Unit 4 Session 3.pptx

Online MBA Semester I Organizational Behaviour and Human Resource Management Course code - (OMBA-103) Unit 4 : Lesson 3 : Organizational behaviour and Human Resource Management Part 1 PART 1: LEARNING OUTCOMES At the end of the session you will know about: 1.The significance of compensation and r...

Online MBA Semester I Organizational Behaviour and Human Resource Management Course code - (OMBA-103) Unit 4 : Lesson 3 : Organizational behaviour and Human Resource Management Part 1 PART 1: LEARNING OUTCOMES At the end of the session you will know about: 1.The significance of compensation and rewards 2.Job evaluation in relation to compensation 3.Determinants of pay levels 4.Total Reward 5.Pay for performance approaches 6.Equity in reward decisions INTRODUCTI •ON Most significant n dynamic of HR practices • Includes decisions regarding incentives n benefits of the reward strategy of the organization • Involves the design, development, implementation, communication, n evaluation of the rewards strategy •Compensation is the sum total of all forms of payments n rewards provided to employees for performing tasks to reach organizational objectives •The remuneration that an employee receives in return for his services to the organization • Key reason why an employee chooses to stay in an organization n not in the other • The major cost of doing a business • Perception of the adequacy of organizational rewards is an important determinant of employee engagement n job satisfaction • Organizations view compensation as a means to reinforce desirable employee behaviour • Suggests an exchange relationship between employee n organization • Economic n Psychological Contract TWO CATEGORIES OF WAGE BASE PAY •Payments calculated on the basis •Employees of number of hours worked SALARY receive consistent payments at the end of a specified period regardless of number of hours worked •For jobs higher in the hierarchy •Organizations have moved towards an all salariedapproach for all categories of employees . The base pay salary must be market-driven to attract and retain high quality personnel. Organizations that operate in uncertain environments and face constant change need employees with high competencies JOB EVALUATION •The process of determining the relative value of a job to assign a wage rate to the job/determine base salary Its purpose: •To ensure that there is pay equity in the organization i.e. the pay levels of jobs reflect their relative worth •Methods of Job Evaluation include a. Ranking b. Point among others Compensation DecisionIdentified Job Making Job Analysis Factors Job Description • Skill • Efforts • Responsibility Evaluation of Jobs Pay Determinants Determinants of Pay Levels •Attitude survey—Reasons why employees work for a company, What motivates them?? •Wage structure to be compatible with the broad objectives, Incentives tied to either quantity or quality Determinants of Pay Internal Levels determinants • Compensation policy of the organization • Employer’s ability to pay • Worth of a job • Employee’s relative worth • Managerial attitudes n styles • Psychological factors • Productivity • • Pay Level s • • • • External determinants Labour market conditions Economic conditions Area wage rates Government controls Cost of living Union influences viz. bargaining power of trade unions Apart from individual differences in education, experience, performance etc. there are two variables that affect the design of an effective compensation package: •PRODUCT MARKET competition places an upper boundary on employee compensation. When an organization launches competitive pay packages, the prices of the products rise, and the organization is at a disadvantage in the product market if its labour costs exceed those of the competitors •LABOUR MARKET competition places a lower boundary on employee compensation. A pay level that is too low relative to competitors would lead to difficulties in attracting and retaining talent The compensation policy should: • Recognize the value or worth of all the jobs in relation to each other within the company • Keep track n take account of wage rates paid by companies of similar size, product or philosophy • Ensure stable earnings • Enable individuals to reach their full earning potential to the extent practicable • Ensure employees’ share in the company’s prosperity as a result of increasing efficiency Objectives of Compensation & Rewards Classification Rewards of •Total Compensation •Financial •(Extrinsic rewards) •Non-financial •(Intrinsic rewards) Components of Financial Compensation •Financial •(Extrinsic rewards) •Direct •Indirect 1. Base Pay • Wage • Salary 2. Variable Pay (Pay-forperformance or Incentives) Bene fits 1. Mandatory 2. Voluntary Mandatory Voluntary Benefits • Paid holidays Benefits • Provident fund • Family-friendly • Gratuity benefits • Maternity leave • Retirement benefits • Health plans etc. • Medical leave To retain high performers, focus on compensation strategies such as performance-based incentives. A competitive salary is only a hygiene factor. Pay-for-Performance Approaches •Types of Pay-for-Performance Approaches •Merit Pay •Variable Pay •Skill-based Pay •Competency-based Pay Compensation Approaches •Traditional Compensation Approach : Job-based Pay dependent on job evaluation •Contemporary Compensation Approach : Skill-based or Competency-based pay where rewards are linked to performance Components of Non-Financial Compensation •Non-Financial •(Intrinsic rewards) •Satisfaction derived from the job •Praise & recognition EQUITY IN DECISIONS REWARD J. Stacy Adams (1963) – Equity Theory – Perceived Fairness • Self • Significant Other 1. Outcome/Inputs = Outcome/Inputs (Equity Perception) 2. Outcome/Inputs < Outcome/Inputs (Under compensation Inequity ) 3. Outcome/Inputs > Outcome/Inputs (Over compensation Inequity ) To restore equity, employees experiencing undercompensation inequity: • Decrease their inputs by reducing effort • Attempt to increase outcomes by seeking a raise in salary • Distort their perceptions by convincing themselves that their O/I ratio is equal to that of the significant other • Attempt to change the inputs &/or outcomes of the significant other • Leave the organization Types of Equity •Internal Equity Employees are paid according to the relative value of their jobs •External Equity Employees are paid comparable to employees performing similar jobs in other organizations •Individual Equity Compensation based on performance appraisal is perceived as fair on comparing with what others in similar jobs within the organization are earning