Compensating
Employees
Definition
Objective
Bases
Types
Determining Reward
Job Evaluation
Compensation Structure
Compensation
Definition:
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.
Compensation
Objective:
1. Attract and maintain employees of the right
quality and mix
2. Continually motivate employees to attain the
desired level of output.
3. It must be maintained at the desired
competitive level.
4. Fair and equitable
5. Cost efficient
6. Comply with legal requirement
7. Acceptable to the employees
8. Support the organization’s corporate
strategy.
Compensation
Bases:
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.
1.
Compensation
Types:
1. Pay – base salary/standard salary
2. 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
Compensation
Determining 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
2.
compensation
4) Collective bargaining – done when labor
union exist
The Internal Factor
1) Employer’s compensation policy 2) Employee’s relative worth
3) Employer’s ability to pay
Compensation
Components of compensation program:
1.
2.
3.
4.
5.
Job analysis
Job evaluation
Salary survey
Performance evaluation
Pay for performance
Job evaluation system:
Job evaluation – is the process of determining the
relative worth of jobs in an organization.
Ranking method
2. Classification method
3. Factor comparison method
4. Point method
1.
JOB EVALUATION SYSTEMS
1.
2.
3.
Ranking method- involves the arrangement
of jobs in a simple rank order from the
highest and the least important, the lowest.
Classification Method- where the various
jobs are categorized under various classes
and grades.
Point method- where jobs are broken
down into characteristics or factors like
skill, responsibility, complexity and decision
making
Compensation
Job 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)
1.
2.
Pay structure decision
Individual pay decision
COMPENSATION STRUCTURE
1.
2.
3.
Pay level- which concerns the level at
which the organization wants to
compete in the labor market.
Pay structure decision- which concerns
setting a value for each job within the
organization to all the other jobs.
Individual pay decision- which concerns
they pay of employees working on the
same job within the organization.
PAY-LEVEL DECISIONS
1.
2.
High-pay strategy- Employees are paid at
higher-than-average levels if this strategy is
adapted. If effective, it will help the
organization to attract and maintain the
best employees.
Low-pay strategy- This is a decision made
by management to pay at minimum levels
just enough to hire the required number of
employees. This strategy is often used by
firms, which cannot afford higher rates.
PAY-LEVEL DECISIONS
3. Comparable-pay strategy- this is decision
made by management to pay at levels
comparable with other organizations.