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To ensure an effective compensation program that develops internal as well as external equity To keep track of personnel cost change significantly affects firms profitability Maintaining employee confidence in stability & fairness of compensation system Though administration increase systems complexity , it makes pay delivery more understandable Affect organizational budgets & makes a significant part of firms financial resources To ensure proper decisions are made among allocations to various compensation components

The Budget Process

Defines how the organization will spend its money for coming planned period or plan year. Written plans expressed in terms of dollars or some kind of units. Includes : Capital budget and Operating budget Consists of all kinds of staffing related expenses such as wages & salaries,merit increases,pay structure adjustments ,benefits ,bonuses ,overtime,incentives,allowances for contract or outside labor. Merit or Salary Increase Budget largest share of increase in personnel budget over preceding year

Compensation Committee
Small select group of 3-5 directors Significant influence on compensation received by senior management Review compensation opportunities made available to all employees Exercises almost total authority over the compensation practices of entire organization Functions include :
Periodically review & appraise the performance of CEO & top management Review compensation of competitive companies Set compensation for CEO Monitor executive perquisites and expenses Review and approve personnel-related budgets Report findings to the full board

Others involved in Budget Decisions

Salary admin committee

Includes various management representatives Ensures internal fairness among jobs by determining job worth acc. to some evaluation plan

Job evaluation committees

Administration of Pay
3 steps: Providing merit or salary increase budget data & information Adjusting pay structure in line with compensation policy, the market, approved merit or salary increase budget for planned year Moving employees in the pay grade relative to level of performance, seniority & location in the pay grade

Typical Pay Adjustment & Promotion Recommendation Responsibilities

Party Involved Immediate Supervisor Reviewing manager of managers HR & Compensation departments Function Appraise performance; makes pay adjustments or promotion recommendations Reviews recommendations of subordinate supervisors & changes , endorses , approves , or initiates action for pay adjustment & promotion Reviews dept head recommendations for compliance with policy & budget, merit increase , promotion guidelines. Advises dept heads on propriety of actions. Processes all necessary record keeping data and information Grants final approval for all compensation adjustments and job changes . Approves or denies requests that extend beyond policies and guidelines . Approves policy changes.

Senior Management

Using Merit Increase and Pay Structure Survey Data

Various surveys provides data on pay structure adjustments & general increases. Assist in development of organizational budget recommendations Validity guaranteed huge participant base Two issues to be considered while designing pay structure Adjustment : Established Compensation policy & Amount of approved merit budget Allocating Merit Budget funds
Making any necessary changes in pay structure Allocating the merit pool too various departments of organization

Lag , Lead-Lag , Lead Pay Structure Policy

Department Allocation of Merit Funds

Each department gets a % of merit pool equal to departments payroll as a % of total payroll of organiz. Many organizations review pay structure practices of each department Determination of compa-ratio of employees within department Can determine the underpaid employees & hence larger percentage of merit pay to be allotted to them

Adjusting pay of each employee

Major issues to be considered:
Current level of performance
Recognizes individual contribution

Tenure on present job

Seniority or length of service plan One time seniority bonus

Common review date- date hired or promoted to present job Date of last adjustment Reason for last adjustment Location in pay grade

Annual Performance Bonus

One time, lump-sum performance bonus Less costly award Paid once or twice in a year

Timings of Pay Adjustments

Pay Adjustments are given on Anniversary date or common review date Time of year have critical effect on employees reaction

Tools for Planning and Administration

Index number to do analysis of pay grade or salary range The average of the employee's actual pay divided by the pay range midpoint within the job grade Use Pay grade analysis Department analysis Relating performance appraisal rating to pay adjustments Merit Budget decisions Pay structure analysis

Control Point
Pay policy rate that reflects relationship with the market Procedure:
Evaluate the job and obtain a point score Assign rate of pay to point score which can be paid to proficient employee in job Call the dollar rate the control point of job

Range Index
Range function = actual rate of pay minimum rate of pay Maximum rate of pay minimum rate of pay A range index of 0.50 means employee is at midpoint of pay grade Managers are informed about movement of employee through pay grade

