Human Resource Management ESSENTIAL PERSPECTIVE © 2005 Southwestern College Publishing. All rights reserved. PowerPoint Presentation by Truong Thi Lan Anh Compensation and Employee benefits (C&B) Section 6 Robert L. Mathis  John H. Jackson © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–2 Learning Objectives After you have studied this section, you should be able to: – Understand the nature of compensation. – Describe three considerations affecting perceptions of pay fairness. – Define job evaluation and its role in C&B – Outline the process of building a wage and salary administration system. – Define variable pay. – Identify different uses of individual vs. team plans in terms of rewards and incentives. – Define a benefit and identify two strategic reasons why employers provide benefits. © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–3 Nature of Compensation  Compensation is the total amount of the monetary and non-monetary pay rewarded to an employee by an employer in return for work performed as required.  Types of Rewards – Intrinsic • Intangible, psychological and social effects of compensation • Ex. Challenging tasks, autonomy, & non-monetary benefits – Extrinsic • Tangible (direct or indirect), monetary and non-monetary effects of compensation • Ex. Praise, monetary incentives, recognition © 2005 Southwestern College Publishing. All rights reserved. A System of Rewards © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–5 Nature of Compensation  Compensation is based on… – market research about the worth of similar jobs in the marketplace, – employee contributions and accomplishments, – the availability of employees with like skills in the marketplace, – the desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship, and – the profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–6 Compensation Systems  Objectives of an Effective Compensation System: – Legal compliance with all appropriate laws and regulations – Cost effectiveness for the organization – Internal, external, and individual equity for employees – Performance enhancement for the organization © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–7 Components of A Compensation Program Figure 12–1 © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–8 Direct Compensation Compensation Type Base Pay The basic monetary compensation that an employee receives, usually as a wage or salary. Wages Payments calculated on the amount of time worked. Salary Consistent payments made each period regardless of the number of hours worked in the period. Variable Pay Compensation linked to individual, team, or organizational performance. Benefit An indirect reward given to an employee or group of employees as a part of organizational membership. © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–9 Typical Division of HR Responsibilities: Compensation Figure 12–2 © 2005 Southwestern College Publishing. All rights reserved. Lan Anh 12–10 Continuum of Compensation Philosophies Figure 12–3 [...]...  Differential Piece-Rate Systems – Employees are paid one piece-rate for units produced up to a standard output and a higher piece-rate wage for units produced over the standard © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–34 Sources of Bonuses Source: Kathryn F Clark, “Incentives Increase But Competitive Base Salary Key in Talent Race,” Human Resource Executive, June 2, 2000,... pay for the base Make system simple and understandable Use variable pay based on business entity performance Distribute variable rewards at the team level Maintain a high degree of employee involvement © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–14 Perceptions of Pay Fairness Equity The perceived fairness between what a person does (inputs) and what the person receives (outcomes)... fairness of the process and procedures use to make decisions about employees Distributive Justice The perceived fairness in the distribution of outcomes Pay Openness The degree of openness or secrecy that an organization allows regarding its pay system External Equity The perception that the organization provides employees with compensation that comparable to the compensation of employees with similar... line on a graph showing the relationship between the job value, as determined by job evaluation points, and pay survey rates  Common Pay Structures – Hourly and salaried – Office, plant, technical, professional, managerial – Clerical, information technology, professional, supervisory, management, and executive © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–21 Establishing Pay... levels of experience and performance in the organization becomes small © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–25 Issues Involving Pay Increases  Seniority – Time spent in an organization or on a particular job – Used to determine eligibility for organizational rewards and benefits  Maturity Curve – A curve that depicts the relationship between experience and pay rates –... Competitiveness Desired 12–32 Bonuses and Special Incentive Programs  Bonus – A one-time payment that does not become part of the employee s base pay  Awards – Cash or merchandise used as an incentive reward  Recognition Awards – Recognition of individuals for their performance or service to customers in areas targeted by the firm  Service Awards – Rewards to employees for lengthy service with an... Strategies Above-Market Paying for higher qualified, more productive workers Middle-Market Attempting to balance of employer costs and need to attract and retain employees Below-Market Paying all that the firm can afford Taking advantage of the abundant supply of potential employees in a loose labor market © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–12 Competency-Based Pay Limitations... organization than others Time spent is the primary measure of employee contribution Some people perform better than others Length of service is the primary differentiating factor among people Employees who perform better should receive more compensation Contributions are recognized through different amounts of base pay A portion of some employees’ total compensation should be contingent on performance... College Publishing All rights reserved Lan Anh 12–23 Example of Pay Grades and Pay Ranges Figure 12–16 © 2005 Southwestern College Publishing All rights reserved Lan Anh 12–24 Pay Rate Issues  Rates Out of Range – Red-Circled Employees • An incumbent (current jobholder) who is paid above the range set for the job – Green-Circled Employees • An incumbent who is paid below the range set for the job  Pay... 12–22 Pay Structures (cont’d)  Pay Grades – A grouping of individual jobs having approximately the same job worth  Broadbanding – The practice of using fewer pay grades having broader pay ranges that in traditional systems – Benefits • • • • • Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency . marketplace, – employee contributions and accomplishments, – the availability of employees with like skills in the marketplace, – the desire of the employer to attract and retain a particular employee. Human Resource Management ESSENTIAL PERSPECTIVE © 2005 Southwestern College Publishing. All rights reserved. PowerPoint Presentation by Truong Thi Lan Anh Compensation and Employee. balance of employer costs and need to attract and retain employees. Below-Market Paying all that the firm can afford Taking advantage of the abundant supply of potential employees in a loose