hrm380 2013 fall chapter 01 basic compensation

7/27/2019 HRM380 2013 Fall Chapter 01 Basic Compensation

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Compensation Compensation

is the set of rewards that organizations provide toindividuals in return for their willingness to perform

various jobs and tasks within the organization. Internal equity

in compensation refers to comparisons that employeesmake to other employees within the same organization.

External equity in compensation refers to comparisons employees make

to others performing similar jobs in differentorganizations.


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Basic Purposes of Compensation

Reward and

motivate

Internal

equityExternal

equity

Legalcompliance

Compensation

Expensecontrol


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Wages versus SalariesWages

generally refer to hourly compensation paid tooperating employees; the basis for wages is time.

Salary

is income that is paid an individual not on the

basis of time, but on the basis of performance.


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Strategic Options for Compensation

Anticipation of

setting pay level

Determinationof market pay

Pay below

market ratePay above

market rate

Pay market

rate


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Organizational Pay Rates

Payabovemarket

rate

Pay atmarket

rate

Paybelowmarket

rate

Attracts better employees Minimizes voluntary

turnover Fosters strong culture and

competitive superiority

Additional compensationcosts

Sense of entitlement

Higher quality of humanresources at midrange ofmarket-driven compensationcosts

Does not attract higherperformers

Turnover will vary with labordemands of competing firms

Lower compensation costs Useful in labor markets

where unemployment ishigh

Lower-quality employees Low morale/job satisfaction Higher turnover; especially

among high performers

AdvantagesDisadvantages


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Determinants of Compensation

StrategyFactors contributing to a firms compensation strategyRelationship of overall strategy to compensation strategy

Growth rate of firm and demand for human resources

Financial condition of the firm (i.e., ability to pay)

Overall attractiveness of firm (i.e., location, culture)

Legal context of federal, state, and local labor regulations

Union influence and presence in labor market


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Pay Surveys and Compensation

Pay surveys are surveys of compensation paid to employees by

other employers in a particular geographic area, anindustry, or an occupational group.

assist firms in avoiding problems of external equitywhen attempting to set compensation strategy forthemselves.


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Determining a Wage and Salary

Structure

Factorcomparison

method

Job ranking

methodClassification

system

Point systemJobEvaluation

Regression-based system


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Job Evaluation and Job Worth

Factor comparison method assesses jobs on a factor-by-factor basis, using afactor

comparison scale as a benchmark.

Regression-based system

uses a statistical technique called multiple regression todevelop an equation that establishes the relationshipbetween different dimensions of the job andcompensation.


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Factor Comparison Method of Job Evaluation

Six steps:

Comparison factors are selected and defined. Benchmark or key jobs are identified.

Benchmark jobs are ranked on each compensationfactor.

A part of each benchmark jobs wage rate is allocated toeach job factor.

Two sets of ratings are prepared, based on the rankingand the assigned wages, to determine the consistency

demonstrated by the evaluators. A job comparison chart is developed to display the

benchmark jobs and the monetary values that each jobreceives for each factor.


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Wage and Salary Administration Managing compensation

allows the organization to control compensation costsand to maintain a compensation structure that fits theneeds of both the organization and its employees. Asorganizational circumstances change, it may become

necessary to modify or change the compensationstrategy.

Determining individual wages

has its basis in the organizations awarding differentialcompensation to employees on the basis ofqualifications, seniority, or other job-related factors.


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Wage and Salary Administration Pay secrecy refers to the extent to which an individuals compensation in an

organization is secret.

Arguments for pay secrecy

An individuals compensation is a private matter and not for public

knowledge.

Knowing pay levels fosters jealousy and resentment.

Argument against pay secrecy

Public knowledge about an open-pay system creates proper perceptionsof equity and motivates performance.

Pay compression

occurs when individuals of substantially different levels ofexperience or seniority are paid similar wages or salaries.

hrm380 2013 fall chapter 01 basic compensation

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