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Compensation administration is a segment of management or human resource management focusing on planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform. Compensation includes direct forms such as base, merit, and incentive pay and indirect forms such as vacation pay, deferred payment, and health insurance. Compensation does not refer, however, to other kinds of employee rewards such as recognition ceremonies and achievement parties. The ultimate objectives of compensation administration are: efficient maintenance of a productive workforce, equitable pay, and compliance with federal, state, and local regulations based on what companies can afford. The basic concept of compensation administration—compensation management—is rather simple: employees perform tasks for employers and so companies pay employees wages for the jobs they do. Consequently, compensation is an exchange or a transaction, from which both parties—employers and employees—benefit: both parties receive something for giving something. Compensation, however, involves much more than this simple transaction. From the employer's perspective, compensation is an issue of both affordability and employee motivation. Companies must consider what they can reasonably afford to pay their employees and the ramifications of their decisions: will they affect employee turnover and productivity? In addition, some employers and managers believe pay can influence employee work ethic and behavior and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet important part of managing a business.
Rudimentary pay management has existed for as long as there have been employers and employees. Owners of typically small, preindustrial businesses commonly weighed their ability to pay against employee responsibilities and contributions in order to determine compensation. The rapid development of corporations, multiplication of administrative hierarchies, and specialization of jobs in the 20th century removed owners from the day-to-day evaluation of jobs. Unionization brought a measure of standardization to wage labor, but neither the private sector nor the federal government began to study systematic job evaluation until after World War 1. The federal government spearheaded the development of formal compensation administration with the passage of the Federal Classification Act of 1923, which ranked government jobs and set salary levels accordingly. Milton L. Rock and Lance A. Berger, authors of The Compensation Handbook, credited human resource professional Edward N. Hay with providing a foundation for 20th-century compensation management. Hay began his work in the late 1930s, when his employer, a bank, asked him to create a system of pay without ethnic, racial, or gender biases. He embarked on the assignment by analyzing jobs—their duties, responsibilities, skills, education levels, etc.—and composing descriptions based on his findings. Hay operated on the theory that "something that can be measured has value while something that can't be measured has none." Accordingly, this pioneer devised guide charts that systematically evaluated and ranked jobs according to several variables: know-how, accountability, working conditions, physical effort, and problem solving.
This requirement helped coerce some recalcitrant corporations into formulating systematic pay plans. Since the controls on wages were more stringent than those on benefits. as well as employers' overall capacity to pay. the American Management Association began to compile descriptions of nonunion (especially clerical and blue-collar) jobs. and unemployment compensation. aggressive unions negotiated an astonishing array of benefits. and geographic regions. published in 1939. During the "freeze. and to the second edition of the Dictionary of Occupational Titles. Hay and other human resource professionals joined the federal government in broader examinations of compensation. with its own technologies and rationalization methods. The war era also saw the imposition of governmental wage and price controls and guidelines. and storage processes. supplementary unemployment . During the 1950s. and opportunities. Mobilization of the domestic economy for World War II significantly advanced the compensation discipline. workers' compensation. The resulting databases have enabled survey analysts to thoroughly study relationships within and among corporations. or unskilled. contained about 17. Most companies limited their pay analysis efforts internally until after the war. when Hay founded his trendsetting consulting practice.The guide charts that bore his name would become the world's single most widely used job evaluation technique. the administration of which fell to compensation managers. Over the years.500 new occupations in the plastics. and radio manufacturing industries to the economy. . It provided a foundation for systematic pay plans by promoting internal classifications of jobs and later. During the period between the world wars. This erratically published compendium became the "bible" of the emerging compensation profession. ranking. The introduction of computers quickly and continuously simplified and advanced the data collection. industries. as employees demanded explanations of the rationale behind job assignments. external comparisons of jobs across industries.or six-digit codes that classified them in one of 550 occupational groups and indicated whether the positions were skilled. Sunshine laws ratified in the 1970s combined with equal pay for equal work initiatives began to usher in a new era for the compensation profession." only companies with rational job evaluation plans could justify upward pay and benefit adjustments. Over the course of the decade.500 summary definitions presented alphabetically by title. the federal government's Employment Service enlisted its field offices throughout the country to describe and codify jobs. semiskilled. and guaranteed wages were added to the roster of statutory benefits that had included Social Security (federal). By 1943. Beginning in the mid-1930s. At the time. Blocks of jobs were assigned five. The war's technological advances helped add 3. and pricing. quantification. labor unions lobbied for increased benefits and employers gladly capitulated. remuneration. organizations throughout the United States (including the federal government) had acknowledged the need for a consistent salary-administration system that would facilitate job evaluation. extended vacations. Now-common benefits such as pension plans. both directly and indirectly. pay administration evolved into a thoroughly scientific and bureaucratic method. The first edition of the resulting Dictionary of Occupational Titles (DOT). generous packages of benefits were nontaxable and cost-effective for employers. paper and pulp.
