Chapter-7 Compensation & Benifits

Chapter - 7
Pay for Performance and

Financial Incentives
Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 1

Introduction
There are many work motivators, including
 promotions
 desirable work assignments
 peer recognition
 work freedom
but the focus in this chapter is pay.
they all help maintain employee commitment

Rewards Review
Intrinsic Extrinsic
Financial Non-financial
participation in
decision making
Performance Implied Explicit assigned

greater job based membership-based membership-based parking space
freedom
preferred
cost of living protection
more bonuses assignments
increase Program
responsibility
business
labor market pay for time
opportunities piecework cards
adjustment not worked
for growth
own
services/
diversity commission profit sharing secretary
perks
of activities
impressive
incentive time-in-rank title
plans increase
merit pay
plans

Types of Reward Plans
Intrinsic versus Extrinsic Rewards
intrinsic rewards (personal satisfactions)

come from the job itself, such as:
 pride in one’s work

 feelings of accomplishment
 being part of a work team
extrinsic rewards come from a source

outside the job, mainly by management:
money
promotions
benefits

Financial versus Nonfinancial Rewards
financial rewards:
 wages
 bonuses
 profit sharing
 pension plans
 paid leaves
 purchase discounts
nonfinancial rewards:
make life on the job more attractive;
employees vary greatly on what types they like

Performance-based versus Membership-Based
 performance-based rewards are tied to specific job

performance criteria
 commissions
 piecework pay plans
 incentive systems
 group bonuses
 merit pay
 membership-based rewards such as cost-of-living

increases, benefits, and salary increases are
offered to all employees

Compensation Administration
Companies derive their compensation programs

from job evaluation, which defines the appropriate
worth of each job.
An effective, fair compensation program
attracts motivates retains
competent employees.
Both employees and employers

can research compensation
facts and issues at
www.salary.com
http://salary.nytimes.com/
http://www.salaryexpert.com/

Job Evaluation and the Pay Structure
Job evaluation helps set pay structure.
Job analysis information determines the relative value, or

rank, of each job in the organization.
Other pay structure factors:

labor market conditions
collective bargaining
individual skill differences
Research wage information at
the Bureau of Labor Statistics
http://www.bls.gov/bls/blswage.htm

Job Evaluation Methods
ordering classification point

method method method
A committee places Jobs placed in grades Jobs are rated and

jobs in a simple rank to compare their allocated points on
order from highest descriptions to the several criteria.
(worth highest pay) to benchmarked jobs. Jobs with similar
lowest. Look for a common point totals are
denominator (skills, placed in similar pay
knowledge, grades. Offers the
responsibility). greatest stability.

Establishing the Pay Structure
Step: 1
compensation
surveys
Used to gather factual

data on pay rates for
other organizations.
Information is often
collected on associated
employee benefits as
well.

Step: 2
wage
curves
Drawn by plotting job

evaluation data (such as
job points or grades)
against pay rates (actual
or from survey data).
Indicates whether pay
structure is logical.

Step: 3
wage
structure
Designates pay ranges

for jobs of similar
value. Results in a
logical hierarchy of
wages, in overlapping
ranges.

External factors also influence pay structure.
geographic differences (local supply and demand)
labor supply (low supply = higher wages and vice versa)
competition (HR can match, lead, or lag)
cost of living as determined by the CPI
collective bargaining (unions)
employees must know how the pay structure is derived

Special Cases of Compensation
Incentive Compensation Plans
individual organization-wide
group
incentives can be added to the basic pay structure to

provide rewards for performance

Individual Incentives
 merit pay plans (annual increase, based on

performance)
 piecework plans (pay based on number of units

produced typically in a specified time period)
 time-savings bonuses and commissions
these work best where clear objectives are set and tasks are
independent

Group Incentives
Incentives can be offered to groups, rather than individuals, when
employees' tasks are interdependent and require cooperation.
Advantages Disadvantages
Focuses the group on specific Can be costly to install and administer.

performance targets. De-emphasizes individual performance,
Since rewards are controllable by which can result in excessive peer
individuals, the programs can be very pressure.
motivational. Requires open communication with
The program can be integrated with other employees on costs, profitability, etc. If the
corporate initiatives and leads to improved performance targets are not carefully
communication and employee relations selected, adverse results may occur.
See:
http://www.hrdm.net/en/group_incentive.htm

Organization-wide Incentives
 direct employee efforts toward organizational goals (such as
cost reduction)
 Scanlon Plan - supervisor and employee committees

suggest labor-saving improvements.
See
http://www.scanlonleader.org/index.php/Plans-ect./Plans-ect.html
 IMPROSHARE - formula is used to determine bonuses

based on labor cost savings.
See http://www.qualitydigest.com/jul/gainshre.html

Executive Compensation Programs
Supplemental Financial Compensation
deferred bonuses – paid to executives over

extended time periods, to encourage them to stay
with the company
stock options – allow executives to purchase

stock in the future at a fixed price
hiring bonuses – compensate for the deferred

compensation lost when leaving a former
company

Executive Compensation Programs
Supplemental Nonfinancial Compensation Perquisites
club
memberships paid life insurance
free financial, legal and
tax counseling
supplemental
retirement accounts
interest-
free loans
perks may postretirement
include consulting contracts
mortgage assistance
expense accounts
company cars supplemental

disability insurance

International Compensation
International compensation packages generally

utilize the “balance-sheet approach,” using these
four factors:
 base pay: the pay of employees in comparable jobs at home
 differentials: compensation given to offset higher costs of
living abroad
 incentives: inducements given to encourage employees to
accept overseas assignments
 assistance programs: payment for expenses involved in
moving a family abroad and in providing some services
overseas
HR needs to understand the statutory requirements of each country

