable, workable and acceptable.The persons responsible for determining a remuneration plan are advised to employ sequential steps as described below:Job DescriptionJob evaluationJob hierarchyPay surveyPricing Jobs
- 10. COMPENSATION MODELJob Description: help determine, define and weigh compensable factors (factors for which an organization is willing to pay--skill, experience, effort and working environment).Job Evaluation: Establish relative worth of jobsJob Hierarchy:--starting from the highest point total to the lowest point totalPay Surveys: prevailing wage and salary rates in the labour market need to be ascertained.Pricing Jobs: Job evaluation worth is matched with the labour-market worth. Two activities need to be performed: (i) establishing the appropriate pay level for each job and (ii)grouping the different pay levels into pay grades.
- 11. BROADBANDINGBroadbanding is defined as a strategy for salary structures that consolidate a large number of pay grades into a few "broad bands." Broad branding simply compresses many traditional salary grades (say 15 to 20 grades) into a few wide salary bands (three or four grades). By having relatively few job grades, this approach tries to play down the value of promotions.
- 12. BROADBANDINGBroadbanding’s basic advantage is that it injects greater flexibility into employee compensation. Broadbanding is especially sensible where firms flatten their hierarchies and organise around self-managing teams. The new, broad salary bands can include both supervisors and subordinates and can also facilitate moving employees slightly up or down along the pay scale without accompanying promotional raises or emotional pay cuts.
- 13. BROADBANDINGGeneral Electric and Toyota are 2 employers who have broadbanded their pay scales. At Toyota, there are only 3 plant job classificatins-Division I includes all production members; Division II includes all general maintenance team members; and Division III includes all tie and dye members. Similarly GE was able to restructure its entire pay plan into just 5 broad compensation bands.
- 14. CHALLENGES OF COMPENSATIONSkill-based pay:Pay Reviews:Pay Secrecy:Comparable worth: Equal pay for equal workEmployee participation:
- 15. CHALLENGES OF COMPENSATIONEliticism versus Egalitarianism: Firms become egalitarian when they place most of their employees under the same remuneration plan. The plan becomes elitist when the organizations establish different remuneration schemes.Below market versus Above market remuneration:Monetary versus non-monetary rewards:
- 16. Infosys TechnologiesInfosys Technologies was voted the best employer in the country in many HR surveys in the recent years. The company is well known for its employee friendly HR practices.Infosys was one of the first companies to offer ESOPs to its employees. The company followed variable compensation structure where the employees’ compensation depended on the performance of the individual, the team and the company.
- 18. “Minds are like parachutes-they only function when open.”Thomas Dewar