and a host of related forms of premiums and reimbursements. and the self-employed make contributions to the Social Security fund over the course of their careers. The basics of the discipline still apply. Wage and salary add-ons include cost-of-living adjustments (or COLAs). wage and salary add-ons. and new management schemes compelled compensation managers to be more adaptive to the changing needs of employers and employees. businesses. workers' compensation. the Social Security Act has been amended and expanded to protect workers and their families from losses due to retirement. This base pay can be further delineated as either a wage or a salary. incentive payments. such as the consumer price index. child labor. travel and apparel expenses. overtime pay. but they are adapted to each corporate culture. child care services. One observer of these changes has characterized compensation managers in this environment as "engineers" who apply established techniques as situationally warranted. and benefits and services. This federal legislation formed the foundation of minimum wage. and tuition reimbursement.The profession grew so systematized. Employees who are subject to the Fair Labor Standards Act are known in compensation management parlance as "nonexempt. company cars. health insurance.S. rather than just one easily described way. COLAs are usually across-the-board contractual increases tied to an economic indicator. At that time. the compensation administrator's tasks of job description and comparison have grown more difficult and variable. are annual or monthly calculations of pay that usually have less relation to hours worked. Companies provide these forms of compensation to influence employee behavior. gender equality. Incentive payments refer to funds employees receive for meeting performance or output goals as well as to seniority and merit pay. that its precepts were considered nearly as inviolate as natural law until the early 1990s. holiday and other premium wages. Wage and salary add-ons are used to compensate employees for work above and beyond their normal work schedules or to reimburse them for expenses related to their jobs. improve productivity. and reward employees for their years of service or their strong job performance. employees. which are usually paid to managers and professionals." Salaries. Wages are hourly rates of pay regulated by the Fair Labor Standards Act of 1938. Since its initial passage in 1935. These shifts went to the heart of wage and salary administration: job descriptions. Employers. and/or death. and record keeping requirements for U. benefits and services include paid time off. Base pay refers to the cash that an employer pays for the work performed. fitness club memberships. deferred income such as pension and profit sharing programs. BASIC COMPONENTS OF COMPENSATION PROGRAMS A pay program may include the following four components: base pay. and unemployment compensation are three legally required benefits. in fact. Social Security. Finally. international competition. that reports an increase in the cost of living. Workers' compensation . corporate downsizing. As companies asked their employees to use their competencies and skills to contribute to results in several ways. overtime. Most (but not all) salaried workers are "exempt" from the Fair Labor Standards Act of 1938. disability.
