Compensating Employees

DefinitionObjective

BasesTypes

Determining RewardJob Evaluation

Compensation Structure

CompensationDefinition:It is what employees receive in exchange for their work.In personnel management, compensation refers to the function of providing adequate and equitable remuneration of personnel for their contribution to organization objectives.Compensation Administration – process of managing a company’s compensation program.Strategic compensation – pattern of planned compensation program intended to enable an organization to achieve its goals.Pay for performance – system that rewards employees based on their performance.

CompensationObjective:1. Attract and maintain employees of the

right quality and mix2. Continually motivate employees to

attain the desired level of output.3. It must be maintained at the desired

competitive level.4. Fair and equitable5. Cost efficient6. Comply with legal requirement7. Acceptable to the employees8. Support the organization’s corporate

strategy.

CompensationBases:1. Time - paid according to time spent on

the job, hourly or salaried, according to number of hours worked.

2. Productivity - paid according to output commission piece rate

3. Time and productivity – paid based on salary in addition to a percentage of the amount of output produced.

CompensationTypes:1. Pay – base salary/standard salary2. Incentives – rewards given to

employee for performing beyond standard requirements.

3. Benefits – rewards given to employee or group of employees for maintaining membership in the organization

CompensationDetermining Rewards:1. The External Factor

1) Labor market condition – price depends on supply and demand

2) Area wage rate – forces employers to adopt wage rates that are competitive

3) Cost of living – inflation erodes the purchasing power of employees, periodic adjustment in the compensation

4) Collective bargaining – done when labor union exist

2. The Internal Factor1) Employer’s compensation policy -2) Employee’s relative worth3) Employer’s ability to pay

CompensationComponents of compensation program:1. Job analysis2. Job evaluation3. Salary survey4. Performance evaluation5. Pay for performance

Job evaluation system:Job evaluation – is the process of determining the relative worth of jobs in an organization.

6. Ranking method7. Classification method8. Factor comparison method9. Point method

CompensationJob evaluation:

is the process of determining the relative worth of jobs in an organization.Purpose:Job evaluation system is to establish a compensation structure.

the compensation structure is set after certain decision is compensation are made;1. pay-level decision

(high, low, comparable)

2. Pay structure decision3. Individual pay decision

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