HRM Compensation

Topic: Compensation

Submitted By:
Syeda Zunairah Bukhari (10-Arid-1942)

Sir: Abdul Latif Barani Institute of Information technology
PMAS-Arid Agriculture University Rawalpindi.

Definition:
Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Compensation is based on: market research about the worth of similar jobs in the marketplace, employee contributions and accomplishments, the availability of employees with like skills in the marketplace, the desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship, and The profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation. Compensation also includes payments such as bounces, profit sharing, over time pay, recognition rewards and checks, and sales commission. Compensation can also include non-monetary perks such as a company-paid car, stock options in certain instances, company-paid housing, and other non-monetary, but taxable, income items.

ADVANTAGES OF COMPENSATION & BENEFITS
A well designed compensation and benefits plan helps to attract, motivate and retain talent in your firm (which is myWear). A well designed compensation & benefits plan will benefit your boutique in the following ways. 1. Job satisfaction: Your employees would be happy with their jobs and would love to work for you if they get fair rewards in exchange of their services. 2. Motivation: We all have different kinds of needs. Some of us want money so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way. 3. Low Absenteeism: Why would anyone want to skip the day and watch not-so-favorite TV program at home, if they enjoy the office environment and are happy with their salaries and get what they need and want? 4. Low Turnover: Would your employees want to work for any other boutique if you offer them fair rewards. Rewards which they thought they deserved? Advantage to Your Employees:
1. Peace of Mind: your offering of several types of insurances to your workers relieves them from certain fears. Your workers as a result now work with relaxed mind. 2. Increases self-confidence: Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in them and in their abilities if they receive just rewards. As a result, their performance level shoot up. Types of Compensation:

This includes:
Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals Indirect financial compensation including all financial rewards that are not included in direct compensation and understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions Examples of Financial vs Non-Financial Compensation

Compensation can also be categorized as:

Base Compensation
Variable Compensation
Supplementary Compensation
Base Compensation and Benefits
Base Compensation is one type of Compensation. It refers to the basic salaries and wages given to he employees. It is normally constant at a given amount irrespective of the difference in work performance. Factors influencing Base Compensation and Benefits
One factor that influences Base Compensation is demand and supply of labor in the market. Labor union pressure is also another factor influencing Base Compensation. This is because unions always try their best to fight for their members’ rights. Nature of job as determined by the job description, each employee deserves a different compensation package. Size of the organization and its ability to pay its employees. Product market compensation is yet another factor influencing Base Compensation. Psychological and social factors like employee satisfaction and security. Salaries paid by similar firms are also a factor affecting Base Compensation. Government policies on wage determination
Cost of living of the employees. When the employees’ cost of living is very high then they need a higher compensation benefit. Increase in productivity of labor
Firms in general; whether competing firms or not.
Variable Compensation and Benefits
This type of compensation as by its name is variable. It means that one gets compensation as per the work done. If one does a remarkable job then he or she deserves a higher compensation package than one whose work is of poor quality. Supplementary Compensation and Benefits
Supplementary Compensation is compensation given by an employer when he or she wishes to. It is not compulsory or a routine once one is given the compensation that one will be awarded another time. In this type of Compensation the employer has a right to add, deduct or even withdraw the benefits when he or she wishes to.

Compensation Administration
The Compensation Administration Department is charged with the task of developing and maintaining a comprehensive compensation and classification system in order to support the mission of the Division of Human Resources.

The Compensation Administration Department’s responsibilities include: Developing compensation programs, policies, and procedures to meet the needs of the University administrators as they attract, retain, motivate, develop, and organize their diverse workforce. Ensuring compliance with federal and state compensation laws, statutes, and regulations, Balancing the need for internal equity while recognizing the desire to be market competitive. Evaluating positions consistently and classifying them into appropriate job titles ensuring that they are internally equitable, while recognizing the need to be market competitive. Developing and maintaining the classification and compensation structures. Some of the services provided by the Compensation Administration Department include: Providing compensation related information, tools and training to HR Liaisons and University Administrators. Conducting salary surveys and gathering market data to assist University Administrators in making informed salary decisions. Advising HR Liaisons and University Administrators in compensation matters; including establishment of new positions, promotions, transfers, demotions, reorganizations and salary increases. Providing current position descriptions to administrative and staff employees. Providing departments with Organizational Charts.
Assisting in departmental re-organizations.