it becomes far more complicated when considered alongside the other factors. In such a program. and in an era of skyrocketing medical costs and impending federal and/or state supervision of the health care industry. a worker receives cash based on the value of the stock and seniority. Management philosophy. according to Richard I. Employers typically choose between five prevalent systems: community-based. such as life and health insurance and pensions and retirement plans. Employers pay the premiums for unemployment insurance in the form of variable federal and state taxes. and provide treatment and/or rehabilitation where applicable. ESOPs are allocations of company-donated stock that can be used as retirement or incentive funds. Unemployment insurance is designed to help workers through the unexpected loss of a job. 5. either in terms of a dollar amount or a percentage of earnings scaled to seniority. DETERMINING PAY RATES. Capital-intensive or labor-intensive. Each of these systems has advantages and drawbacks. 2. Group health insurance has also become an expected component of benefits plans. but end coverage at employee termination. Benefits may also come in the form of protection programs. All 50 states have enacted laws designed to compensate victims. 4. commercial insurance. Group life insurance is one of the most widely offered benefits because of its cost-effectiveness. Type of business. Types and levels of skills and knowledge required. 7. . Employee stock ownership plans (ESOPs) and 401(k) plans are the most popular defined-contribution plans. Pension and retirement plans include defined-benefit plans and defined-contribution plans. self-insurance. 8. Henderson. author of Compensation Management in a Knowledge-Based World. As many as 80 percent of pension plan participants are the beneficiaries of defined-benefit plans. 3. when rising industrial accident rates prompted state legislatures to action. the employer promises a fixed pension level. The 13 factors are: 1. 6. Upon retirement. These plans have grown increasingly popular in the 1980s and 1990s because employers know their costs up front. reduce on-the-job accidents. minimize accident-related litigation. Union affiliation or no union affiliation. this aspect of compensation management has become evermore complex. or preferred provider. and the funds can accumulate in a tax shelter. Workers who become unemployed and meet preset eligibility requirements receive weekly benefits. While each factor is straightforward when considered in isolation. health maintenance organization. Geographic location. The interaction between 13 factors affects the actual pay rates employees receive. Most employers shoulder the premiums for employees (and sometimes retirees). Company size. Complete compensation package. Defined-contribution plans specify the amount an employer will set aside in an investment fund for the benefit of each employee. employees can also contribute.benefits have evolved from the early 1900s. 401(k)s allow employers and employees to defer a maximum amount of annual compensation to a tax-sheltered "savings account" that can then be invested on the employees behalf.
Labor supply and demand. 13. In other words. interrelated policy decisions: internal consistency. therefore. description.000. and $30. equity.000 in the professional level. should consider internal consistency when determining pay rates for employees who do the same work and employees who do different work. 12. The differences in pay among the various levels are called pay differentials. This model of compensation administration shows how companies consider most of the 13 factors previously presented that influence pay rates.000 and the differential between executives and professionals is $30. The pay structure of a company is its range of pay rates for different jobs and skill levels within the organization. COMPENSATION ADMINISTRATION MODEL A general model of compensation administration encompasses the creation and management of a pay system based on four basic.9. external competitiveness. so the differential between executives and managers is $15. 10. employee contributions. Companies develop their individual compensation strategies by placing varying degrees of emphasis on these four policy decisions.000 in the executive level. its hierarchy. INTERNAL CONSISTENCY. and structure of jobs. This policy requires compensation managers to compare jobs or skill levels to determine the contributions employees with different job titles or skill levels make toward accomplishing company goals. evaluation.. The different values companies have for employees with different jobs reflect the perceived importance of the various jobs or skill levels to achieving company goals. Gender Difference. and compliance. but the corporate restructuring and reorganizing trend of the 1990s has resulted in flatter corporate structures with just a few levels. a company may have three organizational levels: executive. Hence. 11. and administration of the compensation program. Compensation professionals work with these policy decisions according to individual corporations' needs. The objective of internal consistency is for compensation managers to determine equitable rates of pay by considering the similarities and differences in work content or job skills as well as the different contributions employees with different jobs and skill levels make to a company's goals. Compensation managers. managerial. employees may have salaries of $60. Each of these levels may correspond to different pay rates. pay structures reflect corporate structures. Companies traditionally maintained larger hierarchies with several levels. keeping in mind the ultimate objectives of compensation administration— efficiency. Employment stability.000 in the management level. $45. For example. Internal consistency depends on how a company is structured—i. Length of employment and job performance. Compensation managers seek to achieve internal equity and consistency—rationalizing pay within a single organization from the chief executive officer on down—through the analysis. and professional.e. Company profitability. .
