compensation part i 1. chapter objectives describe the various forms of compensation. explain the...
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COMPENSATIONPart I
1
Chapter Objectives• Describe the various forms of compensation.• Explain the concept of equity in financial
compensation.• Identify the determinants of financial
compensation.• Discuss compensation legislations• Describe factors that should be considered
when the labor market is a determinant of financial compensation.
2
Compensation: An Overview• Compensation - Total of all rewards provided
employees in return for services• Direct financial compensation - Pay received in
the form of wages, salaries, bonuses, and commissions
• Indirect financial compensation - All financial rewards not included in direct compensation
• Nonfinancial compensation - Satisfaction a person receives from job itself or from work environment
3
Components of a Total Compensation Program External Environment
Internal Environment
4
Compensation
Direct
Wages Salaries Commissions Bonuses
Indirect (Benefits)
Legally Required Benefits Social Security Unemployment Compensation Workers’ Compensation Family & Medical Leave
Voluntary Benefits Payment for Time Not Worked Health Care Life Insurance Retirement Plans Employee Stock Option Plans Supplemental Unemployment Benefits Employee Services Premium Pay Unique Benefits
The Job
Skill Variety Task Identify Task Significance Autonomy Feedback
Job Environment
Sound Policies Competent Employees Congenial Coworkers Suitable Status Symbols Working Conditions
Workplace Flexibility Flextime Compressed Work Week Job Sharing Flexible Compensation Telecommuting Part-time Work Modified Retirement
Financial Non-Financial
Equity in Financial Compensation
• Equity - Fair pay treatment for employees• External equity - Employees are paid
comparably to workers who perform similar jobs in other firms
• Internal equity - Employees are paid according to relative value of their jobs within same organization
5
Equity in Financial Compensation (Continued)
• Employee equity - Paid according to factors unique to employee, such as performance level or seniority
• Team equity – Reward based on teams productivity
6
Primary Determinants of Individual Financial Compensation
7
The Organization Compensation Policies Organizational Politics Ability to Pay
The Labor Market Compensation Surveys Expediency Cost of Living Labor Unions Society The Economy Legislation
The Employee Job Performance Merit Pay Variable Pay Competency-Based Pay Seniority Experience Organization Membership Potential Political Influence Luck
Job
Pricing
Individual Financial
Compensation
The Job Job Analysis Job Descriptions Job Evaluation Collective Bargaining
Compensation Policies
• Pay leaders – pay higher wages and salaries• Market rate, or going rate – pay what most
employers pay for same job• Pay followers – pay below market rate
because poor financial condition or believe they do not require highly capable employees
8
The Labor Market as a Determinant of Financial Compensation
• Compensation surveys• Expediency• Cost of living• Labor unions• Society• Economy• Legislation
9
The Job as a Determinant of Financial Compensation
• Job itself continues to be a factor, especially in those firms that have internal pay equity as a primary consideration
• Organizations pay for value they attach to certain duties, responsibilities, and other job-related factors such as working conditions
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Job Evaluation
• Firm determines the relative value of one job in relation to another– Ranking – Classification– Factor comparison
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Classification Method
• Define number of classes or grades to describe group of jobs
• Compare job description with class description• Class description that most closely agrees with
job description determines job classification
23
Job PricingPlacing a dollar value on worth of a job • Pay grades - Grouping of similar jobs to simplify
pricing jobs• Pay ranges - Minimum and maximum pay rate with
enough variance between the two to allow for a significant pay difference
• Broadbanding – Collapses many pay grades into a few wide bands or improve effectiveness
• Adjusting pay rates - Overpaid and underpaid jobs
25
Employee as a Determinant of Financial Compensation
• Performance-based Pay• Skilled-based Pay• Competency-based Pay• Seniority• Experience• Potential• Political Influence• Luck
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