taj-hrm-380-summer 2014-chapter 01-basic compensation.ppt
TRANSCRIPT
CompensationCompensation
is the set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization.
Internal equityin compensation refers to comparisons that
employees make to other employees within the same organization.
External equityin compensation refers to comparisons employees
make to others performing similar jobs in different organizations.
Reward andReward andmotivatemotivate
InternalInternalequityequity
ExternalExternalequityequity
LegalLegal compliance compliance
CompensatioCompensationn
ExpenseExpensecontrolcontrol
Wages versus SalariesWagesgenerally refer to hourly compensation paid to
operating employees; the basis for wages is time.
SalarySalary is income that is paid an individual not on theis income that is paid an individual not on the
basis of time, but on the basis of performance.basis of time, but on the basis of performance.
Anticipation of Anticipation of setting pay levelsetting pay level
DeterminationDeterminationof market payof market pay
Pay belowPay belowmarket ratemarket rate
Pay above Pay above market ratemarket rate
Pay market Pay market raterate
Pay Pay above above market market
raterate
Pay at Pay at marketmarket
raterate
Pay Pay below below market market
raterate
• Attracts better employeesAttracts better employees• Minimizes voluntary Minimizes voluntary
turnoverturnover• Fosters strong culture and Fosters strong culture and
competitive superiority competitive superiority
• Additional compensation Additional compensation costscosts
• Sense of entitlementSense of entitlement
• Higher quality of human Higher quality of human resources at midrange of resources at midrange of market-driven compensation market-driven compensation costscosts
• Does not attract higher Does not attract higher performersperformers
• Turnover will vary with labor Turnover will vary with labor demands of competing firmsdemands of competing firms
• Lower compensation costsLower compensation costs• Useful in labor markets Useful in labor markets
where unemployment is where unemployment is highhigh
• Lower-quality employeesLower-quality employees• Low morale/job satisfactionLow morale/job satisfaction• Higher turnover; especially Higher turnover; especially
among high performersamong high performers
AdvantagesAdvantagesDisadvantagesDisadvantages
Factors contributing to a firm’s compensation strategyFactors contributing to a firm’s compensation strategy
Relationship of overall strategy to compensation strategyRelationship of overall strategy to compensation strategy
Growth rate of firm and demand for human resourcesGrowth rate of firm and demand for human resources
Financial condition of the firm (i.e., ability to pay)Financial condition of the firm (i.e., ability to pay)
Overall attractiveness of firm (i.e., location, culture)Overall attractiveness of firm (i.e., location, culture)
Legal context of federal, state, and local labor regulationsLegal context of federal, state, and local labor regulations
Union influence and presence in labor marketUnion influence and presence in labor market
Pay Surveys and CompensationPay surveysare surveys of compensation paid to
employees by other employers in a particular geographic area, an industry, or an occupational group.
assist firms in avoiding problems of external equity when attempting to set compensation strategy for themselves.
FactorFactorcomparisoncomparison
method method
Job rankingJob rankingmethodmethod
ClassificationClassificationsystemsystem
Point systemPoint systemJob Job
EvaluationEvaluationRegression-Regression-
based systembased system
Job Evaluation and Job WorthFactor comparison methodassesses jobs on a factor-by-factor basis, using
a factor comparison scale as a benchmark.Regression-based system
uses a statistical technique called multiple regression to develop an equation that establishes the relationship between different dimensions of the job and compensation.
Factor Comparison Method of Job EvaluationSix steps:
Comparison factors are selected and defined.Benchmark or key jobs are identified.Benchmark jobs are ranked on each
compensation factor.A part of each benchmark job’s wage rate is
allocated to each job factor.Two sets of ratings are prepared, based on the
ranking and the assigned wages, to determine the consistency demonstrated by the evaluators.
A job comparison chart is developed to display the benchmark jobs and the monetary values that each job receives for each factor.
Wage and Salary AdministrationManaging compensationallows the organization to control compensation
costs and to maintain a compensation structure that fits the needs of both the organization and its employees. As organizational circumstances change, it may become necessary to modify or change the compensation strategy.
Determining individual wageshas its basis in the organization’s awarding
differential compensation to employees on the basis of qualifications, seniority, or other job-related factors.
Wage and Salary AdministrationPay secrecyrefers to the extent to which an individual’s
compensation in an organization is secret.Arguments for pay secrecy
An individual’s compensation is a private matter and not for public knowledge.
Knowing pay levels fosters jealousy and resentment.Argument against pay secrecy
Public knowledge about an open-pay system creates proper perceptions of equity and motivates performance.
Pay compressionoccurs when individuals of substantially different levels
of experience or seniority are paid similar wages or salaries.