Labor rates refer to the actual amount of pay employees receive for a given period—e. In addition.. The number of levels and the degree of pay differentials are based on three general criteria: the value of a job and a job's responsibilities.g. Economic Conditions: Demand for labor influences employee wages. labor costs include the total amount paid to employees as well as the level of productivity. a labor rate of $18. Employers pay wages based on the relative contributions employees make to production goals. Company Factors: Pay structures depend on the kind of technology a company has and on whether a company uses pay as an incentive to motivate employees to improve job performance and to accept more responsibilities. a company with the pay and corporate structure outlined above would have deemed it fair that executives earn twice as much as professionals. 3. Social Customs: Beginning in the thirteenth century. Employers can use these criteria to modify employee behavior by indicating what kinds of responsibilities. Achieving external competitiveness in the area of compensation means balancing the need to keep operating costs (including labor costs) low with the need to attract and retain quality workers. a company might have high labor rates. More specifically. knowledge. employees began demanding a "just" wage. Employee Acceptance: Employees expect fair pay rates and determine if they receive fair wages by comparing their wages with their coworkers' and supervisors' rates of pay. This idea evolved into the current notion of a federally mandated minimum wage. the skills and knowledge needed. skills. six primary but interrelated factors can shape a company's pay structure: 1. Hence.An emphasis on internal consistency forces employers to allocate pay fairly across a company's levels. or file lawsuits.50 per hour. economic forces do not determine wages alone. 6. Job Requirements: Some jobs may require greater skills. Employee Knowledge and Skills: Likewise. or experience than others and hence fetch a higher pay rate. 4. performance. 5. Consequently. 2. employees bring different levels of skills and knowledge to companies and hence they are qualified to work at different levels of a company hierarchy and receive different rates of pay as a result. In contrast. supply and demand for knowledge and skills helps determine wages. the distinction between two compensation-related terms should preface the discussion of pay rates and competitiveness: the distinction between labor rates and labor costs. they may seek employment elsewhere. productivity. EXTERNAL COMPETITIVENESS. Consequently. but relatively low labor costs if it has high . and job performance and productivity. As Jeffrey Pfeffer argued in the Harvard Business Review. If employees consider their pay rates unfair. which seems reasonable in that some companies pay their highest-paid employees 10 to 200 times as much as their lowestpaid employees. put forth little effort in their jobs. External competitiveness is how a company's rates of pay compare to those of its competitors. and knowledge employees need to move into a different level and receive a higher pay rate.
Weighing all these considerations." where pay levels reflect the fluctuation of the firms' success or decline. auditors. providing a geographical basis for comparison. if it takes fewer labor hours to complete tasks and if the quality of its products and/or services is greater than the competition's. and technology. educational opportunities. The New York-based American Management Association's "Executive Compensation Service" has compiled and published information on compensation and related subjects since 1950. reduce voluntary . management philosophy. buyers. or pay less than their competitors' average hoping to attract and retain employees through noncompensation means such as recognition events. Comparative surveys help compensation administrators correlate jobs and salaries across a given industry and/or the entire economy. size. A competitive pay level—one that balances all considerations—can help contain labor costs. Compensation managers achieve external competitiveness by comparing wage levels within their industry." "Employer of choice" emphasizes the total compensation package. examining their companies' resources and goals. and working in a pleasant environment. directors of personnel. match. and may include employment security. draftspersons. In general. and therefore favor attracting and retaining quality employees. and Clerical Pay. some employers use different policies for different units and/or job groups. job analysts. increase quality and experience. Bureau of Labor Statistics conducts and publishes three types of annual occupational wage surveys as well as the Monthly Labor Review. or follow competitors' pay practices. Job surveys have also been developed by professional human resource groups over the decades. The agency's industry wage surveys analyze nearly 100 manufacturing and service sector industries individually. and positioning as "employer of choice. 3. which has been conducted since 1959.S. Product market conditions: the degree of demand for specific products and the level of industry competition. attorneys. firms can choose to pay more than the industry average. compensation managers should consider the effects pay rates will have on productivity and not consider pay rates alone or confuse pay rates and labor costs. Organizational characteristics: industry. Establishing the pay level balances a company's profit requirements with competition for competent employees. engineering technicians..e. The BLS's National Survey of Professional. The BLS's Area Wage Surveys examine occupations common to a broad range of industries in hundreds of standard metropolitan statistical areas. 2. Therefore. and clerical posts. including accountants. and establishing their own pay levels accordingly. Technical. Competition in the labor market: the supply and demand for employees with various qualifications. This publication provides a means for measuring a company's compensation packages against those of other companies. and the promise of intellectual challenges or latitude. chemists. The U. Factors determining pay level include: 1. Administrative. companies can set their pay levels to lead. In practice.levels of productivity—i. achievement celebrations. examines specific positions. engineers. Contemporary compensation policies include "variable pay. enlarge the pool of qualified applicants.