Introduction
Employee Benefits
 have grown in importance and variety
 are typically membership-based rewards

offered to attract and keep employees
 do not directly affect a worker’s performance,

but inadequate benefits lead to employee
dissatisfaction
legislation, unions, and a changing workforce have

expanded benefit offerings

Introduction
 benefit and service offerings add about 30% to an

organization’s payroll cost
 benefits become the focus of negotiations with

employees when large wage and salary increases
are not feasible
Some of the benefits we enjoy today were established under

Franklin Roosevelt’s New Deal as a response to the Great Depression--
most notably unemployment insurance and social security.
To get a taste of this extraordinary time, watch
http://www.youtube.com/watch?v=4F4yT0KAMyo

Introduction
Contemporary Benefits Offerings
 benefits today reflect a diverse workforce

 challenge -- designing a benefits package that
is lawful and attractive
meets legal attracts applicants
requirements and current workers
health insurance
social security
retirement plans
unemployment compensation
time off
workers’ compensation
disability
FMLA
life insurance

Legally Required Benefits
Social Security
 financed by equal employee and employer

contributions, based on a percentage of
earnings
 provides income for retirees, disabled workers
and surviving dependents
 provides some health insurance coverage
through Medicare
SS was never intended to be sole source of retirement income.

Watch: http://www.youtube.com/watch?v=aVZijG4WSOw

Unemployment Compensation
 funded by employers who pay combined federal and
state tax imposed on taxable wage base
 tax varies based on organization’s unemployment
experience: the more layoffs, the higher the rate
 provides employees with some income continuation
during periods of involuntary unemployment
 typical coverage is for 26 weeks
Requirements to Receiving Unemployment Benefits:

1. involuntary loss of job (but not having been fired)
2. must have worked a minimum number of weeks
3. have applied to a state agency for unemployment
4. have registered for available work
5. are willing to accept any suitable job offered through the state agency

Workers’ Compensation
 paid for by the organization

 rates based on likelihood of
accidents, past history, and the
type of industry
 benefits pay expenses and/or
compensate for losses
resulting from work-related
accidents or illness, regardless
of fault

Voluntary Benefits
Health Insurance
 increases in healthcare costs have made

health insurance a critical benefit
 healthcare costs are growing faster than
wages
 purpose is to protect employee from
catastrophic loss should a serious illness
occur
The current debate over a public option for health insurance is

heated. For the pros and cons, see:
http://www.balancedpolitics.org/universal_health_care.htm

Retirement Benefits
Defined Benefit Plans
 plan specifies the dollar benefit workers receive

at retirement
 usually based on some formula of years of

service and average final compensation
 used more in government and unionized

industries

Paid Time Off
Vacation and Holiday Leave
 vacation time is usually related to the

length of time on the job
 some companies also allow personal days

that can be used for any reason

Paid Time Off
Disability Insurance Programs
 provides salary continuation for:

 short-term disabilities (sick leave)
 long-term disabilities (coverage usually effective
after 6 months)
 some companies provide financial incentives

to employees to not use their sick leave
 long-term disability plans usually replace a

portion of the employee’s salary, often 60%

Survivor Benefits
Group Term Life Insurance
 benefit is usually based on one’s annual rate of pay

 supplemental insurance increases coverage to two to
five-times the employee’s salary
Travel Insurance
 life insurance for business travel-related deaths (not

including normal commuting)

Survivor Benefits
The Service Side of Benefits
1. Social and recreational events

2. employee assistance programs
3. credit unions
4. housing
5. tuition reimbursement
6. uniforms
7. company-paid transportation
8. parking
employers often can provide services at no cost or

at a significant reduction from the usual cost

Thank You

Chapter-7 Compensation &amp; Benifits

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter-7 Compensation &amp; Benifits

Uploaded by

Copyright:

Available Formats

Chapter - 7

Pay for Performance and

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 1

There are many work motivators, including

but the focus in this chapter is pay.

they all help maintain employee commitment

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 2

Performance Implied Explicit assigned

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 3

Intrinsic versus Extrinsic Rewards

intrinsic rewards (personal satisfactions)

 pride in one’s work

extrinsic rewards come from a source

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 4

Financial versus Nonfinancial Rewards

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 5

Performance-based versus Membership-Based

 performance-based rewards are tied to specific job

 membership-based rewards such as cost-of-living

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 6

Companies derive their compensation programs

Both employees and employers

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 7

Job evaluation helps set pay structure.

Job analysis information determines the relative value, or

Other pay structure factors:

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 8

Job Evaluation Methods

ordering classification point

A committee places Jobs placed in grades Jobs are rated and

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 9

Establishing the Pay Structure

Used to gather factual

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 10

Establishing the Pay Structure

Drawn by plotting job

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 11

Establishing the Pay Structure

Designates pay ranges

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 12

External factors also influence pay structure.

geographic differences (local supply and demand)

labor supply (low supply = higher wages and vice versa)

competition (HR can match, lead, or lag)

cost of living as determined by the CPI

collective bargaining (unions)

employees must know how the pay structure is derived

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 13

Incentive Compensation Plans

incentives can be added to the basic pay structure to

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 14

 merit pay plans (annual increase, based on

 piecework plans (pay based on number of units

 time-savings bonuses and commissions

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 15

Focuses the group on specific Can be costly to install and administer.

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 16

 Scanlon Plan - supervisor and employee committees

 IMPROSHARE - formula is used to determine bonuses

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 6, slide 17

Supplemental Financial Compensation

deferred bonuses – paid to executives over

stock options – allow executives to purchase

hiring bonuses – compensate for the deferred

Chapter-7 Compensation & Benifits

Chapter-7 Compensation & Benifits