1. Compensation Management
System in Nepal
Facilitated By
Pratap Kumar Pathak

2. Welcome

3. Conceptualizing Compensation
Management

4. What is Compensation Management
• General policy to address human resource and
implemented in conjunction with systems and
methods designed to provide financial benefit
to employees in return to using human talent.
• The ultimate goal is to reward the right people
to the greatest extent for the most relevant
reasons.

5. Compensation includes direct cash
payments and indirect payments
in the form of benefits, incentives
and rewards to motivate
employees to strive for higher
levels of performance and
productivity.

6. Compensation
Tool to foster
values and
culture
System of
rewards for
motivating
performing
employees
Instrument to
increase
performance and
productivity
Instrument to
enable
organization
achieving
objectives

7. Wage and salary
Incentives and
rewards
Social Security
and Fringe
benefits
Perquisites
Different
Components of
Compensation

8. Objectives of Compensation
• Survival and subsistence
• Competitive performance
• Executive development
• Motivation and morale
• Productivity, economy and efficiency
• Attraction and retention of competent personnel
• Organizational development
• Effective delivery of goods and services
• Positive group dynamics
• Organizational culture

9. Characteristics of Compensation
System
• Flexible and rigid
• Fixed and differentiated
• Position or Rank-based and Performance-
based
• Regulated and Autonomous
• Organizational and Programme-based
• Institutional and Outsourced
• Treasury funded and revenue funded

10. Types of Compensation
Compensation
Pay-related
compensation: Pay,
allowance
Performance-related:
Incentives,
performance pay
Career Opportunity:
Promotion, Job
enrichment,
Responsibility
Ownership: Profit
sharing, share
participation
Social Security:
Pension, insurance,
provident fund,
gratuity

11. Employee Compensation
Financial
Pay, Salary,
Wages Incentives Social Security
Non-financial
Job and
Career-related
benefits

12. Principles and Theories of
Compensation Management

13. Basic Principles of Employee
Compensation
• Principle of survival and subsistence
• Principle of performance and productivity
• Principle of equity
• Principle of motivation and morale
• Principle of attraction
• Principle of profitability
• Principle of participation and ownership
• Principle of organization development
• Principle of sustainability

14. Theories of Compensation
Compensation
Behavioural
Theories
Economic
Theories
Organization and
Management
Development
Theories
Equity and
Justice Theories

15. •Subsistence
•Marginal Productivity
•Productivity
•Profitability
•Surplus value
•Residual claimant
Economic
Theories
•Performance and Outputs
•Skill and competency
•Collective bargaining
Orgnanization
and Management
Development
Theories
•Motivation and morale
•Reinforcement
•Expectancy
•Group dynamics
•Equity and justice
•Quality of work life
Behavioural
Theories

16. Process and Methods of
Compensation Management

17. Instrument of Compensation
Determination
• Job analysis and job evaluation
• Performance management
• Market research and analysis
• Permanent institution for determining
compensation
• Expert team mobilization
• Profitability and productivity analysis
• Sector analysis and harmonization
• Economic sustainability analysis
• Behavioural analysis

18. Components of a Compensation
System
Job Analysis
Pay
Structures
Salary
Surveys

19. Process of Compensation
Management
HR Policy and
Strategy
Compensation
Policy
Job Analysis and
Evaluation
Analysis of
Contingent
Factors
Design and
Implementation of
Compensation Plan
Evaluation and
Review

20. Critical Issues in Compensation
Management

21. Changing Dimensions of
Compensation Management
• Extensive application of Information and
Communication Technologies
• Modernization of Production technology
• Knowledge management
• Changed dynamics of market
• Outsourcing and contracting out
• Virtual organizations
• Social inclusion

22. Factors of
Determination
of
Compensation
Labour
Market
Employee
and Unions
Legal
Environment
Economy
Performance
and
Productivity