Some objective methods of compensation for performance have become very popular incentives in the late 20th century. Compensation based on employee contributions generally is distributed on the basis of employee evaluations. discourage unionization. ADMINISTRATION. EMPLOYEE CONTRIBUTIONS. compensation managers must choose the components that they will include in a company's compensation program—that is. To do so. Nevertheless. These concepts also help control labor costs. pay studies suggest that pay is one of several important employee motivators. Taking into consideration the previous three policies. because employees do not receive the rewards unless the company performs well. Once a company has determined its pay level relative to its competitors. Some companies may choose to pay all employees the same wage. Profit sharing links pay to increases in company profits. A performance evaluation may include objective and/or subjective measurements. compensation managers must determine the best compensation package for each occupation. incentives. Perhaps the most common examples are sales commissions and piecework. Subjective measurement are problematic because of the potential for bias and because inaccurate measurement can lead to employee frustration and apathy. and abate pay-related work stoppages. while others decide to reward employees for seniority and productivity. Furthermore. wage and salary add-ons. The administrative policy refers to the tasks of compensation managers in designing and implementing a pay program. number of words typed per minute) are clearly reliable and fair. These programs are geared toward making each employee's vested interest in the company clearer and more immediate through his or her paycheck. This policy assumes that employees are significantly motivated by pay. and or cost savings. employees should participate in establishing standards and they should know the standards at the beginning of the review period. companies must establish performance standards. and employee stock option plans base increased compensation on a company's stock performance. Companies that choose the latter route tend to emphasize incentive and merit aspects of compensation programs. This policy area involves the weight companies choose to place on employee performance in determining a compensation program. although they may be more difficult to establish for some jobs. which studies fail to confirm or refute conclusively. companies should maintain a list of updated job descriptions that indicate what aspects of employee performance will be measured for each job. but creative additions to these staples have been added recently. which kinds of base pay. just not the consummate one. This approach enables companies to give their employees a measure of control over their compensation and ideally thereby influence their performance. The aspects of employee performance to be measured should be reasonably attainable. Objective assessments (such as number of pieces produced per hour. quality improvements.turnover. Administration also . In order to carry out evaluations perceived as being fair by employees. and benefits they will offer employees with different jobs and skill levels. Gain-sharing programs tie incentives to increased productivity.
flexible work schedules. and other progressive benefits in response to the needs of increasing numbers of women in its workforce.referenceforbusiness. Companies also adopt different approaches to compensation administration responsibilities.html#ixzz1IZTDlgCL . The drawback to the centralized approach is that a compensation program may suit general corporate needs. Compensation managers at E. they began to relate to more customer-service-oriented goals. for example. Consequently. Others opt for a decentralized approach where multiple company departments have these responsibilities. child labor laws. Whereas incentives had previously been based strictly on sales. pay administrators wrangle with a daunting array of legal pressures. joint investments in ongoing training. the litany of regulations will continue to grow. and unemployment and social security requirements.. In the early 1990s. for example. to minimum wage legislation. whether employees consider the pay program fair. Ultimately. workers' compensation. From state and local payroll taxes. In all likelihood. compensation administrators frequently adopt general guidelines that all departmental compensation policies must follow. career breaks. as Mircea Manicatide pointed out in HR Focus. a compensation program must" be flexible enough to reflect the different needs of the individual and the organization. decided to emphasize customer service in the 1990s as part of its marketing strategy. In order to encourage dealerships to shift their focus as well. Ford Motor Co. Some rely on a centralized approach where the design and administration of compensation programs are performed by a single company department. outrage over excessive executive pay at publicly owned companies prompted the Securities and Exchange Commission to require that businesses disclose total executive pay and how that compensation relates to performance. as long as they adhere to the general guidelines. and each employee's changing needs over time. is one significant trend. Compensation also must reinforce the organization's strategic conditions. Ford had to change its incentive program. Environmental and regulatory factors have also become very practical considerations of compensation management. equal opportunity mandates. Compensation management has been strongly influenced by regulatory pressures. Intensifying competition in many industries has brought about shifts in overall corporate strategies and changes in compensation. Likewise. the decentralized approach also can lead to problems.com/encyclopedia/Clo-Con/CompensationAdministration. for example.duties. have promoted child care. For example." Read more: Compensation Administration . benefits. du Pont de Nemours & Co. such as those for incentives. how competitors pay their employees and if competitors are more or less productive. expenses http://www. Creating compensation task forces with members drawn from various departments helps avoid this problem. the ebb and flow of an employee's contributions without creating expectations of permanence. The increasing diversity of the workforce. This approach may make it difficult to transfer employees from one department to another and may bring about a lack of internal consistency.l. but not individual department needs. but allow departments to develop their own policies.involves determining whether the pay program will attract and retain needed employees successfully.
