COMPENSATION MANAGEMENT

Compensation Management is an integral part of the management of the

organization. Compensation Management contributes to the overall success
of the organization in several ways. To be effective, the managers must
appreciate the value of competitive pay, their human resources, and have an
investment view of payroll costs. It is of prime importance for an
organization to maintain pay levels that attract and retain quality employees
while recognizing the need to manage payroll costs .
ABOUT COMPENSATION MANAGEMENT
The compensation management policy and the reward system of an
organization are viewed by the employees as indicators of the management
attitude and concern for them. A good compensation management system
should be able to attract and retain employee , give them a fair deal ,eep the
organization competitive and motivate employees to perform their best.
SCOPE OF COMPENSATION MANAGEMENT
I! todays world organizations tries more to asses the worth of an individual
in terms of his performance and contribution to the organizations. "ith the
growing demand of worforce and constant challenges in the business
environment, organizations have to evolve and accurate system for
evaluating #obs and assessing their worth. Compensation management helps
to determine the relative worth of a #ob in an organization in a systematic,
consistent and accurate manner. It also helps in estimating the basic pay for
each #ob in accordance with the importance of the #ob in the organizational
hierarchy .once a basic pay is determined , the rewards , incentives and
benefits attached worth the pay, positions and performance are also
determined . The basic wage, incentives and rewards and benefits, together
form the compensation pacage of an employee
A
generalized
compensation
package across
the industries.
BASE PAY
Base pay is the fixed compensation paid to an employee for performing specific job
responsibilities. It is typically paid as a salary, hourly or piece rate.
In the State, employee base pay is first determined when hired. hanges to an
employee!s base pay can be made as he"she go through his"her career in these ways#
CHANGE IN JOB
$hen an employee changes job responsibilities, he"she may recei%e a#
Promotion & a change in duty assignment of an agency employee in one job class
to another job class in a salary group with a higher minimum salary rate. A promotion to
a higher le%el job class re'uires higher 'ualifications such as greater skills or more
experience and in%ol%es more responsibility. (mployees promoted to positions in Salary
Schedules A or B will recei%e at least a one increment increase in salary )or *.+ percent,
or the minimum salary rate of their new salary group, whiche%er is higher.
Demotion & a change in duty assignment of an agency employee in one job class
to another job class that is in a salary group with a lower minimum salary rate. -he
salary of a demoted employee in Schedule A or B must be reduced at least one step )or
*.+ percent, below the employee!s salary prior to the demotion. .owe%er, an agency is
not re'uired to reduce an employee!s salary if the employee accepts a demotion in lieu
of a layoff or is selected for a position in a lower salary group because of applying for the
position.
Lateral transfer & a change in duty assignment of an agency employee that mo%es
to another job class in the same salary group.
PAY FOR PERFORMANCE
An employee may also recei%e a change in base pay for their performance in the same
job#
Merit increase & a mo%ement in a Schedule A or B employee!s salary to a higher rate
in his"her same salary group. -he employee must demonstrate job performance and
producti%ity that are consistently abo%e what is normally expected or re'uired. -o
recei%e a merit, employees must ha%e been with the agency for six continuous months
and six months must ha%e elapsed since their last promotion, merit, or one&time merit.
One time merit increase & a lump sum payment to an employee in a classified position.
-he same rules for merit increases apply to these increases.
Salar re!"ction & an employee!s salary can be reduced based on poor performance.
-he disciplinary reduction in pay can go no lower than the minimum rate of the
employee!s current salary group. (mployees may ha%e their pay restored to any rate in
the same salary group, up to and including their prior rate, as their performance
impro%es.
DIFFERENTIAL PAY
/ifferential pay is non&performance based pay usually gi%en to accommodate a specific
working condition. -he State offers se%eral types of differential pay to employees.
-here are both state and federal re'uirements on how to address employee o%ertime.
-he O#ertime Mana$ement G"i!e addresses most 'uestions regarding this subject.
I% FLSA O#ertime & federal guidelines for paying employees who work o%ertime.
II% State Com& 'ime & state guidelines for paying employees who work o%ertime.
III% Lon$e#it Pa & state guidelines for paying employees based on state ser%ice time.
I(% S)ift Differential & state guidelines for paying employees that work shifts different
than a normal schedule.
(% Ha*ar!o"s D"t Pa & state guidelines for paying employees based on performing
work that could be hazardous to their health.
(I% On+Call Pa & state guidelines for paying employees for being on&call.
(II% Benefits Re&lacement Pa & state guidelines for paying employees the employer!s
portion of Social Security taxes.
VARIABLE PAY
0ariable pay is compensation that is contingent on discretion, performance or results. It
may be referred to as 1pay at risk.1
En)ance! Com&ensation A,ar! & Agencies that meet certain performance criteria
may grant awards to employees who directly contribute to these performance
successes.
Retention Bon"s & Bonuses paid in order to retain employees in state go%ernment.
Em&loee Reco$nition A,ar! & Awards gi%en to employees for recognition.
I!$I%&CT C'M(&!)ATI'!
PAY FOR TIME AT WORK
Brea-s & 2est periods of short duration, running from 3 minutes to about 45 minutes.
-hey are used to promote the efficiency of the employee and are customarily paid for as
working time. -hey must be counted as hours worked. $ithin the State of -exas, these
benefits are a matter of agreement between the employer and the employee.
A$enc E#ents & Special e%ents or programs planned by an agency to foster and
de%elop an agency6s culture planned during an agency6s work hours.
'rainin$ Ho"rs & -he time that employees are allowed for training acti%ities and for
which they recei%e pay.
NOT AT WORK
)ic leave
State employees are entitled eight hours of sick lea%e per month. Sick lea%e with pay
may be taken when an employee is pre%ented from performing duties because of
sickness, injury, or pregnancy and confinement. Sick lea%e may also be taken if an
employee needs to care for a member of his or her immediate family who is actually ill.
Sick lea%e may be taken to care for members of an employee!s family who do not reside
in the same household only if the time taken is necessary to pro%ide care to a spouse,
child, or parent of the employee who needs such care as a direct result of a documented
medical condition.
-o be eligible for accumulated sick lea%e with pay for a continuous period of more than
three working days, an employee must send the administrati%e head of his or her agency
a doctor!s certification, or an acceptable written statement of facts, showing the nature of
the illness.
Agency heads may grant employees extended sick lea%e if they belie%e it is warranted.
(ach agency may establish a sick lea%e pool where employees donate hours to the pool
to be used by other employees who experience a catastrophic illness or injury that
forces an employee to use all of their sick lea%e time.
Holi!a
State agency employees are entitled to a paid day off from work on national and state
holidays obser%ed by the state. -hese holidays are specified by the 7egislature each
session. A state agency must ha%e enough state employees on duty during a state
holiday to conduct the public business of the agency except for those state holidays that
fall on a Saturday or Sunday, the 8riday after -hanksgi%ing /ay, /ecember 4+th, or
/ecember 49th.
(mployees who act"all ,or- on a national holiday or a state holiday will be allowed
compensatory time off during the :4&month period following the date of the holiday
worked.
Admin leave
Agency heads are allowed to grant *+ hours of administrative leave per fiscal year to
employees for outstanding performance.
Vacation
&mployees receive vacation leave based on length of their service.
Jury Service
An state employee is entitled to serve on a #ury without any deduction from wages.
'fficers or employees of the )enate, the ,ouse of %epresentatives, or any organization in
the legislative branch of state government establish e-emption from state #ury service.
Emerency leave
State employees are entitled to time off with pay for a death in the family. An employee!s
family is defined as the employee!s spouse, the employee!s and the spouse!s parents,
and children, brothers, sisters, grandparents, and grandchildren of the employee. An
agency head may also grant emergency lea%e for other reasons determined to be for
good cause.

