ADMAS UNIVERSITY
DEPARTMENT OF HOTEL MANAGEMENT
HUMAN RESOURCE MANAGEMNET
GROUP ASSIGNMENT
GROUP MEMBER
ID
1. ABRAHAM FELEKE ……………………………….…106418
2. MAHLET WORKU ……………………………….…..0413/18
3. ROBEL YEMANE
…………………………………1044/18
4. SENAYT ASNAKE …………………..………………3260/18
5. ZERUBABEL TADESSE ……………….…………..1211/18
Sumited to Wondwosen tilahun
JUNE, 2022
ADDIS ABABA, ETHIOPIA
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1) Define
A) Compensation
Compensation is a systematic approach to providing monetary value to employees in exchange for work
performed. Compensation may achieve several purposes assisting in recruitment, job performance,and job
satisfaction.
Compensation is the totalcash and non-cash payments that you give to anemployee in exchange for the
work they do foryour business . It's typically one of the biggestexpenses for businesses with employees.
Compensation is more than an employee's regularpaid wages.
How is compensation used?
Compensation is a tool used by management for a varietyof purposes to further the existance of the
company Compensation may be adjusted according the the businessneeds, goals, and available resources.
Compensation may be used to: recruit and retain qualified employees
 increase or maintain morale/satisfaction
 reward and encourage peak performance
 achieve internal and external equity
 reduce turnover and encourage company loyalty
 modify (through negotiations) practices of unions
What are the components of acompensation system?
The components of a compensation system include
Job Descriptions is a critical component of both compensation and selection systems, job descriptions
define in writing the responsibilities, requirements,functions, duties, location, environment,
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conditions,and other aspects of jobs. Descriptions may bedeveloped for jobs individually or for entire job
families.
Job Analysis is the process of analyzing jobs from whichjob descriptions are developed. Job
analysistechniques include the use of interviews,questionnaires, and observation.
Job Evaluation is a system for comparing jobs for thepurpose of determining appropriate
compensationlevels for individual jobs or job elements. There arefour main techniques: Ranking ,
Classification , FactorComparison, and Point Method .
Pay Structures Useful for standardizing compensation practices. Most pay structures include several
grades with each grade containing a minimum salary/wageand either step increments or grade range.
Stepincrements are common with union positions where thepay for each job is pre-determined through
collectivebargaining.
What are different types of compensation?
Different types of compensation include:
 Base Pay
 Commissions
 Overtime Pay
 Bonuses, Profit Sharing, Merit Pay
 Stock Options
 Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation,leaves,
retirement, taxes
 bonuses, commissions, stock,profit sharing, gain sharing
B) Direct financial compensation
Direct financial compensation is most widely known and recognized form of compensation. Most sought
after byworkers, direct compensation is the money which is paid directly to employees in exchange for
their labor. This includes everything from hourly wages, to set salaries,bonuses, tips and commissions.
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Compensation for a job is determined based on amultitude of factors such as the job descriptionitself, the
company's ability to pay, the employee's skill set, and the market rate for thespecific kind of work .
Direct compensation includes basic annual salaries or hourly wages paid to workers in return for their
servicesto the company account . It refers to the monetarybenefits received for work done for a specific
duration like an hour, a week, a month or a year.
Direct compensation, such as salary, wage or commissions, is the single best predictor of compensation
satisfaction—and often of jobsatisfaction, effort and performance. Examples ofsuccessful companies that
offer higher monetary pay at the expense of low benefits are numerous.
C) Indirect financial compensation
Indirect financial compensation includes all monies paid out to an employee that are not included
understood in directcompensation . This form of compensation is oftenas the portion of an employee's
contract that covers items such as temporary leaves of absence,benefits and retirement plans.
Indirect compensation is a non-monetary benefit provided toemployees in addition to their salary.These
benefits are important becausethey can help companies in attractingand retaining talent.
The importance of Indirect Compensation
It is wise for employers to acknowledge the powerthat indirect compensation can play in g etting
andretaining employees , especially if the employeesare otherwise satisfied with their direct compensation.
According to Glassdoor research , 57% of candidates report benefits being among their top considerations
before accepting a job.Many employees have recognized the importance of benefits in attracting top
talent . Your best job candidates are passive job seekers . Passive job seekers are those candidates who are
not actively looking for a new job but would be willing to accept a better offer.
Types of Indirect Compensation
There are many different types of indirect compensation.
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It is worth mentioning that only a few types ofindirect compensation are mandated by law (for example
overtime policy). Most types of indirect compensation are optional, which means that companies are not
required to offer them, but they can choose to provide them if they want.