yet special attention should be paid while deciding upon incentives for employees. Read more on employee recognition gifts. basing the rewards or incentives on job performance. Secondly. satisfying the employee needs and lastly. but nevertheless they can prove to be quite effective. i. Employees who enjoy what they are doing are bound to work better with the clients and also among one another. Many organizations these days give rewards to their high performing employees in the form of books. financial incentives for employees are the amount of increment they will get upon achieving a particular target.e.INCENTIVE Rewards and Incentives for Employees Management is all about managing men. restaurant passes and movie tickets. gadgets. There are a number of ways which different managers in organizations employ to improve employee motivation. Read more on: • • Employee Incentive Plans and Ideas Employee Appreciation and Recognition Ideas Employee Incentive Programs The motive of all employee incentive programs is to increase the productivity of the employees and to help them enjoy their work. such as a rise in the salary of the high performing employee. the employee who receives a pay hike gets even more motivated and thus. And to get things done. Financial incentives are not the only types of incentives for employees. high productivity translating in lower cost of production. if an employee does A amount of work. there are companies which give incentives in the form of gift items or organizing events for the high achieving employees as well. Throwing parties for employees or having events such as special dinners for the employees are some of the other employee incentive ideas used by companies these days. the initial amount spent by the organization on the various employee incentive plans will seem worth it. setting achievable goals. Although. as nothing can motivate an individual like them In simple words. motivating the employees and keeping their morale up is very essential. Firstly. Incentives may initially cost the organization some money. employee incentive programs are not a replacement for pay raises. maintains his high level of performance. Read more . other employees too get indirectly motivated to work harder in aspiration of receiving similar incentives. all of the above methods of motivating employees should be applied by a manager to increase work productivity. Although. giving positive reinforcement. The incentives for employees. he will get B amount of money.e. i. but if one looks at its overall and long term benefits. The main task of any manager in an organization is to get things done through his subordinates. the most important of all. following an effective discipline policy. benefits the organization in two ways. such as by treating the employees fairly.
A birthday program in which a gift is delivered to the employees house on his birthday. Attendance incentives for employees could be something like certificates with "time offs" for the employee. . Also. The work environment should be such that the employees can openly discuss any work related issue with their managers. An organization can also consider the following incentives for employees.on performance appraisals. a good idea is to make a list of all the rewards that have been planned and make the employees vote the ones that they think are the best for them. Motivational Incentives for Employees Before implementing employee incentive programs. certain employee representatives should be included to show that the management does not have any thing to hide from its employees. those ideas should be thoroughly discussed and even applied. • • • • • Staff meetings in a good hotel instead of office. if found to be effective. Read more on workplace communication. Certain health incentives for employees who do social work. And if they have certain ideas on how to make their work more efficient or productive. Soccer game tickets or concert tickets to a group which has achieved its target. Clear Communication Neither reward. during the management meetings. nor incentive can replace clear cut communication between the employees and their managers.
These account for a very small percentage of ESOPs. They must buy them back at their full market value. In most cases. an ESOP is given to an employee. All employees over the age of 21 can participate in the plan. They have been growing in strength since about 1974. and employees should be fully vested within five to seven years.000 companies have an ESOP in place. rather than purchased by an employee. buy them directly from the company. into which it contributes either new shares of its own stocks or cash to buy existing shares. A company sets up a trust fund. employees are able to vote their shares on major issues such as relocation or closure. Around 11. In this case. In public companies. Company contributions to the plan are tax deductible. . Another version of the ESOP borrows money in order to buy existing or new shares. and the company must be able to buy back these options. the company makes cash contributions to the plan in order to repay the loan. They are also used to provide a market for departing owners of successful companies. and senior members of the workforce acquire an increasing right to the shares in their account. they receives their share options. Employees can receive them as a bonus. The main purpose of an ESOP is to reward and motivate employees. This is known as vesting. or receive them through an ESOP. In the United States. Other employee’s shares are based on relative pay or some other equitable formula. Shares in the trust are generally allocated to individual employee accounts. employees can vote on all issues. Most press attention regarding the use of ESOPs focuses on their use as a takeover defense or as buyouts of failing companies. Companies may establish an ESOP for a number of purposes. In private companies. There are different ways in which employees can receive stocks and shares of their company. An ESOP is similar to a profit-sharing plan.ESOP An employee stock ownership plan (ESOP) is a way in which employees of a company can own a share of the company they work for. and nearly 8 million employees are involved in them. When employees leave the company. ESOPs are a very common form of employee ownership.
