Introduction to Strategic Compensation Management Part II

1. Introduction to Strategic
Compensation Management: Part II
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor

2. WAGE PLANS
• TIME WAGE PLAN
• PIECE WAGE PLAN
• BALANCED WAGE PLAN
• SKILL BASED PAY
• COMPETENCY BASED PAY
• BROADBANDING
• VARIABLE PAY

3. WAGE PLANS
• Time Wage Plan – paid based on time
worked: hourly, daily, weekly, monthly
• Jobs for which output within specified
period not measurable
• Piece Wage Plan - paid wages based on
number of units produced or completion
of a job
• Balanced Wage Plan – paid based on
combination of time wage & piece wage

4. Merits of Time Wage
• Easy to understand and calculate wages
• Illiterate worker can understand it
• Employers and workers know in advance
wages payable and adjust budgets
• Payment made regularly specific wages,
beneficial from social point of view
• Product/service quality high, workers
not in hurry to produce more

5. Demerits of Time Wage
• Workers not motivated for higher performance -
generate inefficiency
• Performance and wages not linked, employee take
it easy
• Efficient and inefficient workers not
differentiated; inefficiency percolates
• De-motivates efficient workers for putting at
par with inefficient ones.
• Production labour cost difficult to determine
• Productivity not criteria for fixing wages, wrong
employees placed on job

6. Time Wage Plan Environment
• Output cannot be measured precisely
• Individual employees not have direct control on
outputs
• Quality of work more pronounced needing
creative imagination
• Machine, materials sophisticated requiring
handling with utmost care
• Work highly varied, and standard outputs
cannot be ascertained
• Supervision good and fair day's work can be
estimated

8. Merits of Piece Wage
• Output and wages linked, acts as
motivating factor to produce more.
• Differentiates efficient and inefficient
workers, provides incentives to become
more efficient
• Fair and equitable for utilization of HR
• Requires less supervision for in-built
quality control in product.
• Cost of production can be estimated in
advance.

9. Demerits of Piece Wage
• Fixing piece rate difficult if no
standardized procedure
• Employer tries to cut piece rate if
workers' earnings very high
• Minimum wages not assured where
factors beyond control of worker
• Quality & machine conditions suffers
as workers concentrate on quantity
• Jealousy and interpersonal conflict
among workers for uneven earnings

10. Piece Wage Plan Environment
worker can be
• Output of individual
measured precisely.
• Quantity of output result of skills
and efforts
• Flow of work regular and no work
interruptions
• Production methods standardized, job
repetitive.
• Workmanship not required

11. Merits of Balanced Wage
• Worker is guaranteed for fixed wage
and also provision for piece wage
• Worker produces more quantity,
earns more than time wage
• Given credit for additional output to
compensate for short falls in future
• Provides a sense of security
• Motivate worker to produce more

12. Competency Based Pay
• Competency-based pay
– Where the company pays for the
employee’s range, depth, and types of
skills and knowledge, rather than for the
job title he or she holds.
• Competencies
– Demonstrable characteristics of a
person, including knowledge, skills, and
behaviors, that enable performance.

13. Broad banding
– Consolidating salary grades and ranges
into just a few wide levels or “bands,”
each of which contains a relatively wide
range of jobs and salary levels.
• Wide bands provide for more flexibility in
assigning workers to different job grades.
• Lack of permanence in job responsibilities
can be unsettling to new employees.

14. Variable Pay
Tying pay to some
measure of individual,
group, or
organizational
performance.

15. Factors Affecting Wages
• Demand for and supply of labour -
short supply increases wages, more
supply decreases wages
• Labour unions - strong trade unions
can demand higher rates of wages,
un-organised workers get low wages
• Cost of living - strong influence on
rate of wages

16. Factors Affecting Wages (Contd)
• Prevailing wage rates - Prevailing wages
taken into account for deciding wage
• Ability to pay - ability of company to pay
• Job requirements – Jobs with specialized
knowledge or skill are priced higher
• State regulation - State regulates wage
rates of labourers
• Increment system - wages increase
annually at a prescribed rate

17. Types of Incentive Plans
INDIVIDUAL GROUP ENTERPRISE
Piecework Team Plan Profit sharing
Standard hour Gain sharing Stock options
Bonuses
Merit pay
Sales incentives

18. Conditions for Success of Individual
Based Plans
• When the contributions of individual
employees can be accurately isolated.
• When the job demands autonomy.
• When cooperation is less critical to
successful performance or when
competition is to be encouraged.

19. Conditions for Success of Team
Based Plans
• When work tasks are so intertwined that it
is difficult to single out who did what.
• When the firm’s structure and systems
facilitate the implementation of team-
based incentives.
• When the objective is to foster
entrepreneurship in self-managed work
groups.

20. Conditions Favoring Gain sharing
Plans
• Gain sharing is most appropriate in situations
where the demand for the firm’s product or
service is relatively stable.
• If a firm has multiple plants with varying
levels of efficiency, the plan must take this
variance into account so that efficient plants
are not penalized and inefficient plants
rewarded.
• Less likely to work well when technology
limits improvements in efficiency.

21. Conditions Favoring Profit sharing
Plans
• Most attractive to firms facing highly cyclical
ups and downs in the demand for their product.
• When used in conjunction with other
incentives, corporate wide programs can
promote greater commitment to the
organization by creating common goals and a
sense of partnership among managers and
workers.

22. Pay for Performance: The Challenges
• “Do Only What You Get Paid For”
Syndrome
• Negative Effects on the Spirit of
Cooperation
• Difficulties in Measuring Performance
• The Credibility Gap
• Job Dissatisfaction and Stress
• Potential Reduction of Intrinsic Drives

23. Meeting Challenges of Pay for
Performance Systems
• Link Pay and Performance
Appropriately
• Use Pay for Performance as Part of a
Broader HRM System
• Build Employee Trust
• Use Multiple Layers of Rewards
• Increase Employee Involvement
• Use Motivation and Nonfinancial
Incentives

25. FEATURES OF FRINGE BENEFITS
• An employee enjoys them in addition to the
salary he/she receives.
• They are not given for specific jobs performed
but to make jobs more attractive.
• They are not linked to productivity so do not
reward performance in any way, criteria used is
other than performance.
• They have an indirect impact on workers’
efficiency. If impact is direct, it is not a fringe
benefit.

26. Types of Fringe Benefits
• Pay for time not worked
• Employee security
• Safety and health
• Welfare and recreation
• Old age and retirement

27. Flexible Benefits Plans
• Benefit plans that enable individual
employees to choose the benefits
that are best suited to their
particular needs

28. Flexible Benefit Plans
• Advantages
– more appreciation of benefits
offered
– better match between benefits and
employee preference
• Disadvantages
– increased design and administrative
costs

30. Thank you