Here is the list of the most common examples of indirect compensation:
 Health insurance
 Life insurance
 Disability income protection
 Retirement benefits
 Social security
 Employer student loan contributions
 Educational benefits
 Childcare
 Relocation benefits
 Housing benefits
 Vacation days
 Leave policy (sick, casual, maternity leave)
 Overtime policy
 Flexible working hours
 Company car
 Company laptop
 Company mobile phone
D) Non-financial compensation
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Non-financial compensation is any employeecompensation that doesn't involve cash . Many companies
find creative ways to offer employee benefits that make them feel valued and appreciated. Often, this
form of compensation can be a great method for establishing trust and loyalty between an employer andan
employee.
examples of non financial compensation
Top non-monetary rewards for employees; Flexible working
 Give employees time to work on their own
 Project
 Extra leave
 Allow time to do volunteer work
 One-on-one meetings
 Give employees chance to show appreciation foreach other.
 Reward employees with more responsibility.
What is the difference between direct compensation and indirect compensation
 Direct financial compensation is most widely known and recognized form of compensation.Most sought
after by workers, direct compensation is the money which is paid directly to employees in exchange for
their labor. This includes everything from hourly wages, to setsalaries, bonuses, tips and commissions.
 Indirect financial compensation includes allmonies paid out to an employee that are notincluded in direct
compensation. This form ofcompensation is often understood as the portionof an employee’s contract that
covers items suchas temporary leaves of absence, benefits and retirement plans.
Non-monetary compensation differs from direct and indirect pay as it is has no monetary value.Nonfinancial incentives are the types of rewardsthat are not a part of an employee’s pay. Non-monetary
incentives are typically effective for employees who are comfortable with theirsalaries or have been in the
position for a longtime. Compensation if this nature can include
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 Achievement awards
 team leadershipopportunities
 personal days
 prizes
 paid training
 gift cards, new office or workspace upgrade or even paid parking or transit passes.
2)How does effective compensation administration helps an organization
accomplish its objectives?
A compensation and benefits package can position a small business as an employer of choice,helping
your company appeal to higher-quality workers . Workers look for compensation that goes beyond cash
when considering whethere job offers them security, stability and a future.
To achieve effective work performance calls forjob satisfaction among the workers.Compensation plays a
significant role in influencing job satisfaction. It stimulates employees to work harder, thus increasing
productivity and enhancing job performance .
The objectives of compensation management are to attract, engage, and retain employees through
competitive compensation plans that align with thecompany budget, corresponding job-market,
andgovernment regulations .
Good compensation management should Attract and recruit talent
3) How does Pay dissatisfaction affect work performance in an
organization?
Lack of motivation and attention to detail are theresults of dissatisfied employees, which translates to low
productivity . Consequently, companies whose employees' productivity levels are low also experience
loss of profits. Satisfied employees make the most of their work time, producingquality products and
services.
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4)Distinguish between internal equity and external equity
Internal equity is defined as the fairness criterion in theemployment contract that offers fair wages based
on the value of the employee within the organization .
External equity refers to fairness of pay against the external market . External equity compares what the
company is willing to pay for talent versus what outsideorganizations competing for the same talent are
willing to pay. It provides a basis for competitive job offers,salary adjustments, and salary structures.
The difference between internal equity and external equaity
 External equity refers to the employee'sperception of being treated in the same way
asemployees in the same job but at a competingorganization, while internal equity refers to
theemployee's perception of being treated in thesame way as employees within
focal
organization
 While internal equity is focused on pay equalitywithin and across the organization,
externalequity is also an important factor whenconsidering your employee compensation .
Thismeans taking into account what the wider externalmarket is paying for similar jobs within
your industry.
5. Identify and briefly describe the major determinants of financial
compensation
5 essential factors for determining compensation
1. Years of experience and education level. Itprobably goes without saying, but the moreexperience and
education a candidate has,the higher their expected compensation. ...
2. Industry
3. Location
4. In-demand skill sets
5. Supply and demand
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6)Distinguish salary, wage, bonus, commission, and piecework
The main difference between salary and hourly wage is that salaries are a fixed upon payment agreed
to by both the employer and employee. Wages, on the otherhand, may vary depending on hours worked
and performance .
Bonus payments are additional pay given toemployees apart from their salary. It is given bythe
employers as a remuneration for theirdedication towards the company and work, whichin turn helped the
company achieve its business goals.
Profit-sharing is a type of bonus whereemployees are given a percentage of thecompany's profit . The
companies pay thisquarterly or annually depending upon their bonus plan. Some companies make a
profit-sharingmark and when they reach that threshold, they distribute profit as a bonus to their employees.