Job Evaluation Process

This process refers to all components of the university's formal pay program. The staff employee's pay at Case results from the following: A. How are jobs evaluated?
The job evaluation process established the relative value of jobs throughout the university. There are two steps involved in this process: 1. Job Analysis and Job Description - Using a "job profile," the content of each job is analyzed to identify key duties, responsibilities, and qualification necessary to perform the job. Written job descriptions are then prepared to contain this information. 2. Job Evaluation - A computer assisted job evaluation plan, measuring 17 dimensions of nonexempt work and 28 dimensions of exempt work, is used to evaluate the relative worth of staff positions. This evaluation process focuses on valuing the content of each position in terms of a series of well-defined compensable factors.

The factors for clerical, service, technical, and administrative support positions include: a. Knowledge: Minimum required level of specialized training, education, and previous related work experience. b. Skill: The manual and physical skills required to perform the duties of the position. c. Work Complexity: The degree and amount of judgment, initiative and ingenuity involved in accomplishing work. d. Contact with Others: The extent to which the work entails dealing with others in the course of one's regular duties, including the frequency and nature of contacts and the likely results of such contacts. e. Property Protection and Use: The extent to which the position has responsibility for university property, including funds, vehicles and confidential information. f. Work Leadership: The responsibility for directing, instructing and training personnel; and for planning controlling and assigning work. g. Working Environment: The physical conditions encountered during a typical work day. Conditions such as heat, cold, dirt, fumes, hazards, etc. are considered. h. Student Relations: The responsibility for dealing with students, including the nature and frequency of contacts. The factors for professional, administrative, and managerial positions include responsibility for: i. Programs, Projects or Operations: The level in the organization, scope of activities performed, parameters of authority, complexity or nature of responsibilities, and the minimum credentials required to perform the job upon hire. j. Supervision: The number and variety of employees supervised. k. Employee Relations: Promoting and maintaining satisfactory human relations, morale and effectiveness or subordinates. l. External Contacts: Personally dealing with individuals or organizations outside the university. m. Internal Contacts: Personally dealing with individuals within the university, but outside the direct line of authority of the position, to coordinate activities and task accomplishment. n. Investigation or Fact Finding: Activities undertaken to identify facts, and develop ideas, designs or processes. o. Scheduling, Planning and Forecasting: The complexity, variety and nature of the activities involved in determining and carrying out plans and reports. p. Establishing Objectives, Policies, Standards, Procedures, and Practices: The degree of authority to establish standards, and the scope, nature and complexity or these standards. q. Effects of Decisions: Making decisions and commitments which impact the university's resources. r. Student Relations: Personally dealing with students from routine exchanges of information to more complex activities such as counseling. At the conclusion of the job evaluation process, the compensable factors are weighted. A numerical total is then derived and each position is assigned a salary grade which has a salary range A salary range consists of a: MINIMUM:
The lowest wage paid to a new employee with limited or no experience in this specific position. MIDPOINT:
The "market" (or average) wage paid to one who is fully qualified. MAXIMUM:
The highest wage paid for jobs in the salary grade.

Each salary range has different jobs, e.g. Clerk and Grounds Worker, because they have the same relative value as determined by job evaluation. Salary ranges (link to lastest Salary Structures for Staff) intentionally overlap from one grade to another. Fully qualified incumbents in a lower salary grade may be at the high end of their salary range, while the salary of a less experienced employee in a higher salary grade may be near the minimum of the range. It is thus possible that the salary of an experienced incumbent in a lower rated position will be the same as or more than the salary of an inexperienced incumbent in a higher rates position.

