Content Show
1. Managing CompensationWhat is Total compensation? Total compensation is the package of quantifiable monetary rewards an employee receives for his or her labour. The Elements of Total Compensation: Base compensation or Fixed Payis the payment an employee receives on a regular basis, either in the form of a salary or as an hourly wage (for example, a weekly or monthly paycheck). Additionally, to Total Compensation (monetary) the company can also apply non-monetary Rewards to motivate employees (such as contacts, recognition programs and career opportunities). Challenges of Managing Compensation:
Thus, developed correctly, the Compensation System includes Monetary Total Compensation and non-monetary Total Rewards. The synergy of monetary and non-monetary compensations help the company to find a balance between expected performance and cost optimization, from one side, and employee work-life balance and motivation, from the other side. There are several factors which may determine the Compensation Plan for the specific job position, such as level of responsibility, strategic relevance, the ration demand/supply in the market, cost of living for international HR, tenure or the longitude of an employee working in the company, etc. 2. Designing a Compensation System
THE DISTRIBUTIVE JUSTICE MODEL (input/outcome ratio) states that employees exchange to the firm :
fairly paid is when –> employee’s input/outcome ratio = other employees input/outcome ratio ● the wage rate for any given occupation ● is set at the point where ● the labour supply = the labour demand ● in the marketplace. This means that in the majority of situations:
2. Fixed Vs. Variable Pay
fixed pay as a percentage of total compensation continues to decline, and firms are asking employees to share more risks with them 3. Performance Vs. Membership
In the majority of the situations, the performance concept is applied in flat organizational structures with expert career passes (is represented as a round). While the membership concept is more common in hierarchical organizations with management careers (is represented as a triangle). 4. Job Vs. Individual Pay
The job-based compensation plan can be applied: A job-based policy better when:
Individual Pay plan rewards employees for acquiring
Knowledge/skills based-pay plan has the following advantages and disadvantages:
Individual-based compensation better when:
5. Egalitarianism Vs. Elitism
An egalitarian pay system is a payment plan in which most employees are part of the same compensation system. Egalitarianism (+) (common for older, well-established firms) An elitist payment system is a payment plan in which different compensation systems are established for employees or groups at different organizational levels. Elitist pay structures (+) (common and risky and high competition environment, high-tech products) 6. Below-Market Vs. Above-Market Compensation Will employees be compensated at below-market levels, at market levels, OR at above-market levels? To hire the “cream of the crop” – above-market Company may apply different policy for different Job positions depending, for example, on the strategic relevance. Also, the decisions can be combined with other criteria, for example, market-median based salary with aggressive incentives to give extra value to the job offer. 7. Monetary Vs. Nonmonetary Awards
The organization should be realistic regarding the costs issues and search for the balance between monetary and non-monetary rewards. 8. Open Vs. Secret Pay
open pay:
secret pay:
9. Centralization Vs. Decentralization of Pay Decisions
Summary. Compensation is a complex topic that has a significant impact on organizational success. 3. Pay-per-performancePay-per-performance is a system that compensates employees on the assumptions that:
Types of incentives:
Pay-for-performance plans can be designed to reward the performance of the individual, team, business unit or plant, an entire organization, or any combination of these. Advantages and Disadvantages of Individual- and Team-Based Pay-for-Performance Plans Conditions That Favour Various Pay-Per-Performance Plans The Challenges of Pay-Per-Performance plans: Meeting the Challenges: Pay-for-performance
plans in small firms are more likely to be successful if 4. Benefits, or Indirect CompensationBenefits are group membership rewards that provide security for employees and their family members. Indirect compensation is given to the employee in the form of plan (health insurance) rather than cash). Types of Benefits Challenges in Managing Benefits:
The Benefits Strategy HR specialist and Manager’s roles in Managing Benefits: 5. The Legal Environment and CompensationLabor Standards and Legal Issues
ConclusionsGreat Place to Work GPTW 1. When your business is a great place to work, employees give 100% in everything they do. What is perception of pay fairness?Employee satisfaction is driven mostly by feeling that pay is fair, not by how much someone is actually paid. How employees feel about the organization's pay philosophy and process is more likely to affect their outlook than their actual pay.
Which form of equity refers to the perceived fairness of the processes used to make decisions regarding the allocation of pay?Procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.
How do employees evaluate the fairness of a pay structure?In evaluating the fairness of their pay, employees balance inputs (e.g., work effort, skills) against outcomes (e.g., pay, privileges). Workers may experience guilt or anger if they feel over or undercompensated. The greater the perceived disparity, the greater the tension.
Why do you think pay fairness is important for issues like job performance and employee retention?Why should pay equity matter to employers? “By ensuring employees are paid equitably, employers can increase efficiency, creativity and productivity by helping to attract the best employees, reduce turnover and increase commitment to the organization,” says Cheryl Pinarchick, an attorney with Fisher Phillips in Boston.
|