Types of Bonus Components
The various types of additional incentives which can be paid to an employee are:
1. Performance Bonus
This kind is given to employees based on their performance ina given period e.g. year or quarter
2. Festival Bonus
This type is linked to some occasion or festival in the location of operations of the company e.g.NewYear
3. Referral Bonus
Many companies have a referral program where in employees refer other candidates to the company. If a
company has a referral program, then on a successful referral the existing employee can be given an
incentive.
commission: is a piece of an employee's total compensation puzzle paid outwhen that employee makes a
sale.commission is a form of variable pay and is a common form of compensation provided to employees
in sales roles. It will usually be based on apredetermined quota or target. The higher the quota reached,
the higher the commission will be.
piecework is awork done by the piece and paid for at a set rate per unit .Piece work (or piecework) is any
type of employment in which a worker is paid a fixed piece rate for each unitproduced or action
performed, regardless of time.
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Since piecework has traditionally been associatedwith several advantages to workers andemployers—
such as improved labor productivity,higher wages, and lowerjob-quit propensities —the question arises as
to whether its reducedincidence has gone too far.
7. Briefly explain the role of job analysis in assigning a financial value to
jobs in an organization.
A job analysis is the process of studying a role orposition, learning what activities it performs and
what skills are necessary for the job . A job analysis can also assess under which conditionsthe employee
performs the job and discover howthat role might affect other roles in the company.Job analysis is an
important step in ensuring thatthe right candidate is selected.
Job analysis helps the employer in recruitment and selection, performance management,
choosingcompensation and benefits, etc. It helps the employees to have a clear picture of what is actually
required of them.
8. What is job evaluation? Identify and distinguish among the four basic
techniques of job evaluation.
Job evaluation is the systematic process ofdetermining the relative value of different jobs inan
organization . The goal of job evaluation is tocompare jobs with each other in order to create apay
structure that is fair, equitable, and consistent for everyone.
Four primary methods of job evaluations;used toset compensation levels are point factor, factor comparison, job ranking and job classification .
 The point factor method is a commonly usedquantitative technique. This approach breaks down
jobs into compensable factors identified during a jobanalysis . Points are assigned to the factors,
and a pay structure is established for the position.
 Factor comparison is systematic and scientific methoddesigned to carry out job evaluation
which instead ofranking job as a whole, ranks according to a series offactors . The aim of factor
comparison is to assign financial value to the relative parts of each job role.

Ranking Method is the simplest form of job evaluation method. The method involves ranking
each job relativeto all other jobs, usually based on some overall factorlike 'job difficulty' . Each
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job as a whole is compared withother and this comparison of jobs goes on until all the jobs have
been evaluated and ranked.
 job classification method, the evaluator writesdescriptions of each class of jobs and then puts
theminto the grade that best matches the class description .Because this process is subjective, with
a wide variety ofjobs and general job descriptions, positions could fallwithin more than one grade
level.
9. What is pay range? What is its purpose?
From an employer perspective, the salary range is the amount of compensation paid for a specific
position . For example, if the starting pay for a jobis $30,000 and the maximum salary for theposition,
after merit increases and tenure on thejob, is $40,000, the salary range for the job is $30,000 to $40,000.
What is its purpose?
The salary range is an approximate estimate tohelp employers understand what the employeehopes to
receive and how they value their worth .It's best that employees provide a salary rangewith a low point
being the lowest they can receive while remaining financially stable.
10. What are the major purposes of benefits?
A good benefits package can make employees Benefits also provide support to an employee'sfamily,
health, and financial future which can help attract and retain top talent.
The most common benefits are : Medical
 disability
 life insurance
 retirement benefits
 paid time off and fringe benefits .
11. What are the major categories of non-financial compensation
Non-financial compensation is any employee compensation that doesn't involve cash . Many companies
find creative ways to offer employee benefits that make them feel valued and appreciated.Often, this form
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of compensation can be a great method for establishing trust and loyaltybetween an employer and an
employee.
Most types of non-financial incentives fall into four buckets:
 recognition
 reward
 opportunity
 and flexibility
Non-monetary rewards for employees
 Flexible working
 Give employees time to work on their own
 projects
 Extra leave
 Allow time to do volunteer work
 One-on-one meetings
 Give employees chance to show appreciation for each other
 Reward employees with more responsibility.
For example paid time off, which includes cashpayments for employees, is an indirect form of
compensation because an employee doesn't receive paid time off payments for work they've completed.
However, an employee of the month award, which is a form of non-financial compensation, holds no
monetary value.
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