2/2/2012

COMPENSATION AND BENEFITS

Instructor: LTT Xun 1

Content

Instructor: LTT Xun 2

1
 2/2/2012

Introduction
What is pay, from employers view and employees view?

Compensation - the total amount of the monetary and non-

monetary pay rewarded to an employee by an employer in
return for work performed as required.
Types of Rewards
Intrinsic
Intangible, psychological and social effects of compensation
Ex. Base pay & Benefits
Extrinsic
Tangible (direct or indirect), monetary and nonmonetary
effects of compensation
Ex. Praise & recognition

Instructor: LTT Xun 3

Introduction
Pay structure the relative pay of different jobs ( job structure)
and how much they are paid (pay level)
Pay level the average pay of job, including wages, salaries,
variable pay and benefits
Job structure the relative pay of job
Components of a Compensation Program

Instructor: LTT Xun 4

2
 2/2/2012

Introduction

Compensation Type
Base Pay The basic monetary compensation that an
employee receives, usually as a wage or
salary.

Wages Payments calculated on the amount of time

worked.

Salary Consistent payments made each period

regardless of the number of hours worked in
the period.

Variable Pay Compensation linked to individual, team, or

organizational performance.

Benefit An indirect reward given to an employee or

group of employees as a part of
organizational membership.

2005 Southwestern College Publishing. All rights reserved. 5

Introduction

Typical Division of HR Responsibilities: Compensation

2005 Southwestern College Publishing. All rights reserved. 6

3
 2/2/2012

Pay structure decision

Equity Fairness
Two types of employee social comparisons of pay

Pa y structure Administration Focus of Employee Consequence of equity

decision area tool Pay Comparisons perception
Pay level Market Pay External equity External employee
surveys movement, labor costs,
employee attitudes
Job structure Job evaluation Internal equity Internal employee
movement, cooperation
among employees,
employee attitudes

Instructor: LTT Xun 7

Pay structure decision

Pay Grade
Used to group
individual jobs having
approximately the
same job worth
Pay Range
The distance between
the minimum and
maximum amounts in
a pay grade

Instructor: LTT Xun 8

4
 2/2/2012

Pay structure decision

Market pressures
Product market competition: Effective competition in product
market <= price <= cost of production <= labor cost and
compensation
Labor cost includes the average cost per employee and staffing
level
To enhance the org. competition position: staff reduction, hiring
freezes, wage and salary freezes and sharing benefits costs with
employees
Labor market competition Pay to compete to hire similar
employees
Not only competing in similar products, but in different ones

Instructor: LTT Xun 9

Pay structure decision

Employees as a resource
Employees should be viewed not just as a cost, but as a resource
Market Pay surveys
Providing information on going rates of pay among competing
organizations
Which employers should be included in the surveys?
Which jobs are included in the surveys?
Which weight to give to labor market and product market
competitors?
=> When is labor market/product market more important?

Instructor: LTT Xun 10

5
 2/2/2012

Pay structure decision

Developing a Job structure evaluating pay by comparing

internally
Job evaluation determining the relative worth of jobs within an
organization by:
Relative importance of the job
Knowledge, skills, and abilities needed to perform the job
Difficulty of the job
Methods used to evaluate jobs
Ranking methods
Classification methods
Point Methods
Factor comparison
Integrated and computerized job evaluation

Instructor: LTT Xun 11

Pay structure decision

Decisions About Compensation Levels

Compensation Strategies
Above-Market Paying for higher qualified, more productive
workers.
2005 Southwestern College Publishing. All rights reserved.

Middle-Market Attempting to balance of employer costs and

need to attract and retain employees.

Below-Market Paying all that the firm can afford

Taking advantage of the abundant supply of
potential employees in a loose labor market.

Instructor: LTT Xun 12

6
 2/2/2012

Pay structure decision

Issues Involving Pay Increases

Seniority
Time spent in an organization or on a particular job.
Used to determine eligibility for organizational rewards and
benefits.
Maturity Curve
A curve that depicts the relationship between experience and
pay rates.
Assumption is that as experience increases, proficiency and
performance increase.