Target Salary
Combine current rate of pay, location of rate of pay and level of performance Budget and monitor the pay of an individual or all employees

Other Compensation Administration Issues

Guidelines for promotion and demotion adjustments Available options for keeping employees whole Attracting workers with knowledge and skills that are in short supply Paying all employees a salary Overtime for exempt employees Adjusting pay for nonunion employees Compensating temporary part- and full-time employees and regular part-time employees

Guidelines for promotion and demotion adjustments

Promotion guidelines are set relative to
Individual location in the pay structure Pay grade movement Increase in point scores from current job to promoted job

Available options for keeping employees whole

Equal dollar pay adjustment Cost of Living Adjustment (COLA)
Pay of employees is adjusted to meet inflationary pressure at marketplace CPI measures the relative change in goods and services

Area Wage Differential

Attracting workers with knowledge and skills that are in short supply
Possibility of bringing new employee at an advanced step or location Causes a conflict with current employees Solution Add some responsibility and duties to the job Separate pay structure for high demand jobs

Paying all employees a salary

For fair treatment to all Solution: Keep a record of number of hours worked by each employee whether or not they are on salary Disadvantage for pay-for-performance system

Overtime for exempt employees

Overtime payments to employees who work for more than 40 hours per week Overtime payment may be Straight hourly rate Payment of time and a half Compensatory time off Year end bonus

Differences In Compensation For Regular, Temporary, Part- Time, And Full Time Employees
Regular Full Time employee hired and scheduled to work for number of hours per week and weeks per year (generally 52 weeks) Part Time Employees Scheduled to work from 20 to 32 hours per week (less than a full workweek) Temporary Employees hired to perform assignments ( generally up to 6 months)

Regular part time and temporary full time and part time employees differ from regular full time Regular part time and temporary entry level rates and pay adjustments Regular part time vacation, holiday and sick pay benefits on proportion to hours of work Medical, disability and life insurance vary across organizations Retirement programs applicable to all who work at least 1,000 hours Second party employer pay the personnel cost of temporary worker

Carry out legal proceedings to ensure individual rights in accordance with established rules and procedures Process to protect ownership rights to jobs Process include:
Identifying and describing job requirements Training employees Assisting employees to set performance standards Active participation in performance appraisals Rewards Document Management

How to Ensure Due Process in Organization

Process followed: Auditing Monitoring Appeals Auditing Report Information Management gets the following information from Auditors reports Purpose of the Audit Units audited Critical Issues or Problems that require further review Overall results or summary of the findings of the audit

Areas to be Audited
Completeness and accuracy of job description Adequacy and use of performance standards for reviewing and rating employee performance Proper classification and grading of jobs Compliance with ADA requirements Pay policy lines Relationship between pay adjustments and performance and performance and current level of pay Provision of pay adjustments Analysis of base pay, ratings and pay adjustments for any kind of illegal discrimination Consistency of use of actual merit pay adjustments and funds budgeted for merit pay

Monitoring Report Information

Covers all parts of the units Information gathered from monitors report: Which individuals/units are not implementing compensation programs as designed? Are Employees treated fairly? Are job activities and performance standards accurately stated in understandable form Are raters ratings being reviewed by higher-level managers? Are performance appraisal schedules and standard operating procedures being followed? Are jobs properly evaluated, classified and graded? Are most appropriate methods and tools being used to identify market levels of pay and other compensation opportunities?

Appeals Process
Need of Appeal Process
There is a body of rules that must be followed Each person has the right to voice his or her side Decisions will be made on the basis of facts Every effort will be made to treat everyone the same

Appeal is granted when there is:

Disagreement with received performance rating and pay adjustments Failure to receive requested transfer and promotions Disagreement with evaluation of job Dissatisfaction with Job Description and performance standards

Guidelines to Due Process

To treat employees equal and equitable, compensation system must :
Follow set procedures Be visible and known Be predictable Be institutionalized Be perceived as equitable Be easy to use Be applicable to employees