Master of Business Administration -MBA Semester IV

Subject Code – MU0006

Subject Assignment Set- 1 (3 0 Marks)
Name – Compensation Benefits

SET-1

Question-1: Explain the objective of a sound compensation

planning.

Answer 1: The most important objective of any pay system is fairness

or equity. The team equity has three dimensions:
a) Internal equity: This ensures that more difficult jobs are paid
more.
b) External equity: This ensures that jobs are fairly compensated in
comparison to similar jobs in the labour market.
c) Individual equity: It ensures equal pay for equal work, i.e. each
individual’s pay is fair in comparison to others doing the same
jobs.

In addition, there are other objectives as well. The ultimate goal of

compensation administration (the process of managing a company’s
compentation program) is to reward desired behaviours and encourage
people to do well in there jobs. Some of the important objectives that
are sought to be achieved through effective compensation
management are listed below:

a) Attract Talent: compensation needs to be high enough to attract

talented people. Since many firms copete to hire the services of
competent people, the salaries offered must be high enough to
motivate them to apply.
b) Retain Talent: If compensation levels fall below the expectations
of employees or are not competitive, employees may quit in
frustration.
c) Ensure Equity: Pay should equal the worth of a job. Similar jobs
should get similar pay. Like wise, more qualified people should
get better wages.
d) New and Desired Behaviour: pay should reward loyalty,
commitment, experience, risk-taking, initiative and other desired
behaviours. Where the company fails to reward such behaviour,
employee may go in search of greener pastures outside.
e) Control costs: The cost of hiring people should not be too high.
Effective compensation management ensures that workers are
neither overpaid nor underpaid.
 f) Comply with legal rules: Compensation programs must invariably
satisfy governmental rules regarding minimum wages, bonus,
allowances, benefits, etc.
g) Ease of operation: The compensation management system
should be easy to understand and operate. Then only will it
promote understanding regarding pay related matters between
employees, unions and managers.

Question-2: Apex is an ITES service provider Company. It is

startup (new) company, which is trying to woo talent from the
market. Being a new company it might face difficulty in hiring
highly talented candidates. As remuneration plays an
important role, what will be the strategic incentives plans
organization can offer to persuade talented employees besides
providing good salary?

Answer- 2:

Question-3: Explain the steps involved in designing a

Remuneration Plan.
Answer-3: Designing a remuneration plan involves the followings:

1. Job Analysis: The main purpose of conducting job analysis is to

prepare job description and job specification which in turn helps to hire
the right quality of workforce into the organization.

It helps to understand the qualities needed by employees,defined

through behavioral descriptors, to provide optimum work performance.

It obtains answers to such questions such as: 1. Why does job exists?
2. What physical and mental activities does the worker undertake? 3.
When is the job to be performed? 4. Where is the job to be performed?
5. How does the worker do the job? 6. What qualifications are needed
to perform the job? 7. What are the working conditions (such as levels
of temperature, noise, offensive fumes, light) 8. What machinery or
equipment is used in the job? 9. What constitutes successful
performance?

There are several ways to conduct a job analysis, including: interviews

with incumbents and supervisors, questionnaires (structured, open-
ended, or both), observation, critical incident investigations, and
gathering background information such as duty statements or
classification specifications. In job analysis conducted by HR
professionals, it is common to use more than one of these methods.
2. Job Documentation: To evaluate job content, it provide objective
criteria for making pay comparison, ensure that jobs are classified
according to content as opposed to individual personalities, effectively
communicate the job duties to both supervisor and employees and
help the organization defend it self against charges and discrimination.

