Matakuliah : J0124/Manajemen Sumber Daya ManusiaTahun : 2007/2008

MODUL 16 Compensation Strategies &

Practices

Bina Nusantara

Learning OutcomesAfter studying this chapter, the students shouldbe able to :• Identify two types & components of compensation • Discuss four strategic compensation design issues• Define job evaluation & discuss four methods of performing

it• Outline the process of building wage & salary system

Bina Nusantara

Outline • The Nature of Compensation• Compensation System Design Issues• Perceptions of Pay Fairness• Legal Constraints on Pay Systems• Development of a Base Pay System• Pay Structure• Issues Involving Pay Increases

Bina Nusantara

Nature of Compensation• Compensation is what employees receive in exchange for

their contribution to the organization

Compensation

Direct Indirect

Bina Nusantara

Compensation System Design Issue

• Compensation philosophies * entitlement orientation * performance orientation• Compensation approaches * traditional approach * total reward approach• Decisions about compensation level• Competency-based level• Individual vs team rewards

Bina Nusantara

Perception of Pay Fairness

• Procedural & distributive justice in compensation

• Pay openness

• External equity

Bina Nusantara

Legal Constraints on Pay Systems

• Minimum wage• Child-labor provision• Computer-related occupations• Overtime provisions• Compensatory time off• Independent contractor regulations• Equal pay & pay equity

Bina Nusantara

Development of a Base Pay System

• Job evaluation * ranking method * classification method * point method * factor comparison

• Legal issues & job evaluation

Bina Nusantara

• Pay surveys

Wages & salaries survey

Formal Informal

Bina Nusantara

Pay Structures• Different pay structure• Establishing pay grades• Broadbanding• Pay range• Individual pay• Rates out of range• Pay compression

Bina Nusantara

Issues Involving Pay Increases• Pay adjustment matrix

• COLA

• Seniority

• Lump-sum increases

Bina Nusantara

Closing• Compensation can be divided into direct & indirect

compensation• When designing & administering compensation program,

behavioral aspects must be considered• There are several factors in determining salary rates• An effective pay system requires that changes continue to

be made as needed