rewards and compensation. nature of compensation types of rewards intrinsic intangible,...
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Rewards and CompensationRewards and CompensationRewards and CompensationRewards and Compensation
Nature of CompensationNature of CompensationNature of CompensationNature of Compensation
• Types of Rewards Intrinsic
Intangible, psychological, and social effects of compensation
Extrinsic Tangible, monetary, and non-monetary effects of
compensation
• Types of CompensationDirect compensation
The employer exchanges monetary rewards for work done.
Indirect compensation Employer-provided benefits—like health insurance—that are
provide employees for being a member of the organization.
Components of a Compensation System Components of a Compensation System Components of a Compensation System Components of a Compensation System
Strategic CompensationStrategic CompensationStrategic CompensationStrategic Compensation
• Objectives of a Strategically Supportive 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
Compensation PhilosophiesCompensation PhilosophiesCompensation PhilosophiesCompensation Philosophies
• Entitlement PhilosophyAssumes that individuals who have worked another
year are entitled to pay increases, with little regard for performance differences.
• Pay-for-Performance PhilosophyRequires that compensation changes reflect individual
performance differences.
Continuum of Compensation PhilosophiesContinuum of Compensation PhilosophiesContinuum of Compensation PhilosophiesContinuum of Compensation Philosophies
Compensation Approaches Compensation Approaches Compensation Approaches Compensation Approaches
Compensation System Design IssuesCompensation System Design IssuesCompensation System Design IssuesCompensation System Design Issues
ExpatriatesExpatriatesExpatriatesExpatriates
Host-Country Host-Country NationalsNationals
Host-Country Host-Country NationalsNationals
Third-Country Third-Country NationalsNationals
Third-Country Third-Country NationalsNationals
Global Global Compensation Compensation
IssuesIssues
Global Global Compensation Compensation
IssuesIssues
Typical Components of Expatriate CompensationTypical Components of Expatriate CompensationTypical Components of Expatriate CompensationTypical Components of Expatriate Compensation
Individual vs. Team RewardsIndividual vs. Team RewardsIndividual vs. Team RewardsIndividual vs. Team Rewards
Distribute variable rewards at the team levelDistribute variable rewards at the team levelDistribute variable rewards at the team levelDistribute variable rewards at the team level
Make system simple and understandable.Make system simple and understandable.Make system simple and understandable.Make system simple and understandable.
Using Team-Based Reward SystemsUsing Team-Based Reward SystemsUsing Team-Based Reward SystemsUsing Team-Based Reward Systems
Use skill-based pay for the base.Use skill-based pay for the base.Use skill-based pay for the base.Use skill-based pay for the base.
Use variable pay based on business entity performanceUse variable pay based on business entity performanceUse variable pay based on business entity performanceUse variable pay based on business entity performance
Maintain a high degree of employee involvementMaintain a high degree of employee involvementMaintain a high degree of employee involvementMaintain a high degree of employee involvement
Perceptions of Pay FairnessPerceptions of Pay FairnessPerceptions of Pay FairnessPerceptions of Pay Fairness
EquityEquityEquityEquity
InternalInternalEquityEquity
InternalInternalEquityEquity
ExternalExternalEquityEquity
ExternalExternalEquityEquity
The perceived fairness between what a person does The perceived fairness between what a person does (inputs) and what the person receives (outcomes).(inputs) and what the person receives (outcomes).
The perceived fairness between what a person does The perceived fairness between what a person does (inputs) and what the person receives (outcomes).(inputs) and what the person receives (outcomes).
Employee compensation viewed as equitable in relation to the Employee compensation viewed as equitable in relation to the compensation of employees performing similar jobs in other compensation of employees performing similar jobs in other organizations.organizations.
Employee compensation viewed as equitable in relation to the Employee compensation viewed as equitable in relation to the compensation of employees performing similar jobs in other compensation of employees performing similar jobs in other organizations.organizations.
