Employee CompensationConcept• Employees need to compensated for their effort and performance• Employees exchange work for reward/compensation• Part of overall organizational reward system• Rewards can be:

– Monetary– Non monetary

Reward• Why is reward important?• What should be the criteria for reward distribution in

organizations?Compensation• All forms of pay or rewards going to employees and arising from

their employment.• Pay for their efforts• Return for their efforts• Has 2 parts

– Direct– Indirect

CompensationTotal Compensation

Direct Indirect

Pay IncentivesBenefits

Status basedPrivilege based

Monetary Non monetary

Two basic questions in determining payShould different employees holding the same job or possessing the same skills be paid the same – or should managers be able to pay them differently?Which factors should be used to recognize differences in employees; that is, should differences in pay be contingent on performance, seniority, or some combination of the two?

Recognizing employee differences with pay• Many employers do pay different rates to employees in the same job due to:

– External Labor market pressure – Organization Factors

Evaluating Results of Pay for Performance SystemIncentives: pay for performance

– Is pay important to employees?– Should pay increase be based on performance?– Does tying pay increase to performance affect employee and organization performance?

Why incentive plans can fail?• Poor perceived linked between performance and pay• Too low level of performance-based pay relative to base pay• Lack of objective, countable results for most jobs• Faulty performance appraisal systems• Union resistance to such systems• Pay not a motivator• Undesirable effects of rewardsLinking Compensation to Organizational Strategy • Reward system does not function in isolation• Compensation is a major way to implement organizational strategy• Strategic behaviors should directly contribute to business strategy• Compensation plan should promote the strategic behavior

Job Analysis

Job Evaluation Salary Survey

Creation of Job Worth Hierarchy

Reconciliation of Internal and

External Consideration

Analysis of Market Data

Development of Pay

Structure

Approach to Compensation Management

Compensation Package DesignDeterminants: / Legal / Union Influences / Corporate Policy

/ Equity/ Internal and ExternalApproach to Compensation Management5 steps/phases: Salary Survey / Job Evaluation / Group Similar Jobs in Pay grades / Price Each Pay Grade / Fine-tuneApproach to Compensation Management.

Job Evaluation• Systematic comparison to determine the worth of one job relative

to another• Basic principle: jobs requiring greater qualifications, more

responsibilities, & more complex duties should be paid higher than jobs with lesser requirements.

• Basic procedure: compare jobs in relation to one anotherApproach to Compensation ManagementPreparing for Job Evaluation

– Identifying the need for the job evaluation

– Getting the cooperation of employees

– Choosing an evaluation committee

– Performing the actual evaluation