Subject : Human Resource Management
Course code: 22MBADSE203
Semester - I
Module 4
Employee Rewards
Contents
Module – 4 – Employee Rewards
9 Hours
Employee Rewards -meaning, concepts and definitions,
Objectives of giving compensation to employees, Components
of remuneration, types of employee benefits*, financial and
non-financial benefits, factors affecting wage and salary, salary
components, employee welfare, safety issues in organizations.
Course Objective
Propose an appropriate employee reward system in
organizations.
Relevant Information
LinkedIn Learning –
1. Compensation and Benefits (Basic)
[Link]
urces-compensation-and-benefits/welcome?aut
oplay=true&u=92695330
2. Design an Effective Pay Strategy (Advanced)
[Link]
urces-pay-strategy-2020/design-an-effective-pay
-strategy?autoplay=true&u=92695330
Relevant Information
• Case Study 1 – Wageman’s Food Markets, Page 353, HRM By
Gary Dessler- 15th Ed.
https
://[Link]/wp-content/uploads/2020/08/Human-Resource
-[Link]
• Case Study 2: Compensating Expatriate Employees
Other Relevant Information
• [Link]
[Link]
• [Link]
• [Link]
• Video on Employee rewards - [Link]
• Working paper series on understanding compensation
[Link]
• Video on work place safety : [Link]
• [Link]
hek-majumdar
/
Interview Questions
• How does the company recognize outstanding accomplishment of its employee?
• What type of rewards motivate the maximum to employees?
Discussion Case
Discussion Case
If Wegmans does so well with a high-pay policy, why don’t more
employers do this as well?
Page no – HRM by Gary Dessler page no 353
Employee Compensation/ Remuneration
• Employee Compensation refers to all forms of pay or rewards going
to employees and arising form their employment. It has two main
components: direct financial payments (wages, salaries, incentives,
commissions and bonuses) and indirect payments (financial benefits
like employer- paid insurance and vacations).
• Remuneration leads to employee motivation
• Salary constitutes an important source of income for employees and
determine their standard of living
• Salaries affect the employees productivity and work performance
Working paper series on understanding compensation
[Link]
Methods of Employee Remuneration
* Time Rate Method: Remuneration is directly linked with the time
spent or devoted by an employee on the job
* Piece Rate Method: Remuneration is paid on the basis of units or
pieces produced by an employee. In this system emphasis is more
on quantity output rather than quality output
Components of Remuneration
An average employee in the Wages and salary
organized sector is entitled to Incentives
several benefits Fringe benefits
Both financial as well as non- Perquisites
financial Non-monetary benefits
Typical remuneration of an
employee comprises
[Link]
p-structure-components-abhishek-majumdar/
• CTC = Gross Salary + PF + Gratuity
• Gross Salary = Basic Salary + HRA + Other
Allowances
• Net Salary or Take- Home salary= Basic Salary
+ HRA + Allowances - Income Tax - Employer's
Provident Fund - Professional Tax
• Basic Salary- It is the taxable base income and generally not more than
40% of CTC. Basic salary forms the basis of salary structure. Most of the
components may be defined as percentage of basic salary. It depends on
the employee’s designation and also the industry in which the employee
works.
• House Rent Allowance -The HRA constitutes 40 to 50% of the basic salary.
• Special Allowances- Makes up for the remainder part of the salary, mostly
smaller than the basic salary and completely taxable.
• Leave Travel Allowance (LTA)-The non- taxable amount paid by the
employer to the employee for vacation/trips with family.
• Gratuity - It is basically a lump sum amount paid by the employer when
the employee resigns from the organization or retires
• Provident Fund- Fund collected during emergency or old age. 12% of the
basic salary (contributed by both the employee and employer) is
automatically deducted and goes to the employee provident fund.
• Medical Allowance- The employer pays the employee for the medical
expenditures incurred. It is tax free up to Rs.15,000.
• Bonus- Taxable part of the CTC, usually a once a year lump sum amount,
given to the employee based on the individual’s as well as the
organizational performance for the year.