Income protection program.
MANDATED INCOME PROTECTION PROGRAMS
-here are some federally mandated income protection programs.
.or-ers/ Com&ensation & A benefit paid to an employee who suffers a work&related
injury or illness.
0nem&loment Ins"rance & A program designed to pro%ide a financial safety net for
indi%iduals who become unemployed through no fault of their own.
Social Sec"rit an! Me!icare 'a1es 2FICA3 & -axes intended to help the elderly with
retirement and health care costs.

VOLUNTARY INCOME PROTECTION PROGRAMS
-he State of -exas also offers some income protection programs for state employees#
Healt) Ins"rance & insurance against loss by illness or bodily injury.
Life Ins"rance & insurance to be paid to a beneficiary when the insured dies.
Retirement & program designed to pro%ide an income for your retirement and other
future financial needs.
Deferre! Com&ensation Plans & employer deduction from pay where employee does
not pay tax until they recei%e the distributions at a later date.
NON-FINANCIAL COMPENSATION
;on&financial compensation is different incenti%es gi%en to employees that are not in the
form of direct pay.
Alternati#e .or- Sc)e!"les & there are many alternati%es to a traditional 3 day, <&hour
work schedule.
On+t)e+Jo4 'rainin$& showing workers how to perform tasks by obser%ing others.
.or-5Life Balance & when an employer understands the needs employees ha%e to
juggle in their li%es.
De#elo&mental O&&ort"nities & training and other opportunities for employees to
expand their knowledge and impro%e their skills.
Cas"al Dress & allowing employees to relax their dress code at work.
%&TAI.
Types of incentive compensation
Two types of incentives are commissions and bonuses. A commission is a
compensation based on a fi-ed formula such as + percent of sales. /or
e-ample many retail salees people compensation is based on a fic
percentatgeof the merchandise they sale . A bonus is additional
compenestaion awareded periodically baes on an evaluation of the
emploeyess performance . for e-ample store managers often recien0ve
bopnuse aat the end of the year based on their stores performance relative to
its budgeted sales and profit.
1esides incentives based on individual performanece , retail managers often
recive additional income based on their perofmanmnce, these profit sharing
arrancgmenmts can be offered as cash bnonus based on firms f0profit or as a
grant of stoc option that lin additional income to performance of the frims
stoc
A number of retailer such as walmart and home depot use stoc incentives to
motivate and reward all employees, including sales associates. &mployees
are encouraged to buy shares in their companies at discounted price through
pay role deduction plans. This stoc incentives align employees interest with
those of companies and can be very rewarding when company does well.
however if growth of the company stoc price declines , employees morale
declines too, corporate culture is threatened , and demand for higher wages
and more benefit develops .