Instructor: LTT Xun 13

Pay structure decision

Issues Involving Pay Increases

Cost-of-Living Adjustments (COLA)
A percentage increase in wages that allows employees to
maintain the same 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.
Lump-sum payments do not increase base wages

Instructor: LTT Xun 14

7
 2/2/2012

Pay structure decision

Continuum of Compensation Philosophies

Figure 123

2005 Southwestern College

Instructor: LTT Xun 15
Publishing. All rights reserved.

Pay structure decision

Compensation Approaches

Figure 124

2005 Southwestern College

Instructor: LTT Xun 16
Publishing. All rights reserved.

8
 2/2/2012

Recognition Employee contributions with pay

What are influences of pay?
To Individual employees: behavior-reward

High performance
followed by
Focusing on the link between Reinforcement monetary reward
rewards and behaviors and Theory
expected (rather than
experienced) rewards

Expectancy Agency
Theory Theory

Focusing on the divergent interest and

goal of stakeholders and the way that
employee compensation can be used
to align these interests and goals
Instructor: LTT Xun 17

Recognition Employee contributions with pay

What are influences of pay?

To labor force composition
Pay influences decisions about whether to join or remain
with the organization
Individual pay programs affecting the nature and
composition of an org. workforce
Org linking pay to individual performance may be more likely
to attract individualistic employees

Instructor: LTT Xun 18

9
 2/2/2012

Recognition Employee contributions with pay

Pay Programs

Instructor: LTT Xun 19

Recognition Employee contributions with pay

Executive pay
How to link executive pay to org. performance?
Including: salaries, annual bonuses, long-term incentives,
supplemental benefits and perquisites
Annual performance incentives/bonuses
Performance-based incentives
Executive benefits

Instructor: LTT Xun 20

10
 2/2/2012

Employee benefits
Benefit
An indirect compensation given to an employee or group of
employees as a part of organizational membership.
Strategic Perspectives on Benefits
Benefits absorb social costs for health care and retirement.
Benefits influence employee decisions about employers (e.g.,
recruitment and retirement).
Benefits are increasingly seen as entitlements.
Benefit costs are about 40% of total payroll costs.

Instructor: LTT Xun 21

Employee benefits
Why benefits?
Laws required
A way to attract and retain employees
Tax treatment
Cost advantage
Unique benefits to differentiating themselves

Instructor: LTT Xun 22

11
 2/2/2012

Employee benefits

Types of Benefits
2005 Southwestern College Publishing. All rights reserved.

Instructor: LTT Xun 23

Employee benefits
Other Benefits

Credit Unions
Purchase Discounts
Stock Investment

Family-Care
Family- Relocation
Benefits Expenses
2005 Southwestern College Publishing. All rights reserved

Benefits
Family-Oriented
Family- Life, Disability,
Benefits Legal Insurances

Social and Educational

Recreational Assistance

Instructor: LTT Xun 24

12
 2/2/2012

Employee benefits
Time-Off Benefits

Holiday Pay Leaves of Absence

Eligibility Family Leave
Vacation Pay Medical and Sick Leave
Paid Time-Off (PTO) Plans
Military Leave
Election Leave
Jury-duty Leave
Funeral Leave

2005 Southwestern College

Instructor: LTT Xun 25
Publishing. All rights reserved.

Employee benefits
Flexible Benefits
Flexible Benefit Plan
A plan (flex or cafeteria) that allows employees to select the
benefits they prefer from groups of benefits established by the
employer.
Flexible Spending Accounts
An account that allows employees to contribute pre-tax dollars
to buy additional benefits (e.g., life insurance).
Problems with Flexible Plans
Inappropriate benefits package choices
Adverse selection and use of specific benefits by higher-risk
employees

2005 Southwestern College Publishing. All rights reserved. Instructor: LTT Xun 26

13
 2/2/2012

DISCUSSION QUESTION

1. Does money motivate? Explain.

2. You have been asked to evaluate whether a companys pay
structure is fair to women and minorities. How would you go
about answering this question?

Instructor: LTT Xun

14