23. Requisites of a Sound Compensation
System
External
competitiven
ess
Performance and
Productivity
Internal
Equity

24. Compensation and Performance
• Performance and outputs
• Productivity
• Efficiency and economy
• Profitability

25. Compensation and Economy
• Efficiency and productivity
• Macroeconomic stability
• Budgetary control
• Efficient allocation of labour
• Labour market dynamics

26. Compensation and Motivation
• David McClleland’s Achievement motivation
• Abrahm Maslow and need-based motivation
• Herzberg’s Dual Factor Theory of motivation
– Performance pay
• Victor Vroom’s Expectancy Theory
• Skinner’s Reinforcement Theory
• Equity theory

27. Compensation and Industrial Relations
• Career and compensation
• Social dialogue and collective bargaining
• Economic advancement in employment
• Employee-management relations

28. Compensation Management
System and Practices in Nepal

29. Foundations for Compensation
Management in Nepal
• Constitutional provision
• Civil service law
• Budgetary policy
• Personnel Management Laws of enterprises
• Employees Provident Fund and Citizen Trust
Fund
• Social security provisions
• Labour law and labour standards

30. Human Resource Policy and Strategy
• Long-term vision for human resource
management
• Strategic plan for human resource management
• Human resource information system
• Human resource development and mobilization
plan
• Compensation plan
• Integration of compensation system into Human
Resource Policy and Strategy

31. Inferences Drawn from Nepalese
Experiences
• HR Policy analysis for compensation management
• Strategic Planning and Strategic Management:
Weak strategic orientation
• Weak integration
• Harmonizing compensation with organization’s
long term plan and policy: Low level of readiness
• Human resource information system is almost
non-existent
• Compensation is driven by ability to pay rather
than standards

32. Job Analysis and Job Evaluation
• Organization and management survey: Weak
research orientation
• Analyzing job for preparing job descriptions,
job specifications and job standards
• Job evaluation and ranking of job
• Position classification and grading of
positions
• Matching job with compensation
• Practice of job analysis and job evaluation is
almost non-existent in public enterprises
• Job and position are based on rank rather
than performance grades

33. Compensation Determination
• Pay Commission/Wage Board recommendations
• Collective bargaining and negotiation method
• Market survey and adjustment system
• Court decisions
• Comparison method
• Budgetary declaration
• Performance contracts
• Incremental changes
• Adhoc procedures
• Weak participation of employees

34. Performance-based Compensation
• Performance management system has been
applied in business entities
• Difficult and complex in public enterprises
• Performance-based pay is almost non-existent
in public organizations
• Performance-based incentives system in a
team approach has been applied in adhoc
basis in civil service and public enterprises
• Bonus system applied on the basis of
immediate profit rather than profitability and
sustainability

35. Executive Compensation
• Compensation based on performance
contracts
• Performance contracts with Chief Executive
• Performance contracts between Chief
Executive and the Department/Project Chiefs

36. Social Dialogue and Collective
Bargaining
• Instrument for professional trade unions in
collectively determining compensation
• Differentiated interests of management and
employee unions
• Political interest vs organizational interest
• Sensitivity towards productivity

37. Social Security
• Lack of “Comprehensive Social Security
System”
• Differentiated system based on organizational
capacity
• Social insurance and public assistance
• Operationalization of “Social Security Fund”

38. Effective System for
Compensation Management

39. Requirements for a Sound
Compensation System
• Strategic Framework
• Structural Capacity
• Effective Systems and Methods
• Integration with organizational development
and management effectiveness
• Harmonization with performance behaviour
• Sustainability

40. Requirements for an Effective
Compensation System in Nepal
• Human resource strategy and policy
• Human resource information system
• Harmonized compensation plan
• Comprehensive social security system
• Performance-based compensation system
• Research and survey on job engineering,
productivity and performance improvements
• Participatory and transparent process of
determining compensation

41. Any queries…..PLEASE

42. Thank you all for your kind
attention