B. How do we establish competitive salaries?
Salary surveys are conducted annually and analyzed to establish and maintain competitive pay levels with all the markets in which the university competes and recruits, as summarized in the following exhibit. SURVEY SOURCES
Employee Group
Market
Salary Surveys
A. Exempt

1. Department Head and Above
National
Customized surveys with data form selected private research universities

2. Below Department Head
Regional
Customized surveys with data from selected private research universities

3. Entry Level
Local
Local surveys for service employees and salary data from the College Placement Association B. Nonexempt

All Jobs
Local
Local surveys of selected manufacturing and service employers (banks, insurance, health care, etc.) Specialized surveys as needed for specific jobs, e.g. plumbers, radiation technicians, etc. This market data is correlated with the job evaluation results and salary ranges are established. These ranges are then periodically reviewed and adjusted to reflect changes in the marketplace. C. How are salaries determined?
Starting salaries of new hires are normally placed within the first quartile of the salary range but occasionally may go up to the range midpoint to accommodate special recruiting needs. Salary progression in the range occurs over time, based on the salary budget and employee performance. Subsequent to employment, salaries normally change as a result of a promotion, an annual merit increase or an adjustment to maintain equity.

Executive compensation
Executive compensation (also executive pay), is composed of the financial compensation and other non-financial awards received by an executive of a firm. It is typically a mixture of salary, bonuses, shares of and/or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance. The three decades starting with the 1980s, saw a dramatic rise in executive pay relative to that of an average worker's wage in the United States,and to a lesser extent in a number of other countries. Observers differ as to whether this rise is a natural and beneficial result of competition for scarce business talent that can add greatly to stockholder value in large companies, or a socially harmful phenomenon brought about by social and political changes that have given executives greater control over their own pay. Executive pay is an important part of corporate governance, and is often determined by a company's board of directors.

Executive compensation is not only a consideration close to the pocket book of CFOs but also a topic of increasing importance to managements and boards. As major economies show signs of recovering from the 2008 recession, compensation can become more decisive to retaining and motivating critical senior executive talent. But, executive compensation also continues to be scrutinized by major investors, proxy advisory firms and increasingly regulators – given the losses incurred by shareholders over the last couple of years. Thus, companies will have to critically review their existing compensation plans and how they adapt these plans for a changing economy. CFOs can play a critical role in framing the financial impacts of compensation plans and influencing the public perception of these plans. This CFO Insights article lays forth some critical considerations for CFOs. Executive Compensation: Components and Trends
Executive compensation generally consists of a mix of four components: Annual base salary
Annual incentive or bonus plan generally tied to short-term performance measures Long-term incentives consisting of a mix of restricted stock, stock options and other long-term performance plans tied to total shareholder return or financial performance Benefits plan.

Compensation and The Role Of CFO
With the changes in the environment around the structure of executive compensation, companies are likely to adopt much more transparent compensation processes. We expect CFOs may play a more active role in implementing these processes, especially in four critical areas: 1. Pay for performance: CFOs can help shape pay for performance structures by getting to know shareholders’ expectations through their interactions with analysts and major investors. This helps ensure that the company’s performance metrics reflect those expectations when shaping short- and long-term compensation plans. CFOs are also instrumental in shaping business-unit compensation and ensuring unit-level performance metrics are rigorously set and support the achievement of overall company financial metrics. 2. Financial discipline: It’s important for CFOs to focus on what is affordable, albeit striking a balance with what is competitive. CFOs, even while struggling with the budget and trying to project out earnings for the next two or three years, should establish acceptable limits on compensation in terms of its dilutive effect on earnings. At the business unit level, CFOs can also establish better financial discipline and controls. They are especially capable of identifying how units may structure budgets that coax the best possible performance out of business unit leaders. 3. Risk and internal controls: As executive compensation plans are key to attracting, retaining and motivating talent, CFOs should establish a rigorous process to understand how incentives influence employee behavior, how those behaviors aggravate risk and what steps or controls should be put in place to minimize the risk. Some examples include proper selection of incentive metrics, stress testing potential payouts under various performance scenarios and implementing additional internal controls, as needed to minimize the risky behavior. 4. Bridging the information gap: Aside from managing risk, CFOs could spend considerable time with both the audit and compensation committees to bridge the potential knowledge gap on compensation and financial performance. One example is how to best treat unusual or non-recurring items when calculating incentives. The audit committee is likely to have an in-depth understanding of these items, whereas the compensation committee more fully understands the impact such adjustments may have on incentive plans. The CFO can help link the two committees in helping decide which adjustments, if any, should be made for incentive plan purposes.