 Developing a compensation strategy

 Developing wage and salary structure

 Wage and salary administration issues

 Benefit programs

 Legal Issues
 Are set of rewards the organization provides to individuals in return for their

willingness to perform various jobs and tasks within the organization.

 Made up of a Fixed pay and a Variable pay

 Are rewards , incentives, or items of value that are beyond wages, salaries or any

form of financial compensation.

Serves the purpose of:

 Motivation

 Productivity

 Retention

 Organizational objectives

 Controlling costs
 Wages:
Is the hourly compensation paid to operating employees;
The basis of wages is TIME.

 Salaries:
Is the income paid to an individual on the basis of PERFORMANCE; NOT on basis of
time.
 Internal Equity

 External Equity

 Pay Surveys

 Legal Standards
1. Overall Strategy of the organization

2. Overall ability of organization to pay

3. Ability to attract and retain employees

4. Strength of union influence

 Job Analysis

Is the systematic process of collecting information that identifies similarities and

differences in work. The outcome is Job Documentation ( Deescription )

 Observation
 Questionnaire
 Interviews
 Online
 Job Evaluation

Is the systematic process of determining the relative worth of jobs. The outcome is
internal structure or hierarchial ranking of jobs.

 Methods:

1. Classification system

2. Point system

3. Factor-comparison method
LEAD

MATCH

LAG
 Developed through job evaluation and merged with market pay rates in a simple

regression to develop a market pay line from which pay grades and ranges are

developed
 Pay -for- knowledge
When compensating employees for learning specific information

 Skill – based pay

Rewards employees for acquiring new skills

 Seniority
A maturity curve specifies the amount of annual increase a person will receive for
time on the job with the firm.
 Pay Secrecy
The compensation of any individual in the organization is SECRET !

 Pay Compression
Individuals with substantially different levels of experience and/or performance
abilities are being paid wages or salaries that are relatively equal.

 Pay inversion
When the external market changes so rapidly that the new employees are actually
paid more than experienced employees.
 Effeciency Wage Theory

An organization saves money when its benefits and compensation package attracts

better qualified people and motivates its employees to work harder and remain with

the organization
 Mandated benefits  Other benefits
 Unemployment insurance Wellness programs

 Social security Cafeteria-style benefits

 Worker’s compensation Spousal equivalents

Child care/ Elderly care
 Non-mandated benefits
 Private pension plans
 Health insurance
 Paid time off
 Fair Labor Standard Acts ( FLSA )

 Includes provisions for minimum wage, overtime, comp time, and child labor.
 HR managers must adhere to overtime laws

 Employee Retirement Income Security Act ( ERISA )

 Provisions guarantee employee rights to receive earned benefits from pbgc-

insured pension plans