Ch#01 Compensation

COMPENSATION
PACKAGES
WHAT IS COMPENSATION?
In human resources (HR), the field of
compensation looks at the pay structures
within organizations.
Compensation is a systematic approach to
providing monetary value to employees in
exchange for work performed.
WHAT IS COMPENSATION?
Compensation includes all forms of wages,
salaries, incentives, commissions, and bonuses.
Compensation refers to the methods and practices
of maintaining balance between interests of
operating the company within the fiscal budget
and attracting, developing, retaining, and
rewarding high quality staff through wages and
salaries which are competitive with the prevailing
rates for similar employment in the labor markets.
BACKGROUND
Compensation is one of the main functions of
HRM. It is closely linked with the following:
EQUITY
MOTIVATION
EMPLOYEE APPRAISAL
Compensation Management and

Other HRM Functions
Aid
Aidor
orimpair
impairrecruitment
recruitment
Recruitment
Recruitment
Supply
Supplyofofapplicants
applicantsaffects
affects
wage
wagerates
rates
Pay
Payrates
ratesaffect
affectselectivity
selectivity
Selection
Selection
Selection
Selectionstandards
standardsaffect
affect
level
of
pay
required
level of pay required
Pay
Paycan
canmotivate
motivatetraining
training
Training
Trainingand
and
Development
Development
Increased
Increasedknowledge
knowledgeleads
leads
totohigher
higherpay
pay
Training
Trainingand
anddevelopment
developmentmay
may
lead
to
higher
pay
lead to higher pay
Compensation
Compensation
Management
Management
Low
Lowpay
payencourages
encouragesunionization
unionization Labor
LaborRelations
Relations
AAbasis
basisfor
fordetermining
determining
employees
employeesrate
rateofofpay
pay
Pay
Payrates
ratesdetermined
determined
through
negotiation
through negotiation
MAIN ISSUES IN
COMPENSATION
How much should companies pay to attract, retain,
and motivate employees?
Should they pay salaries or variable rewards?
Should they provide benefits, and if so, to what
degree?
What's an appropriate discrepancy between the pay
for high and low performers?
Also, organizations have to consider that now for job
seekers it's not just getting a job that matters - it's
getting a job that can fulfill them both financially and
personally.
COMPENSATION
ADMINISTRATION
Compensation administration is the

process of managing a companys
compensation program.
GOALS OF COMPENSATION
ADMINISTRATION
To design pay systems that elicit desired
employee behaviors at work
To motivate employees to join, stay and
perform at high levels
For the organization to remain ethical and
legal in its compensation programs.
HOW IS COMPENSATION USED?

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.
Development Of Compensation
Administration Plan
Develop a program outline
Designate an individual to oversee the compensation program
Develop a compensation philosophy
Conduct a job analysis of all positions
Evaluate jobs
Determine grades
Establish grade pricing and salary range
Determine an appropriate salary structure
Develop a salary administration policy
Obtain top executives' approval of the basic salary program
Communicate the final program to employees and managers
Monitor the program
COMPENSATION
ADMINISTRATION SOFTWARES
Bauschke
Compease
CompensationMaster
Concur
COMPONENTS OF A
COMPENSATION
SYSTEM
Job Descriptions
* Job analysis
* Job evaluation
Pay Structures
Salary Surveys
Policies and Regulations
ORDINANCE of 1961.doc
Current Minimum Rates of Wages.doc
The Concept of Total

Compensation
O r g a n iz a t io n a l R e w a r d S y s t e m
I n t r in s ic R e w a r d s
E x t r in s ic R e w a r d s
F in a n c ia l
I n d ir e c t C o m p e n s a t io n
P r o t e c t io n
P ro g ra m s
P a y fo r T im e
N o t W o rk e d
E m p lo y e e
S e r v ic e s
& P e r q u is it e s
N o n fin a n c ia l
D ir e c t C o m p e n s a t io n
B ase W age
/ S a la r y
M e r it
& I n c e n t iv e s
C O LA
Total
Total Compensation
Compensation
Direct
Direct
Indirect
Indirect
Wages
Wages//Salaries
Salaries
Time
TimeNot
NotWorked
Worked
Commissions
Commissions
Bonuses
Bonuses
Gainsharing
Gainsharing
Vacations
Vacations
Breaks
Breaks
Holidays
Holidays
Insurance
InsurancePlans
Plans
Medical
Medical
Dental
Dental
Life
Life
Security
SecurityPlans
Plans
Pensions
Pensions
Employee
EmployeeServices
Services
Educational
Educationalassistance
assistance
Recreational
programs
Recreational programs
Presentation Slide 91
EXECUTIVE PAY PLANS
Executive Compensation is how top

executives of business corporations
are paid.
SOME FACTS
Is similar in many respects to developing plans for any
employee.
These jobs tend to stress harder-to-quantify factors
More emphasis on paying on ability
Salary is taxable to an individual at a high individual rate.
In a typical modern corporations top executives are paid
with a mixture of cash and shares of the company.
Other components of an executive compensation
package
More complex
CRITICISM
There are many controversies about
executive compensation.
Charges that CEOs are overpaid
CONCLUSION
PRINCIPLE OF COMPENSATION
Compensation will be perceived as fair if
it
is comprised of a system of components
developed to maintain internal
and external equity.

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COMPENSATION

Compensation Management and

Compensation administration is the

HOW IS COMPENSATION USED?

Recruit and retain qualified employees.

The Concept of Total

EXECUTIVE PAY PLANS

Executive Compensation is how top

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