Employees receive compensation in relation to the knowledge, Employees receive compensation in relation to the knowledge, skills, and abilities they use in their jobs as well as their skills, and abilities they use in their jobs as well as their responsibilities and accomplishments.responsibilities and accomplishments.
Employees receive compensation in relation to the knowledge, Employees receive compensation in relation to the knowledge, skills, and abilities they use in their jobs as well as their skills, and abilities they use in their jobs as well as their responsibilities and accomplishments.responsibilities and accomplishments.
Procedural JusticeProcedural JusticeProcedural JusticeProcedural Justice Perceived fairness of the process and proceduresPerceived fairness of the process and proceduresused to make decisions about employees.used to make decisions about employees.
Perceived fairness of the process and proceduresPerceived fairness of the process and proceduresused to make decisions about employees.used to make decisions about employees.
Distributive JusticeDistributive JusticeDistributive JusticeDistributive Justice Perceived fairness in the distribution of outcomes.Perceived fairness in the distribution of outcomes.Perceived fairness in the distribution of outcomes.Perceived fairness in the distribution of outcomes.
Pay Openness/Pay Openness/SecrecySecrecy
Pay Openness/Pay Openness/SecrecySecrecy
The degree of openness or secrecy that an organization The degree of openness or secrecy that an organization allows regarding its pay system.allows regarding its pay system.
The degree of openness or secrecy that an organization The degree of openness or secrecy that an organization allows regarding its pay system.allows regarding its pay system.
Development of a Base Pay SystemDevelopment of a Base Pay SystemDevelopment of a Base Pay SystemDevelopment of a Base Pay System
• Job EvaluationFormal, systematic means to identify the relative
worth of jobs within an organization. Evaluating every job in the organization on:
Skills, Effort, Responsibility and Working Conditions
• Job Evaluation Committees – Committees whose task is to conduct job evaluations
as may be required and/or to determine compensable factors. Most often chaired by key compensation officials from human resources. Membership should be a diverse as possible to ensure widespread input.
Compensation Compensation Administration Administration
Process Process
Compensation Compensation Administration Administration
Process Process
Components of the Wage MixComponents of the Wage MixComponents of the Wage MixComponents of the Wage Mix
WAGEWAGEMIXMIX
Labor MarketConditions
Area WageRates
Cost ofLiving
CollectiveBargaining
LegalRequirements
Compensation Strategyof the Organization
Worth ofthe Job
Employee’sRelativeWorth
Employer’sAbilityto Pay
Factors Affecting the Wage MixFactors Affecting the Wage MixFactors Affecting the Wage MixFactors Affecting the Wage Mix
The Wage Mix—Internal FactorsThe Wage Mix—Internal FactorsThe Wage Mix—Internal FactorsThe Wage Mix—Internal Factors
• Compensation StrategySetting organization compensation policy to lead,
lag, or match competitors’ pay.
• Worth of a JobEstablishing the internal wage relationship among
jobs and skill levels.
• Relative Worth of an EmployeeRewarding individual employee performance
• Ability-to-Pay Having the resources and profits to pay employees.
The Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External Factors
• Labor Market ConditionsAvailability and quality of potential employees is
affected by economic conditions, government regulations and policies, and the presence of unions.
• Area Wage RatesA firm’s formal wage structure of rates is influenced
by those being paid by other area employers for comparable jobs.
The Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External Factors
• Cost of LivingLocal housing and environmental conditions can
cause wide variations in the cost of living for employees.
Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.
The Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External FactorsThe Wage Mix—External Factors
• Collective BargainingEscalator clauses in labor agreements that provide
for quarterly upward cost-of-living wage adjustments for inflation to protect employees’ purchasing power.
Unions bargain for real wage increases that raise the standard of living for their members.
Real wages are increases larger than rises in the consumer price index; that is, the real earning power of wages.
