Compensation, Incentives

& Benefits
HRM Sessions 17 & 18

The Compensation Ecosystem

People Philosophy

Performance

Compensation
Philosophy
Profits

Processes

To Revise a Few Basics

Area of Satisfaction

Motivators

TwoFactor
Theory

Achievement
Recognition
Responsibility
Work itself
Personal growth

Motivators
influence level
of satisfaction.

Area of Dissatisfaction

Hygiene Factors
Working conditions
Hygiene factors
Pay and security
influence level
Company policies
of dissatisfaction.
Supervisors
Interpersonal
relationships

Compensation System
Direct

Base Pay

Incentive Pay
- Bonus
- Commission
- Profit-sharing
- Stock options

Proportion depends on nature of industry, job

level, and type of job

Compensation System
Indirect
Legally Required

EOBI
Group Life
SESSI
Medical
Union bonus

Optional

Loans
Cars
Fuel allowance
Flexi-time
Family medical
Paid vacations

Elements of Optional depend on nature of

industry, job level and type of job

Components of Annual Pay Process

Job
Evaluations

Comparator
Pool

Job
Matching

Pay
Outcomes
Performance
Appraisals

Policy
Decision

Salary
Surveys

Job Evaluations - Why

Relative value and contribution within the organization

Basis for external benchmarking and data collection

Basis for creating salary scales and benefits by levels

Hay System most well-established and commonly used

Know-How

Problem Solving

Accountability

Comparator Pool - Why

Who do you compare yourself with? Why?

Basis should be competition for talent

Potential for conflicts of interests

Positioning versus comparators: 25th, 50th, 75th percentile?

External equity

Review biannually

Avoid frequent
changes

Job Matching - Why

Matches content, size, and contribution, not titles

Takes into consideration a wide variety of factors

Best done with Data Collection

Keep senior management informed

Internal,
External equity

Involve
department
heads

Go for best fit

Data Gathering
Recommended to use an external consultant

Base pay + Allowances + Bonus + Other cash elements

Benefits

Perquisites

Total
Guaranteed Pay

Total Cash

Total
Compensation

Performance Appraisals
Critical link in reward systems

Clear criteria for Merit and Bonus distribution

Strict deadlines for completion and submission

Employees ranked within their pools

What was
achieved?

How was it
achieved?

Contribution to
company?

Pricing Jobs
All jobs have a value in relation to other jobs/market

Companies chose a position amongst comparator group

Company philosophy to cap salaries at maximum

A Salary Scale is used to determine the Min/Max base pay

Salary Scales overlap and form a progression to the top

Wage Structure
Wage Curve

Base Pay

Maximum Rate

Minimum Rate

Grades/Evaluated Points

Merit Increment Process

How soon would your wage bill double if you increased pay
by 10% every year?
Resources are limited; how do you distribute?

Merit increments are linked to the Appraisal Process

Some companies combine Merit with Inflation/COLA

The Infamous Bell Curve

Equity and Workplace Outcomes

Internal Equity

External Equity

Motivation

Perceptions of
Fairness

Individual Equity

Commitment

Performance
Strategic question: What
is your positioning
amongst comparators?

Incentives
Variable Pay or
Pay-at-Risk or
Performance Bonus

Pay-related

Percentage of salary that

is subject to individual
and company
performance
Greater risk at higher
levels due to greater
impact on results

Allowances
Position-related

Allowances

Usually fixed as
reimbursements

Usually market-driven

Benefits
Legally Required

Vacation/Sick
Retirement
Group Life
SESSI
Medical
Union bonus

Optional

Loans
Cars
Fuel allowance
Flexi-time
Family medical
Paid vacations

Elements of Optional depend on nature of

industry, job level and type of job

Retirement Benefits
Provident Fund: matching contributions
Gratuity: Defined Benefit paid at end of service
Pension: may be Defined Benefit or D Contribution

Various conditions exist around eligibility/vesting

Medical: some companies provide

Current Trends
Concept of lifetime employment has disappeared
Monetize benefits to reduce admin costs
New hires want cash not long-term benefits
Funding long-term benefits is a huge liability
Challenge: how to stay competitive and low-cost

Some Market Practices

Job-related or Perquisite Cars
Fuel or Transport Allowance
Vehicle, Personal or Housing-Assistance Loans
Medical and Hospitalization
Stock Options