compensation mgt chapter 1

7/28/2019 Compensation Mgt Chapter 1

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What is compensation?

Definition : Refers to all forms offinancial returns and tangibleservices and benefits employeesreceive as part of an employee

relationship


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1 Direct Financial Compensation 2 Indirect Financial Compensation

3 Non-financial Compensation

Compensation And Organization Strategy

Strategy is the result of integration of mission

and organizational goal. Without effectivestrategies, organizational goal cannot beaccomplished


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The compensation system results from theallocation, conversion and transfer of a portion ofthe income of an organization to its employee fortheir monetary and in-kind claims on goods and

services.

Monetary claims on goods and services are wages orsalaries paid to an employee in the form of money or

form that is quickly and easily transferable to moneyat the discretion of the employee


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CompensationSystem

Pay for work andperformance

DisabilityIncomeContinuation

Deferred Income Health, Accident,Liability Protection

Pay for time notworked

Loss-of-jobincome

continuation

Spouse (family)Income

Continuation

Income EquivalentPayments


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Pay For Work and Performance Typical components within this dimension are base pay, premiums

and differentials, short-term bonuses, merit pay and certainallowances

Pay for Time Not Worked These components of pay for time not worked significantly increase

labor costs and also enhance quality-of work-life opportunities formost employees

Loss-of-Job Continuation Not only could accident and sickness problem occur, but personal

performance or interpersonal dynamics might cause a temporarylayoff or termination of employment.


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Disability Income Continuation The possibility always exist that a worker will occur health or

accident disability. Because of these disabilities, employees arefrequently unable to perform their normal assignments.

Deferred Income These programs are provided for two basic reasons.

First, most employees do not have sufficient savings at retirement tocontinue the lifestyles they enjoyed while working.

Second, tax laws and regulations make deferred income plans moreappealing to many employees.

Spouse (Family) Income Continuation Plans are designed to provide dependents with income when an

employee dies or is unable to work because of total and permanentdisability. Life insurance plan, pension plans, social security and etc.


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Health, Accident and Liability Protection Organization provide a wide variety of insurance plans to assist in

paying for these goods and services.

Income Equivalent Payments Set of compensation components may be grouped under the title of

income equivalent payments. Some of the more desirable perks arethe use of a company car or company credit card, payment forexpenses to professional meetings, subsidized food services andchild care services.


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These rewards are much more difficult to classify and theircomponents are far more complex than is the case for compensationrewards components.

Have an almost-infinite number of components that relate to thework situation and to the physical and psychological well-being ofeach worker.

Non-compensation system are as follow : - Enhance dignity and satisfaction from work

- Promote constructive social relationship with

-Allocate sufficient resources to perform work

-Offer supportive leadership and management

-Enhance physiological health, intellectual growth and emotionalmaturity

-Designs job that require adequate attention and effort

-Grant sufficient control over the job to meet personal demands


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The first step in understanding labour cost in an organization is torecognise the main elements of a compensation programme. Theseare four elements and they are :

1 Basic wage and salary payment received for a given period. It istypically paid as a salary.

2- Supplementary Wage Includes overtime, shift differences and

premium pay for working during weekends, public holiday or afternormal work hours.

3- Incentive pay (short and long term) paid to employee for theirgood work performance.

4- Employee benefits and services This programme include, paidleave, payment while being suspended from work or los of job,

payment for stoppage of work due to accident or illness, retirementpay, payment to dependents of worker who dies to work-relatedinjuries and allocated products and services such as companys car,food coupons, child or elder care services.


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There are 13 factors to consider in pay rate determination :

1. Knowledge, skill, abilities and other characteristics

2. Type of business

3. Union or Non-union Status

4. Capital or labour Intensity 5. Business size

6. Management philosophy

7. Compensation Package

8. Geographical Location

9.Labour supply

10. Firm Profit 11.Job Security

12.Gender Differences

13.Working Period and Employee Performance


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Strategic Perspective An understanding of how organizational strategy and its related

tactics interact and become integrated is becoming increasinglyimportant to managers at all levels performing variousorganizational assignments.

Employees as Critical Resources

From a strategic and tactical perspective, the quality and quantity oforganizational output depend directly on the skill, interest andeffort of employee, Certainly, the more highly paid workers might bemore critical contributors, but the productive efforts of all employee

are essential.


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Pay Satisfaction In developing a compensation system, designers must recognize

that people make decisions about pay based on comparisons withothers. The others for comparison purposes can be an immediateco-worker with similar if not identical assignments, other employee

in the organization performing different activities and even workersin the organizations doing similar or different work for similar ordifferent rates of pay

Job Satisfaction Ability to perform in a manner, recognition of a job well done and

an opportunity to advance in the current career ladder or even take abringing job to a new career path all enhance job satisfaction.


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Organizational Satisfaction Security in employment for many employees can minimize

frustration and stress arising from pays and job dissatisfaction.

Satisfaction: An Employment Perspective To design, develop and implement reward system that lead to

improved pay, job and organizational satisfaction, it is critical tounderstand the meaning of the word satisfaction from anemployment perspective.


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Formation of an organizational Hierarchy One basic approach to distributing rewards focuses on the level of

the job in the organizational structure. The higher the level the jobis, the greater the responsibility of the incumbent.

Salary Payment : Equality Issues For most employees, the job rate is an essential issue. Fairness in

pay is evaluated by asking how well does may pay compare withthat of the members of the work unit and the organization?Comparisons are also made with friends or family members

compensation mgt chapter 1

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