• Employee Stock Options- ESOPS are Free/discounted shares given by the
company to the employees. Done to primarily increase employee
retention.
Sample Salary Slip
Meaning of Employee Rewards
• Reward is an incentive plan to reinforce the
desirable behavior of workers or employers and
in return for their service to the organization.
• Rewards can be monetary in the form of salary
or non monetary in the form of awards for
some special services to the company or simply
giving an employee a work which he enjoys
doing.
Objectives of Employee Rewards
• To recruit & retain qualified employees
• To increase or maintain morale
• To determine basic wage & salary
• To reward for job performance
Importance of Employee Rewards
An organization incorporates reward management strategies for
• Motivating employees [Link]
e-rewards-and-recognition-ideas/
• Supporting the organization’s strategy
• Ensuring internal & external equity
• Recruiting & retaining
• Strengthening psychological contract
• Ensuring financial sustainability
• Complying with legislation
• Channelizing efficient and productive administration
Elements of Total Rewards
• Compensation (fix-pay, variable pay and short-term incentive
pay)
• Benefits (Social insurance, group insurance, pay for time not
worked)
• Work-Life (paid and unpaid time off, health and well-being,
caring for dependents, financial support)
• Performance and Recognition
• Development and Career Opportunities
• Key elements of Amazon’s compensation philosophy:
– They always give employees fair compensation according to their role, level,
and situation
– Amazon likes to think “big picture”. Employees are considered part-owners of
the company and they want them to think about what their total
compensation is projected to be at the end of 4 years
– They don’t want to lose out on hiring a great talent because of money
– Most hiring managers or recruiters are trained to start base salaries at the
middle of the range for a candidate’s role and level
How employers establish Pay Rates?
• Conduct a salary survey (to price benchmark jobs and help ensure
external equity)- [Link], Leetcode, LinkedIn, Glassdoor, PayScale are
examples of sites that provide such information
• Determine the worth of job in the organization through job evaluation
(ensures internal equity)
• Group similarly paid jobs into pay grades
• Price each pay grade by using wage curves
• Develop rate changes
Compa Ratio/ Compensation Ratio
• Compa ratio (or comp ratio, or compensation ratio) is a simple formula
designed to compare an individual’s actual salary to the midpoint of a
defined salary range.
• Compa Ratio = Actual Rate of Pay / Reference Point of Pay,
where the actual rate of pay can be an individual, a group, or an entire
workforce, and the reference point of pay is:
– the midpoint of a defined salary range,
– the average market rate or market midpoint, or
– an average of a group of actual pay rates.
• If an employee has a compa-ratio of 100%, they would be considered right
“at market.” But if the compa-ratio is in the 50th percentile, you would be
more at risk of losing key players or not being competitive within your
industry.
• Calculate the Compa Ratio, if an employee’s salary is
$47,200, and the midpoint of the salary range is
$52,000.
• Compa Ratio= Actual Rate of Pay / Reference Point of
Pay
• = 47,200 / 52,000 = 0.908 = 90.8%
Trends in Compensation
• Competency and Skills Based Pay- Competency-based pay is a
pay structure that compensates employees based on their skill set,
knowledge, and experience rather than their job title or position. A
competency-based pay plan encourages employees to reach the pay
rate that they want by taking charge of improving their skills and work.
• Broadbanding- Broadbanding is a method for evaluation and
construction of job grading structure that exchanges a large number of
narrow salary ranges for a smaller number of broader salary ranges.
Broadbanding aids in establishing what is required to pay for a specific
position.
Types of Employee Rewards
• Extrinsic
• Intrinsic
• Financial
• Non-financial
• Performance based
• Membership based
Shrivastava S., Kapoor S. (2019)
Direct & Indirect
• Direct Compensation - Base Pay, Bonus , Long term incentives, Perks
or perquisites
• Indirect Compensation – Insurance , Leave & holiday, Clothes,
Company parties, Phones/laptop, Retirement benefits
Video on Employee rewards
[Link]
Employee Benefits
•Provision of benefits and services are important in maintaining
the employees
• Purpose of such benefits is to retain people in the organization
and stimulate them to greater effort and higher performance
• They foster loyalty and act as a security base for the employee
• [Link]
• [Link]
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• [Link]
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employees
.
