Salary or pay is the most commonly used word for the fixed amount of money or compensation paid to an employee in return for worked he performed. Pay is paid to employees on the monthly or bi-monthly or weekly basis other than daily wage employees. Compensation includes pays and other benefits mostly committed to employees in return of worked performed. Compensation has different parts and the major parts of compensation are Base salary, Salary add-ons, Incentive programs both short and long terms, and employee benefits and services.
Salary is also defined as regular wages received by an employee from an employer on a weekly, biweekly, or monthly basis. Many salaries include such employee benefits as health and life insurance, savings plans, and Social Security. Salary income is taxable by the federal, state, and local government, where applicable, through payroll withholding. (Finance & Investment Dictionary)
Base salary is fixed amount of money committed to an employee by an employer in return for an employment job. It does not include benefits, bonuses or any other potential compensation. Its administration and determination are considered as the most important part of compensation. The majority of lifestyles of the employees are based on this base salary; the kind and quality of food, clothing, housing, and transportation. The powerful influences on the lifestyles of wage earners and their dependents underscore the importance of job, and the pay received by employees for performing the job. Some employees perform specific jobs in certain kinds of companies; these add-ons are permanent. (Heathfield, 2011)
Possibly the oldest part of the compensation package is incentives. These payments are for a specified output or enhance output. Normally, these incentive payments enhance the output of manufacturing organization or increase sales.
The indirect and non-cash compensation are considered as benefits. Some are mandatory benefits and others are industry specific. The mandatory benefits are Employee Old Age Benefit, Social Security. Whereas, the industry specific benefits are health insurance, life insurance, pension, gratuity, leave encashment, and medical etc. This is part of the compensation also includes time off with pay, when employment is suspended or terminated, pay when unable to work because of accident or sickness. These payments are in consideration of past services or expected services of the employees. (Blogspot, 2008)
The Workforce Scorecard: Managing Human Capital to Execute Strategy offers a framework that identifies and measures the outcomes, behaviors, competencies, mind-set, and culture required for workforce success and reveals how each dimension impacts the bottom line. The lynchpin of this perspective is an emphasis on looking at the role of human capital from the "outside in" (or customer back), not from the "inside out" (starting with the HR function) (Mark A. Huselid, 2005).
The perfect case study on the use of compensation as an alignment tool is WestJet. Back in the mid-1990s, when Clive Beddoe and his partners were creating the airline, they looked to Southwest Airlines for inspiration. Beyond its cost structure, which couldn't be replicated in Canada thanks to our very different regulatory environments, Southwest's competitive advantage was its culture, and the tools it used to align the interests of the employees of those with the company. (Parker, 2012)
Ben Willmott continued: "The heightened level of uncertainty around job security in the current economic climate puts an even greater importance on the extent to which employers communicate and consult with staff. There is no such thing as over communicating and employers can help prevent rumor and anxiety by providing regular updates on business challenges or proposed changes that will impact employees. Just as importantly consultation with staff needs to be genuine which means taking account of employees' views before and not after decisions are made." (Willmott, 2011).
Now, coming to HR architecture, it is the designing and construction of organization in term of positions and the reporting lines, Job roles of of the organization. This Architecture is with regards to specific, industry or culture. Workforce differentiation means that in an organization, there could be different types of employees. These employees could be different in terms of job status, or it could be based on the strategy of the business.
A firm's workforce strategy and its workforce are as differentiated as its business strategy. Developing a differentiated workforce requires that the HR management policies and practices a firm adopts be differentiated as well, not just by business strategy but more important by strategic capability - the bundle of information, technology and people needed to execute strategy. It requires a clear understanding of why change is necessary, how to change and an action plan to ensure that it happens. HR's primary responsibility is to partner with leadership in the advocacy and delivery of strategic talent for our customer. The workforce is the deliverable of HR.
The trends in the pay scales have been shifting from the seniority based progression to performance-based salary increases. There are two types of performance bases salary increase one is the lump sum bonus, and the other is the permanent salary increase. The design of the new pay scales system is varied in different countries. The goals of the new pay system are to increase the efficiency, because employees are motivated by the link between the pay and performance, and to increase the opportunity to recruit and retain qualified employees when pay is variable and individualized.
The new pay scales have been criticized due to problems with performance appraisals, lack of adequate funding and poor implementation. Sometimes, there is a gap of effort and the expected outcome, and they feel that they are not rewarded what they deserved, it has been elaborated in Expectancy Theory (Vroom, 1964, 2005) (Perry, 19/6).
