Compensation and reward management

Compensation management is a strategic matter. Compensation would include rewards when you offer monetary payment such as incentives, various bonuses and performance bonus. Organisations reward their staff when they attain the goals or targets that they have jointly set with the employees. Rewards can be non-monetary such as a paid vacation for two. When we mention about compensation, we would refer to a salary scale for different levels. Generally, we would classify the salary scale into non-executive, executive and managerial before the salary range is established. Next, you may ask whether compensation is a hygiene factor or a motivational factor. We would consider it a hygiene factor when the salary paid out on the monthly basis is fixed. Here is where you want to compare or evaluate to determine whether you are paying competitive rates. Thus you may want to participate in an established salary survey, which may produce vital information pertaining to reward matters. This is the cash remuneration component. The other component is the benefit. Benefit management is another aspect of compensation. For the compensation to be considered as motivational factor, it needs to be variable. It varies proportional to the result, target or goals that are mutually established. This payment is usually termed as incentive. Thats why you would hear the term incentivise your employees to raise productivity. Incentives become a variable cost to your business or operations cost and it varies directly to your operations output or your service level. Your business would be able to absorb such variable cost as it is not a fixed manpower cost. Thus we consider compensation as a strategic matter. You need to design and develop compensation & reward system to attract the right people for the right job. Next you would need to implement the system effectively so that it ensures retention. Last but not least, is for talent managing. Compensation is one of the techniques for talent attraction and retention. However, you still need other talent management tools such as to measure or talent mapping for high potential, high professional & technical employees. You would also develop your compensation to motivate employees as team player, creative people and productive workforce. Likewise you need to design and develop the rewards based on the profile of your employees and the nature of work. Rewards need to be significant and meaningful to the recipients. An example is the recipient has a choice to choose from a range of rewards. This would make them feel the reward is personalised to them as they produce their effort to achieve the goals. An example of a recent

reward item is the iPhone or even the iPad, as these items catches current attention. Does everyone like to own one? You have the answer. How do you get started? To begin, you need to determine whether you are paying a premium to get the top performers or at 60 percentile or 50 percentile salary rate. This would depend on the numbers of employees and the affordable manpower rate in relations to your business cost. Next, you need to do the job analysis, job description prior to do job evaluation. Some companies do job re-design after the job analysis or using technology to upgrade the work process resulting the change in job description. From the job analysis and job description, you will determine (1) Skill-based compensation; or (2) Competency-based compensation, or (3) Time-based compensation. Most companies will like to opt for pay for performance. Nonetheless, these companies used the time-based and also inflation / cost of living as an indicator for salary increment. They have recently shifted from annual increment to performance increment. Performance indicators would be the performance of the business (profit or cost determinant), performance of the department and finally assessment of performance of individuals. Salary range minimum and maximum After you have completed the job evaluation, you would have to determine the salary range for each class and grade. What would you do when you note that some employees have hit the maximum of the salary range? You can either treat the performance increment multiply by 12 months and pay out quarterly or half yearly or be the monthly performance allowance per month valid for 12 months. This would be a catalyst to help your employees be motivated and retain experience workforce. Next you can upgrade them by encouraging them to take up learning initiatives under Workfare package, Work Skills Qualification (WSQ) and rewarding them upon achieving the statement of attainment. You need to get them to go back to a learning mode to acquire new skills or enhanced skills. Communication of the achievement is the recognition of their learning and effort. With the newly acquired skills, they shall be assigned to take up expanded roles and thus move up the salary grade. You shall review your salary range every two-years to stay competitive.

When you initiate the learning journey for those who reach the maximum, you may create additional grade to bridge the knowledge gap. At the same time review the job description to see whether you can download some of the higher job grades to bridge the skills gap. By Charles Wong, Associate Trainer, HRmatters21

Compensation Management is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and sales commission. Compensation can also include non-monetary perks such as a company-paid car, company-paid housing and stock options. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Importance of Compensation Management

It tries to give proper return to the workers for their contributions to the organization. It imparts a positive control on the efficiency of employees and encourages them to perform better and achieve the specific standards. It forms a basis of happiness and satisfaction for the workforce that minimizes the labour turnover and confers a stable organization. It augments the job evaluation process which in turn helps in setting up the more realistic and achievable standards. It is designed to comply with the various labour acts and therefore does not result in disputes between the employee union and the management. This builds up a peaceful relationship between the employer and the employees. It arouses an environment of morale, efficiency and cooperation among the workers and provides satisfaction to the workers. It stimulates the employees to perform better and show their excellence. Itprovides growth and advancement opportunities to the deserving employees.

Types of Compensations

Direct Compensation is typically made up of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. Direct compensation that is in line with industry standards provides employees with the assurance that they are getting paid fairly. This helps the employer avoid the costly loss of trained staff to a competitor. Indirect Compensation focuses on the personal motivations of each person to work. Although salary is important, people are most productive in jobs where they share the company's values and priorities. These benefits can include things like free staff development courses, subsidized day care, the opportunity for promotion or transfer within the company, public recognition, the ability to effect change in the workplace, and service to others.

Components of Compensation

Wages and Salary: Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the number of hours put in by an employee. These are subject to annual increments. Allowances: Several allowances are paid in addition to basic pay. Some of these allowance are given below: o Dearness Allowance: This allowance is given to protect real income against inflation. Generally, dearness allowance (DA) is paid as a percentage of basic pay. o House Rent Allowance: Employers who do not provide living accommodation pay house rent allowance (HRA) to employees. This allowance is calculated as a percentage of basic pay. o City Compensatory Allowance: This allowance is paid generally to employees in metros and other big cities where cost of living is comparatively high. City compensatory allowance (CCA) is generally a fixed amount per month (30 per cent of basic pay in case of government employees). o Transport Allowance/Conveyance Allowance: Some employers pay transport allowance (TA) to their employees. A fixed sum is paid every month to cover a part of traveling charges Incentives: Incentive compensation is performance-linked remuneration paid with a view to inspire employees to work hard and do better. Both individual

incentives and group incentives are used. Bonus, profit-sharing, commissions on sales are some examples of incentive compensation Fringe Benefits/Perquisites: These include employee benefits such as provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform, recreation and the likes.

Conclusion
In recent years a great deal of attention has been directed to the development of compensation systems that go beyond just money. In particular there has been a marked increase in the use of pay-for-performance (PrP) for management and professional employees, especially for executive management and senior managers. Compensation is a primary motivation for most employees. People look for jobs that not only suit their creativity and talents, but compensate them both in terms of salary and other benefits accordingly. Adequate rewards and compensations help in attracting a quality workforce, maintaining the satisfaction of existing employees, keeping quality employees from leaving and motivating them for higher productivity.