Download - 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