3. Development of a job worth hierarchy: It is a result of job evaluation.

There are six major methods which are divided in two groups
according to their nature.

a) Whole job evaluation and are non-quantitative in nature

i- Ranking
ii- Classification
iii- Slotting

b) Factor evaluation and are quantitative in nature

i- Point factor
ii- Factor comparison
iii- Scored questionnaires

4. Pay survey: Wages and salary surveys ensure external equity. A

wage and salary survey provides information as to what other
organizations that compete for employees are paying. The survey
could cover all jobs within an organization or limited to benchmark
jobs.
The benchmark jobs have the following basic characteristics
i- Many workers in other companies have these jobs.
ii- They will not be changing in the immediate future in terms of
tasks, responsibilities etc.
iii- They represent the full range in term of salary such that some
are among the lowest paid in the group of jobs, others are in
the middle range and some are at the high end of the pay
scale.

Formal and informal surveys could be undertaken to collect data on

benefits like insurance, medical leave, vacation pay etc. and offer a
basis on which to take decision regarding employee benefits. Published
sources also provide valuable information. Published sources also
provide valuable information regarding industry-wise trends in salary
structures in and around the country.
The published sources in India include:

i. Reports published by the Ministry of Labour

ii. Pay Commission Reports
iii. Reports of wage Bonds appointed by Government
iv. Reports of employee and employer’s organization
 v. Trade journals of specific Industry

5. Pricing the Job: Establishment of pay Ranges:

In order to actually establish a pay structure, an organization needs to

set rates of pay for the jobs in the job hierarchy. This will depend on
the number of different levels of relative job value that are recognized
by the organization and the difference in pay between the highest and
lowest paid jobs in the pay structure. The focal point pf the pay range
is the midpoint, an organization can determine the range minimum
and maximum.

6. Pay rates and Pay Increases: This means deciding how to pay new
employees, how and when to give employee increases, including how
to move existing employees from minimum to maximum of their
assigned pay grades, how to determine the pay increase for an
employee being promoted from one job to another and what influence,
if any, cost of labour increases will have on the determination of pay
increases for employees.

7. Starting pay for new Employees: In order to avoid paying new

employees the same as more experienced employees, most employers
choose to start new employees closer to the minimum of the pay
range. In general, an employee with minimum qualifications should be
paid the minimum of the range. This general rule is not true when a
new hire has skills which are in great demand or has skills or other
expertise substantially above the minimum.

8. Employee Increases: There are several different types of base pay

increases: General (across the board) increases, cost of living/ labour
increases, promotion increases, step increases (based on longevity)
and merit increases.

9. Performance appraisal: A performance appraisal, employee

appraisal, performance review, or (career) development discussion[1] is
a method by which the job performance of an employee is evaluated
(generally in terms of quality, quantity, cost, and time) typically by the
corresponding manager or supervisor[2]. A performance appraisal is a
part of guiding and managing career development. It is the process of
obtaining, analyzing, and recording information about the relative
worth of an employee to the organization. Performance appraisal is an
analysis of an employee's recent successes and failures, personal
strengths and weaknesses, and suitability for promotion or further
training. It is also the judgement of an employee's performance in a job
based on considerations other than productivity alone.
10. Maintaining and Auditing a Compensation plan: Changes in the
external market or internally within the organization can cause one or
more parts of a compensation plan to become outdated. Part of the
challenge in creating a compensation plan is to build in mechanisms
that facilitate change when necessary, yet maintain control on a
regular basis. Some actions an organization can take to maintain an
updated compensation plan include regular review of job descriptions,
monitoring of compensation levels versus companies with which there
is competition for employees, and regular review of the pay structure
including pay ranges and pay increase budgets. An audit is an
excellent means to ensure that a compensation plan is being properly
administered and maintained.

When planning to audit a compensation plan, an organization needs to

consider the following:
Process measures - Are procedures and practices in place to ensure
the compensation plan is being administered smoothly and efficiently?

Policy compliance - Are there procedures or other mechanisms in place

to ensure that the compensation plan is being administered in
accordance with policy?

Documentation adequacy - Is there adequate documentation in place

to ensure that the administration of the compensation plan and
compliance issues can be audited?

Overall results - Are there measures that can assess how well the
compensation plan is achieving its goals and objectives?

After reviewing audit results, management can make

recommendations on any improvements that may be necessary,
allocate the necessary resources and follow-up to make sure the work
is completed.