The fairness of pay supplements is more related to the perception of employees. It is most of the times seen negatively. The new pay system does not achieve the results due to experimental and behavioral economics. They must be considered while designing the pay system. A desire to 'increase pay and benefits' has become the number one reason why employees want to change jobs, overtaking 'improving job satisfaction' in the Chartered Institute of Personnel and Development's (CIPD) Employee Outlook survey, as the economic downturn continues to erode people's standard of living. (The Chartered Institute of Personnel and Development's)
The survey of 2,000 employees finds more than half of workers (54%) say their top reason for wanting to change job is to increase their salary and benefits, with improving job satisfaction cited second most commonly (42%). This is a reversal from last year when 61% cited job satisfaction and 48% said improving pay and benefits. The trends are uniform across all sectors.
Every organizational function and activity needs money to run and manage properly. Availability of adequate financial allocation is needed for development and improvement purposes. This is also true for HR. Continuous development and improvement in HR are as important as those in the business activities of an organization.
Compensation budget normally has two parts first, identify the expected Human Resources Headcount and second, the cost of human resources to make it part of overall financial budget. Compensation budget must cover every important head of expenses, whether present or future, and even for seemingly insignificant items.
Employee-related costs often comprise the greatest share of corporate operating expenses. It is no surprise that executive management focuses on controlling employee expenses in every way possible. At divisional and departmental levels, however, managers must make hiring and compensation decisions that will help their units to meet objectives: hiring the right people for the right jobs, compensating them fairly, helping them to become rapidly productive, and retaining them as long as possible. Human Resources Management (HRM) administers the headcount and compensation planning process. It makes sure managers adhere to corporate hiring and compensation policies. HR seeks forward visibility to hiring decisions so that it can source the best talent. It analyzes employee trends-like attrition- so that the corporation can make decisions to help retain top talent. Consequently, executive management, finance, and HRM are looking for tools and disciplines to manage headcount and compensation planning so that business unit decisions are aligned with corporate objectives.
Planning helps corporations to manage cross-enterprise employee headcount, compensation, and benefit costs to align departmental decisions with corporate objectives. Headcount and Compensation is linked by business drivers to various process areas in a corporation. Enterprise headcount plans are dependent on a number of business drivers. For instance, sales forecast trends can have immediate impact on headcount in sales, marketing, and operations. Similarly if product failure rates are higher than expected, additional hotline support and on-site field service staff might be required. Resource planning for product development and production also directly impacts headcount. In turn, headcount can be a driver for operational plans in other functions. IT spending-like the number of computers or networks to purchase and deploy-is directly tied to headcount, which in turn drives IT helpdesk plans for staffing, infrastructure, and training. Employee compensation is a driver of employee productivity. Merit increases tied to individual, team, divisional, and corporate performance objectives can have a significant impact on enterprise performance. The key outputs of the process are headcount plans and compensation plans.
All activity centers within the organization develop plans that include headcount. During the year, updated forecasts are periodically created, providing an opportunity to revise headcount and compensation plans. The process typically starts by updating existing employee status. Some employees may take a leave of absence, transfer to other departments, and or be terminated. The next step is to update the new-hire headcount forecast based on current business conditions. During headcount planning, managers must comply with established HR policies.
Headcount and Compensation Planning is a collaborative effort to align departmental staffing requirements with corporate objectives: Corporate management typically tries to control headcount-related expenses, while divisional managers try to make headcount and compensation decisions that optimize departmental efficiency and productivity. HR ensures compliance with corporate policies. As they update existing employee status, staff managers must be aware of leave-of-absence, inter-departmental transfer, and severance policies. After adjusting the status of existing employees, staff managers update new-hire plans. Business conditions may dictate an increase or decrease in headcount projections or a shift in new-hire timing. Human Resource Management (HRM) systems are useful for managing current and historical employee information in a secure, scalable manner, but not so useful for managing forward-looking employee information: How many new hires will departments plan to hire over the next 12 months by role, grade, and compensation rate? If revenue projections run ahead of the annual plan, for example, headcount in sales and customer service should increase proportionally.
The research has also proved that the layoff of employees do not reduce the expense on the other hand expense continue to increase. The employees are the most important investment and asset of an organization. (Heathfiled, 2012)
When the organization will have forecasted its staffing requirements and their respective grades in headcount planning then next step is to calculate the cost of human resources to implement organizational plans. Total compensations which will have to be provided to the employees in return of their services are forecasted in advance. Generally this calculation requires the consideration of the following major items:
Overhead cost consists upon many items in which main are Payroll, including Salary, Overtime, Allowances, Employees provident fund, Bonus, Increment, and Recruitment Cost. The cost includes the Training Cost, Welfare Cost.
The overall compensation will be based on the overall objective and business target of the organization for the coming year. If there is no such specific objective or target, the overall compensation could be based on the current year one, with 20-30% increase. ( (www.strategic-human-resource.com, 2012)
