Unit 4 Sustaining Employee Interest
It can be defined as the financial and non financial rewards provided by an employerfor the time, skills and the effort made available by the employee in fulfilling
requirements aimed at achieving organizational objectives.
It is an activity by which organizations evaluate the contributions of employees inorder to distribute fairly, direct and indirect monetary and non monetary rewards
within the organizations
ability and legal regulations.
Wage vs. Salary
refers to hourly rate or daily rate of pay It is the most frequently used pay basisfor production and maintenance employees (blue collar workers )
refers to a weekly, monthly or yearly rate of pay . It is used for clerical,professional, sales and management employees.
Forms of compensation
: It is the basic compensation an employee receives usually as a wage or salary
: it is the compensation that rewards an employee for efforts bey
performance expectations. Bonus, commission, and profit sharing plans are
: It is additional compensation to an employee as part of organizationalmembership. Health insurance, pension, vacation pay are benefits.
Purpose of an
effective compensation system
Attract potential job applicants
Retain present employees
Reward desired behaviour
Maintain cost effectiveness
Comply with legal regulations, provide flexibility and administrative efficiency
Reinforce and define structure
Criteria for effectiveness of compensation
Acceptable to the employee
Factors influencing compensation
: Government legislation, economy, labor market,
: organizations ability to pay, employee needs, job requirements,
organization culture, organizational strategy, cultural diversity.