Compensation and Benefits

9

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LEARNING OUTCOMES

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1 Describe the basic issues involved in developing a compensation strategy

2 Discuss how organizations develop a wage and salary structure

3 Identify and describe the basic issues involved in wage and salary administration

4 Discuss the basic considerations in understanding benefit programs

5 Identify and describe mandated benefits6 Identify and describe nonmandated benefits7 Discuss contemporary issues in compensation and

benefits

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Compensation

• Set of rewards that organizations provide to individuals for willingness on tasks performed

• Benefits: Various items of value beyond wages that employees receive from the organization• Rewards

• Incentives

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Basic Purposes of Compensation

• To provide appropriate and equitable rewards to employees

• To help employees focus on activities that the organization considers important

• To increase employee efforts along desired lines

• Internal equity: Comparisons made by employees to other employees within the same organization

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Basic Purposes of Compensation

• External equity: Comparisons made by employees to others employed by different organizations performing similar jobs

• Pay surveys: Survey of compensation paid to employees by other employers in a particular geographic area, industry, or occupational group

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Figure

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9.2 Strategic Options for Compensation

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Determining what to Pay

• Job evaluation methods: Determines the relative value of a job to the organization • Classification system: Attempts to group sets of

jobs together into clusters

• Point system: Requires managers to quantify the value of various elements of specific jobs in objective terms

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Determining what to Pay

- Point manual: Carefully and specifically defines the degrees of points from first to fifth

• Factor-comparison method: Assesses jobs on a factor-by-factor basis using a factor-comparison scale as a benchmark

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Determining what to Pay

• Pay for knowledge: Involves compensating employees for learning specific information

• Skill-based pay: Rewards employees for acquiring new skills

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Wage and Salary Administration

• Ongoing process of managing a wage and salary structure

• Pay secrecy: Extent to which the compensation of any individual in an organization is secret

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Wage and Salary Administration

• Pay compression: Occurs when individuals with substantially different levels of experience, or performance abilities, are paid relatively equal salaries

• Pay inversion: New employees are paid more than experienced employees• Occurs due to rapid external market changes

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The Nature of Benefits Programs

• Most organizations provide their employees with an array of benefits

• The cost of benefits programs• Organizations spend huge amounts on benefits

• Employees are asked to bear more of the costs

• Purposes of benefits programs• Attracts better qualified people

• Affects job satisfaction

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Mandated Benefits

• Unemployment insurance: Intended to provide a basic subsistence payment to employees who are between jobs

• Social security: Designed to provide limited income to retired individuals

• Worker’s compensation: Insurance covering individuals who suffer a job-related illness or accident

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Nonmandated Benefits

• Private pension plans: Provides income at retirement• Defined benefit plans

• Defined contribution plans

• Paid time off

• Other benefits• Wellness programs

• Cafeteria-style benefits

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Contemporary Issues in Compensation and

Benefits

Executive compensation

Growing legal issues

Evaluating compensation and benefit programs

SUMMARY

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• Compensation: Set of rewards an organization provides to individuals in return for their willingness to perform various jobs and tasks within the organization

• Benefits: Various rewards, incentives, and other things of value an organization provides to its employees

KEY TERMS

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• Benefits (p. 196)• Cafeteria-style benefits plans (p. 212)

• Classification system (p. 202)• Compensation (p. 196)• Defined benefit plans (p. 210)• Defined contribution plans (p. 210)• External equity (p. 197)• Factor-comparison method (p. 204)• Internal equity (p. 197)• Job evaluation (p. 202)• Maturity curve (p.200)

• Pay compression (p. 206)• Pay for knowledge (p. 205)

• Pay inversion (p. 206)• Pay secrecy (p. 205)• Pay surveys (p.197)• Point manual (p. 204)• Point system (p. 203)• Private pension plans (p. 210)

• Salary (p. 199)• Skill-based pay (p.205)• Social security (p. 208)

KEY TERMS

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• Unemployment insurance (p. 207)• Vesting rights (p. 215)• Wage and salary administration (p. 205)• Wages (p. 199)• Wellness programs (p. 211)• Workers’ compensation (p. 208)

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