L i Obj ti Learning Objectives

Differentiate between “wages” and “salaries” wages salaries Objectives of compensation Describe the factors of compensation estimates Identify and correctly describe the compensation structure Issues in wage determination and administration Incentive compensation

Definition of Concept
Wages - The payment, usually of money for labor or services - The money usually paid on hourly, daily or piece rate basis for chiefly physical work Salary - Is usually paid for services requiring special training or abilities, in fixed biliti i fi d amount, and for a longer period of time time, especially by month

Definition of Concept
Wage and salary administration - is simply creation of a system of orderly payments that is equitable to both the employee and the employer and motivates employees to exert an acceptable effort in the performance of their job

Purpose of remuneration
Obtaining sufficient trained personnel Retaining the recruited personnel To keep expenditure at a reasonable level Incentives to allow personnel to aspire to promotion and to accept promotion i d i Encouraging personnel to be more productive Ensuring th t work is purposeful E i g that ki f l Ensuring equality of remuneration Giving effect to policy decision

Determination of Individual Pay
How should one employee be paid relative to another when they both hold the same job in the organization? Should we pay all employees doing the same work at the same level the same? If not, on what basis should distinctions be made? Seniority, merit, or some other basis?

Variants of people-based pay:
Skill-Based Pay KnowledgeBased Pay

People-Based Pay CredentialBased Pay y CompetencyBased Pay y

Feedback Pay

Variants of people based pay: people-based
Skill-Based Pay Knowledge-based Pay
Knowledge-based pay rewards employees for acquiring additional knowledge Applies to both the current and new job Stretches the skill-based model to professionals, managers, and some technical personnel A study compared two manufacturing plants One used the jobcentered pay design; the other a knowledge-based design After 10 months, the pay-for-knowledge facility had higher quality, lower absenteeism, fewer accidents The traditional plant had higher productivity

Credential-based Pay
Credential-based pay rests on the fact that an individual must have: A diploma or license license, or Pass one or more examinations from a third-party professional or regulatory agency Credential-based pay is more cut-and-dried than skill-based or knowledge-based pay

Feedback Pay

CompetencyBased Pay
An employee is paid for the following range, depth and types of skills and knowledge he/she is capable of using in the job rather than for the position they hold. The "new pay" approach to compensation attempts to address organizational needs to motivate employees and ti t l d support organizational strategies.

Skill-based pay sets pay levels on the basis of: How many skills employees have, or How many jobs they can do Expected positive outcomes include: Increased quality Higher productivity A more flexible workforce kf Improved morale Decreased absenteeism and turnover

Feedback pay is based on: Aligning pay with strategic business objectives Establishing a direct connection between the jobholder and his/her part in accomplishing goals This design must conform to four principles: Flows directly from strategic business g l t t gi b i goals Directly links employees' actions to these goals Provides sufficient opportunity for rewards to hold employees' attention Is timely

M th d of Payment t Methods f P
The time they work The output they produce Skills

Knowledge Competencies A combination of these factors

Factors in Compensation Estimate
Value added Factor Ability-to-Pay Factor Government Wage Policy Union Pressure Cost of living Factor Hierarchy of Jobs Non-Wage Benefit factor Seniority factor Hazard factor Scarcity Factor

Issues in wage determination
Attracting Quality Workers Retaining Quality Workers Giving Skill Based Pay Value of seniority Rate Differentiation Criteria for wage variation Pay Progression period ay og ess o pe od Highly Paid Operative’s Promotion to Supervisory Position

Types of Incentive Pays
Productivity Pay Cost Saving Incentive Innovation Incentive Pay Overtime Rates Hazard Pay Distant Assignment Incentive Pay Social sacrifice ti compensation Scarce Skill Incentive Pay Commissions Bonus

I ti ti Incentive compensation

Issues in Compensation Administration
Managers must make policy decisions that involve the extent to which:
Compensation will be secret C Compensation will be secure Pay is compressed

P S Pay Secrecy or O Openness
There are degrees of pay secretiveness and openness In many organizations, pay ranges and individual pay are open to the organizations public and fellow employees (open system) With the secret system, pay is known only to the employee, her/his superior, superior and HRM/payroll In some organizations, employees cannot discuss pay matters and, specifically, their own pay Opening up a system has costs and benefits p g p y To reduce the manipulative aura surrounding pay, a company must share pay information with employees As firms post job openings, information on pay becomes a critical decision When deciding on secrecy or openness: Determine what employees want to know about pay Decide h i f D id if the information will h i ill harm or h l the fi help h firm Weigh performance, interdependence, and causal relationships

Pay Security
Current compensation can motivate performance So can the belief that there will be future compensation security Plans for providing this security include: A guaranteed annual wage Supplementary unemployment benefits Cost of living allowances (COLAs) Severance pay Seniority rules Employment contracts

Pay Compression
Occurs when employees perceive too narrow a difference between their pay and that of colleagues There is a narrowing gap between j p y senior and junior employees and between supervisors and subordinates Differentials of 10 percent or less are not unusual Junior employees are sometimes brought in at salaries greater than those of their superiors The Th resulting l morale can l d t lti g low l lead to decreasing productivity, higher absenteeism, and turnover To identify pay compression, compare salaries and incumbents' years of experience with the company`` Solutions for pay compression include: Reexamining how many entry-level R i i h t l l people are needed Reassessing recruitment Emphasizing performance instead of salary-grade assignment Basing all salaries on longevity Giving first-line supervisors and other first line managers the authority to recommend equity adjustments Limiting the number of new hires with excessive salaries

Sign up to vote on this title
UsefulNot useful