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Compensation and Benefits
9
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LEARNING OUTCOMES
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1 Describe the basic issues involved in developing a compensation strategy
2 Discuss how organizations develop a wage and salary structure
3 Identify and describe the basic issues involved in wage and salary administration
4 Discuss the basic considerations in understanding benefit programs
5 Identify and describe mandated benefits6 Identify and describe nonmandated benefits7 Discuss contemporary issues in compensation and
benefits
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Compensation
• Set of rewards that organizations provide to individuals for willingness on tasks performed
• Benefits: Various items of value beyond wages that employees receive from the organization• Rewards
• Incentives
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Basic Purposes of Compensation
• To provide appropriate and equitable rewards to employees
• To help employees focus on activities that the organization considers important
• To increase employee efforts along desired lines
• Internal equity: Comparisons made by employees to other employees within the same organization
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Basic Purposes of Compensation
• External equity: Comparisons made by employees to others employed by different organizations performing similar jobs
• Pay surveys: Survey of compensation paid to employees by other employers in a particular geographic area, industry, or occupational group
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Figure
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9.2 Strategic Options for Compensation
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Determining what to Pay
• Job evaluation methods: Determines the relative value of a job to the organization • Classification system: Attempts to group sets of
jobs together into clusters
• Point system: Requires managers to quantify the value of various elements of specific jobs in objective terms
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Determining what to Pay
- Point manual: Carefully and specifically defines the degrees of points from first to fifth
• Factor-comparison method: Assesses jobs on a factor-by-factor basis using a factor-comparison scale as a benchmark
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Determining what to Pay
• Pay for knowledge: Involves compensating employees for learning specific information
• Skill-based pay: Rewards employees for acquiring new skills
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Wage and Salary Administration
• Ongoing process of managing a wage and salary structure
• Pay secrecy: Extent to which the compensation of any individual in an organization is secret
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Wage and Salary Administration
• Pay compression: Occurs when individuals with substantially different levels of experience, or performance abilities, are paid relatively equal salaries
• Pay inversion: New employees are paid more than experienced employees• Occurs due to rapid external market changes
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The Nature of Benefits Programs
• Most organizations provide their employees with an array of benefits
• The cost of benefits programs• Organizations spend huge amounts on benefits
• Employees are asked to bear more of the costs
• Purposes of benefits programs• Attracts better qualified people
• Affects job satisfaction
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Mandated Benefits
• Unemployment insurance: Intended to provide a basic subsistence payment to employees who are between jobs
• Social security: Designed to provide limited income to retired individuals
• Worker’s compensation: Insurance covering individuals who suffer a job-related illness or accident
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Nonmandated Benefits
• Private pension plans: Provides income at retirement• Defined benefit plans
• Defined contribution plans
• Paid time off
• Other benefits• Wellness programs
• Cafeteria-style benefits
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Contemporary Issues in Compensation and
Benefits
Executive compensation
Growing legal issues
Evaluating compensation and benefit programs
SUMMARY
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• Compensation: Set of rewards an organization provides to individuals in return for their willingness to perform various jobs and tasks within the organization
• Benefits: Various rewards, incentives, and other things of value an organization provides to its employees
KEY TERMS
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• Benefits (p. 196)• Cafeteria-style benefits plans (p. 212)
• Classification system (p. 202)• Compensation (p. 196)• Defined benefit plans (p. 210)• Defined contribution plans (p. 210)• External equity (p. 197)• Factor-comparison method (p. 204)• Internal equity (p. 197)• Job evaluation (p. 202)• Maturity curve (p.200)
• Pay compression (p. 206)• Pay for knowledge (p. 205)
• Pay inversion (p. 206)• Pay secrecy (p. 205)• Pay surveys (p.197)• Point manual (p. 204)• Point system (p. 203)• Private pension plans (p. 210)
• Salary (p. 199)• Skill-based pay (p.205)• Social security (p. 208)
KEY TERMS
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• Unemployment insurance (p. 207)• Vesting rights (p. 215)• Wage and salary administration (p. 205)• Wages (p. 199)• Wellness programs (p. 211)• Workers’ compensation (p. 208)
19Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3
20Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3
21Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3
22Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3
23Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3
24Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. HRM3 | CH3