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The objective of this project is to allow the student to
have a “hands-on” experience in appreciating a critical component of
compensation design and execution.
Students shall choose one topic from the following for their
project:
2.
Designing pay levels-broad bands etc
3.
Pay for performance schemes
5.
Equity (stock/stock options) based compensation
1.
Compensation strategy (as discussed in class)
2.
Pay bands/ranges
3. What role compensation plays in the entire HR system.The above shall not take more than one full page. The student shall then choose any of the above topics and discuss at length. The length of this component should not be more than 4-5 pages.
Compensation plays a critical role in aligning
employee behavior with business objectives. Since the industrial age, the four
Ms of business management i.e. Man, Material, Machine and Money are said to
contribute to the business’s success. Among these, man has been considered to
be the most important factor contributing to organizational effectiveness and
efficiency.
Compensation attributes to all forms of pay
and rewards received by employees for their performance, including all forms of
benefits, perks, services and cash rewards. It is paramount to acknowledge and
announce the total compensation to your employees. This needs to be done so
that the significance of what you are putting forth in compensation is clear
and hence attracts and retains talent.
A variety of elements need to be considered
when designing a compensation plan that is also compatible to the employee
demographic and budgetary bridles.
The following should be included when
designing a compensation plan:
- Various elements that will embody the
total compensation offered to the employees.
- Comparable and competitive compensation
rates within the industry.
- Compensation needs to be unbiased. There
must always be a logical increase in pay when it comes to length of
service, job title, skills and abilities required to accomplish the job in
a productive manner.
- An already established criterion that
results in a pay increase.
- A well designed system to measure and
control payroll costs.
- A proper procedure to measure the success
of the organization’s compensation program by determining if the
compensation results into favorable retention numbers, workforce
performance and motivation.
Google’s Compensation Strategy
Google’s compensation strategy is highly
competitive compared to the compensation strategies of competing firms. The
company provides high salaries, together with comprehensive incentives and
nonconventional benefits. Financial and moral incentives are provided. In
addition, the company provides benefits like medical insurance, retirement
pensions, free meals, and free use of exercise equipment. Realistically,
Google’s human resource management has succeeded with regard to the
compensation strategy because it effectively attracts highly qualified smart
and excellent employees. People perceive Google as one of the best places to
work.
Compensation is usually given in the form of monetary rewards that can be either direct or indirect:
Role OF COMPENSATION IN AN ORGANIZATION
- Attract & retain employees
- Motivate workforce & sustain high
morale
- Meet legal requirements
- Motivate personal growth
- In every organization it is essential to understand the importance of compensation and the flexibility the hiring managers can have in designing a compensation package that can in turn attract, retain and develop a quality talent pool.
Pay bands/ranges of Google for Technical Rank
Google's technical track from lowest to highest:
- Software
Engineer I (skipped because the range is all over the place and I feel
people from I/II/III have placed their salaries under this title making
the range for I hard to decipher)
- Software
Engineer II ($72-150k based on 104 salaries)
- Software
Engineer III ($85-166k based on 226 salaries)
- Senior
Engineer ($80-222k based on 241 salaries)
- Staff
Engineer ($84-240k based on 61 salaries)
- Senior
Staff Engineer ($110-250k based on 14 salaries)
The term “pay for performance” refers to a pay
strategy where evaluations of individual and/or organizational performance have
significant influence on the amount of pay increases or bonuses given to each
employee.
1.
Outstanding
performers will receive the greatest rewards, to acknowledge their superior
contributions and to motivate them to continue high performance.
2. Average performers will receive substantially
smaller raises, which may encourage them to work harder to achieve larger
raises in the future.
3. Poor performers will receive no increase, which is intended to persuade them to improve their performance or leave.
Designing an Effective Pay for Performance Compensation System
Decisions that are made during the
design and implementation of a pay for performance system are crucial.
Therefore, decision makers should carefully consider their design options with
full awareness of potential advantages and disadvantages. The decision makers
must address topics such as who should be covered, what should be rewarded, how
to reward employees, and suggestions for preserving the integrity of the pay
system.
Key Decision Points When Considering Pay forPerformance
1. Is the organisation ready for payf or performance?
·
The
organizational culture supports pay for performance.
·
Management is
committed to changing the culture.