Why do you think most employers opt for the home-based salary plan?
Fringe benefits
•Benefits that the employee receives in addition to direct remuneration
•Fringes embrace a broad range of benefits and services that employees
receive as part of their total package
•Benefits and services however are indirect compensation because they are
usually extended as a condition of employment and are not directly related
to performance
• Fringe benefits are also called welfare expenses, wage supplements sub
wages or social charges, etc
Need for Employee Benefits
Employee demand: To meet rising prices and increased cost of living
employees demand various types of benefits Example: Variable dearness
allowance, Enhanced HRA
Trade union demands: The growth and strength of trade unions has
substantial influence on the benefits and services a company offers
Employer’s preferences: Employers prefer to give benefits to employees
as it enhances employee’s morale and works as an effective motivational
tool provided it is within the accepted norms and limits
Factors affecting wages & salary
•Main objective is to have a scientific, rational and balanced wage
& salary structure
• In salary administration, the employer should not feel employees
are getting more money than they deserve and employees should
not feel they getting lower money than they deserve
• Wage and salary administration includes allowances, leave
facilities, housing, travel, etc. and non-cost rewards such as
recognition, privileges and symbols of status
Wages
Minimum wage : Compulsory wage paid to employees irrespective of the
financial status of the organization. It should be calculated based on the
minimum food requirements, cloth requirements, rent to live in a particular
area, standard of a working class family and fuel, lighting and other needs
Fair wage : Wage above minimum and below living wage. It is decided
based on productivity of labor, prevailing rates of wages, level of national
income and the capacity of employer to pay
Living wage : It provides basic needs of life. It should meet medical,
education and retirement needs and it is paid according to the efficiency of
worker
Factors Determining wages
• Wage policy of the company
• Job needs
• Ability to pay
• Cost of living
• Prevailing wage rates
• Unions
• State regulations
• Demand and supply of labor
• Economic conditions of the nation
Definition of Employee welfare
• Employee welfare refers to the effort taken by the
management to make life worth living for workmen
• According to Todd “employee welfare means
anything done for the comfort and improvement,
intellectual or social, of the employees over and
above the wages paid which is not a necessity of the
industry
Agencies of Employee Welfare
•Central government - has made elaborate provisions for the health,
safety and welfare as legally enforceable
•State government - Government in different states and Union
Territories provide welfare facilities to workers
•Employers - looked upon welfare work as fruitless and barren though
some of them indeed had done pioneering work
• Trade unions - have influenced the Govt & Management to provide
sound welfare measures
Types of Employee Welfare
•Intramural - These are provided within the organization like
Canteen, Rest rooms, Crèches, Uniform etc.
• Extramural - These are provided outside the organization like
Housing, Education, Child welfare, Leave travel facilities, Interest
free loans, Workers cooperative stores, Vocational guidance etc.
Source -Havelock (1973)
[Link]
Types of Employee Welfare
• Statutory welfare work –
• Voluntary welfare work –
Different ways of Social Security Provision in India
• Social Insurance- common fund is established with
periodical contribution from workers out of which all
benefits in terms of cash or kind
• Benefits such as PF, Group Insurance etc are offered
• Social Assistance- Benefits are offered to persons of small
means by govt out of its general revenues. Eg- Old age
pension
Case study:[Link]
Creating a safe Working Environment
Prevention of Accidents
• Design a safe work environment
• Ergonomics
• Health and Safety Committees
• Behavior Modification
• Assessing Intervention Effectiveness
Glossary
Employee Compensation
Direct Financial Payments
Indirect Financial Payments Market-competitive Pay System
Job Evaluation Wage Curve
Market-competitive Pay Plan Salary Survey
Compensable Factor Pay (Or Wage) Grade
Benchmark Job Pay (Or Rate) Ranges
Ranking Method Compa Ratio
Job Classification (Or Job Competency-based Pay
Grading) Broadbanding
Job Classes Comparable Worth
Job Grades
Grade Definition
Point Method