Job EvaluationJob EvaluationJob EvaluationJob Evaluation
FactorFactorComparisonComparison
FactorFactorComparisonComparison
RankingRankingRankingRanking ClassificationClassificationClassificationClassification
PointPointMethodMethod
PointPointMethodMethod
Job Job Evaluation Evaluation MethodsMethods
Job Job Evaluation Evaluation MethodsMethods
Valuing Jobs Using Market PricingValuing Jobs Using Market PricingValuing Jobs Using Market PricingValuing Jobs Using Market Pricing
• Market PricingUse of pay survey data to identify the relative value of
jobs based on what other employers pay for similar jobs.
• Advantages of Market PricingTies organizational pay levels to what is actually
occurring in the market, without being distorted by “internal” job evaluation.
Communicates to employees that the compensation system is “market linked,” rather than distorted by internal issues.
Valuing Jobs Using Market Pricing (cont’d)Valuing Jobs Using Market Pricing (cont’d)Valuing Jobs Using Market Pricing (cont’d)Valuing Jobs Using Market Pricing (cont’d)
• Disadvantages of Market Pricing It relies on market survey data that is limited or may
have been gathered in methodologically sound ways.
The responsibilities of a specific job in a company may be somewhat different from those of the “matching” job identified in the survey.
The market data’s scope (range of sources) is another concern.
Tying pay levels to market data can lead to wide fluctuations based on market conditions.
Pay SurveysPay SurveysPay SurveysPay Surveys
• Pay SurveyCollection of data on compensation rates for workers
performing similar jobs in other organizations.
• Benchmark JobsJobs found in many organizations and performed by
several individuals who have similar duties that are relatively stable and require similar KSAs.
• Internet-Based Pay SurveysPay survey questionnaires are distributed
electronically rather than as printed copies.
Using Pay SurveysUsing Pay SurveysUsing Pay SurveysUsing Pay Surveys
MethodologyMethodologyMethodologyMethodology
ParticipantsParticipantsParticipantsParticipants Broad-basedBroad-basedBroad-basedBroad-based
TimelinessTimelinessTimelinessTimelinessSurvey Data Survey Data RelevanceRelevance
Survey Data Survey Data RelevanceRelevanceJob MatchesJob MatchesJob MatchesJob Matches
Pay StructuresPay StructuresPay StructuresPay Structures
• Job FamilyA group of jobs having common organizational
characteristics.
• Common Pay StructuresHourly and salariedOffice, plant, technical, professional, managerialClerical, information technology, professional,
supervisory, management, and executive
• Pay GradesGroupings of individual jobs having approximately the
same job worth.
Establishing Establishing Pay Structures Pay Structures
Establishing Establishing Pay Structures Pay Structures
Pay Structures (cont’d)Pay Structures (cont’d)Pay Structures (cont’d)Pay Structures (cont’d)
• Market BandingGrouping jobs into pay grades based on similar
market survey amounts.
• Market LineGraph line that shows the relationship between job
value as determined by job evaluation points and job value as determined by pay survey rates.
Shows the distribution of pay for the surveyed jobs, allowing a linear trend line to be developed by the least-squares regression method.
Pay RangesPay RangesPay RangesPay Ranges
• BroadbandingThe 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 development
Emphasizes career development
Determining Pay IncreasesDetermining Pay IncreasesDetermining Pay IncreasesDetermining Pay Increases
• Performance and Merit Increases• Merit Pay
Merit pay programs reward employees with permanent incrses to base pay according to differences in performance.
• Just noticeable difference (JND)The minimum pay increase that employees will see as
making a substantial change in compensation. Sometimes referred to as just-meaningful pay.
Determining Pay Increases (cont’d)Determining Pay Increases (cont’d)Determining Pay Increases (cont’d)Determining Pay Increases (cont’d)
• Seniority Time spent in an organization or on a particular job that is used
to determine eligibility for organizational rewards and benefits.
• Cost-of-Living Adjustments (COLA) A percentage increase in wages to maintain real wages in a
period of economic inflation.
Adjustments are tied to changes in an economic measure (e.g., the Consumer Price Index).
• Lump-Sum Increases (LSI) A one-time payment of all or part of a yearly pay increase that
does not increase base wages.