2. What are the goals of pay forperformance?
·
Improved
recruitment and/or retention
·
Increased
individual and/or organizational performance
·
Greater fairness
in pay
3. Who should be paid for performance?
·
All employees
·
Front-line
employees
·
Top-level
managers
4. What should be the timing forimplementing pay for performance?
·
Wholesale
·
Stages
·
Individual, team,
and/or organizational achievements
·
Short-term and/or
long-term goals
·
Efforts vs.
outcomes when external constraints exist
6. How should employees be rewarded?
·
One-time cash
bonus
·
Increase to base
pay
·
Combination, such
as control points
7. How much pay should be contingent upon performance?
·
Less than 5
percent
·
Approximately 30
percent
8. How should performance-based pay be funded?
·
Existing funding
(e.g., general increases, within-grade increases)
·
Additional
funding
·
Forced
distribution
·
Reward only top
performers (as a percentage of the workforce)
·
First-level
supervisor
·
Second-level
supervisor
11. Who provides input on theperformance ratings?
·
First-level
supervisor
·
Second- or
higher-level managers
12. How can organisations facilitate pay system integrity?
·
Improved performance
evaluation process
·
Supervisor and
employee training
Because of the longstanding practice in organisations of basing pay primarily on position tenure, shifting to pay for performance require careful planning, implementation, and operation to facilitate the organizational change that produces a performance-based organizational culture. Such organizational change impacts readiness for implementing pay for performance, but organisation need not wait for the ideal organizational culture to be present before they move forward. Pay for performance can serve to drive an organizational culture in the desired direction.
Organisation must tailor pay for
performance systems to their mission and environment. Pay for performance
focuses attention on the monetary aspect of the relationship between employees
and organizations. However, the greatest changes that pay for performance
effects in individual and agency performance are probably those stemming from
increased emphasis on defining and communicating goals to employees, providing
concrete feedback, and heightening employees’ sense of responsibility for
contributing to well-defined portions of their organization’s goals. To ensure
that employees’ efforts are aligned with agency priorities, supervisors need to
take the agency’s unique goals, needs, and environment into account when
defining employee objectives.
For pay for performance to be effective, organisation need to meet certain requirements.
These include:
1. A
culture that supports pay for performance;
2. A
rigorous performance evaluation system;
3. Effective
and fair supervisors;
4. Appropriate
training for supervisors and employees;
5. Adequate
funding;
6. A
system of checks and balances to ensure fairness; and
7. Ongoing
system evaluation.
While many of these requirements
relate to effective human resources management practices that are important to
any organization, pay for performance further increases their necessity.
Attending to these human resources management issues provides organisation with
a much greater likelihood of achieving a fair and effective pay for performance
system.
To make pay for performance
successful, organisations need to make a substantial investment of time, money,
and effort. Pay for performance systems require substantial initial and
continuing investment. These resources must be carefully spent on building and
maintaining a system that suits the organization’s mission and objectives.
Performance evaluation serves as the foundation of a pay for performance system.
An effective performance evaluation
system is a fundamental prerequisite of pay for performance. Organisation must
be able to communicate with employees regarding what the organization values
and how it will accurately measure employee contributions to these goals.
Without this information, organisation would be unable to appropriately
distribute performance-based pay increases and bonuses.
Organisation should select supervisors based
on their supervisory potential, develop and manage them to function as
supervisors rather than technicians or staff experts, and evaluate and pay them
based on their performance as supervisors.
Because supervisors play a pivotal role in pay for performance systems, it is
essential that they be able and willing to perform the important supervisory
functions inherent in performance-based pay systems. To achieve this goal, organisation
must select, train, and pay supervisors based on their demonstration of
qualities that are suited to a pay for performance environment.
Communication, training, and transparency areessential elements of a good pay for performance system.
The key to the effectiveness of a pay
for performance system rests with clarifying the mission and objectives of the
organization, how these are linked with employees’ efforts, and consequently,
what competencies, behaviors, and/or outcomes the organization values. Open communication
regarding goals and progress; training in the philosophy and mechanics of the
pay system; and transparency regarding how the system operates can mobilize the
workforce in the desired direction.
Checks and balances are necessary.
Organisation can greatly facilitate
the real and perceived fairness of the pay system by building in appropriate
checks and balances. Although knowledge about the agency’s pay for performance
plan and transparency regarding its outcomes can help supervisors and employees
understand how the system should work, other mechanisms to ensure fairness are
needed to further raise and maintain confidence in the system.
Being able to provide high performers
with meaningful pay increases is critical to operating an effective pay for
performance system. Therefore, organisation need to have adequate funding to
support pay increases for those who deserve them.
Pay for performance systems should be
evaluated regularly and modified when necessary. Organisation should conduct an ongoing
evaluation of the compensation system to help them ascertain whether
organizational goals are being met and identify ways to improve the process.
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