When pay for performance salaries are properly implemented. By surveying the responsibilities of people occupying various roles in your company. but also account for the working environment and performance of the team as well. basing an employee's pay on their performance has also become popular. or company reaches specified targets. or simply provide their employees with a set pay increase annually. This can be a valuable benefit. Pay for performance compensation structures not only account for individual. department. P4P has been implemented as a motivational tactic and with an eye to persuade employees to work harder and benefit the company while at the same time providing an added benefit for themselves. If a pay for performance compensation structure would help to benefit your business. As of 2005. These measures may be different for people in different positions within the same company. The applications for P4P systems have recently extended far beyond the realm of healthcare. employers not on P4P systems hold compensation reviews. everyone shares a common goal of doing what's best for the company. or P4P is a system in which employees attain increased levels of compensation if their team.Pay for performance compensation Pay for performance compensation plans are win-win for employees and business owners. In addition to traditional wage and salary based compensation systems. When holding P4P performance reviews to determine compensation bonuses. By having a well-established policy in place. Pay for performance. Pay for performance compensation schemes initially gained popularity in health insurance. as knowing that compensation increases will be based on the performance of the team will coerce employees to operate as a cohesive unit in order to reach a common goal. which will allow you to get the most out of your employees. you can effectively formulate performance metrics on which your P4P system will be based. rewarding different medical entities for reaching targets in quality and efficiency. you can be sure that all of your employees have a firm grasp of how the P4P system works. Performance metrics for a secretary will certainly be different for those of a financial analyst. Typically. make sure to review the details of the system with your employees and establish guidelines for compensation. It was widely held that the implementation of this system would improve the quality of care administered and bring the United States' healthcare system on par with some of the more venerable international systems. as employers in many different industries are recognizing its merits. you must ensure that you can consistently and accurately measure performance for all employees. approximately 75 percent of all businesses linked at least some part of employee pay to performance. .
loyal and satisfied labor force for the organization. 5. New welfare measures are added to the existing ones from time to time. Employee welfare includes monitoring of working conditions. The important benefits of welfare measures can be summarized as follows: • • They provide better physical and mental health to workers and thus promote a healthy work environment Facilities like housing schemes.Employee Welfare Welfare includes anything that is done for the comfort and improvement of employees and is provided over and above the wages. and education and recreation facilities for workers’ families help in raising their standards of living. Labor welfare entails all those activities of employer which are directed towards providing the employees with certain facilities and services in addition to wages or salaries. To relieve workers from industrial fatigue and to improve intellectual. Labor welfare has the following objectives: 1. Welfare measures may be introduced by the employers. To provide better life and health to the workers 2. To make the workers happy and satisfied 3. medical benefits. industrial relations and insurance against disease. The basic features of labor welfare measures are as follows: 1. creation of industrial harmony through infrastructure for health. This makes workers to pay more attention towards work and thus increases their productivity. The very logic behind providing welfare schemes is to create efficient. cultural and material conditions of living of the workers. 4. Labor welfare includes various facilities. . economic betterment and social status. Welfare helps in keeping the morale and motivation of the employees high so as to retain the employees for longer duration. The purpose of labor welfare is to bring about the development of the whole personality of the workers to make a better workforce. accident and unemployment for the workers and their families. efficiency. healthy. Welfare measures are in addition to regular wages and other economic benefits available to workers due to legal provisions and collective bargaining 3. The purpose of providing such facilities is to make their work life better and also to raise their standard of living. Labor welfare schemes are flexible and ever-changing. The welfare measures need not be in monetary terms only but in any kind/forms. employees or by any social or charitable agency. services and amenities provided to workers for improving their health. 2. government.
It covers such matters as the organisation of work and work activities. following the recommendations of two influential reports which were published in 1956 – the report of a Committee set up by the Member States (the Spaak Report) and the report of a committee of experts from the International Labour Organisation (the Ohlin Report). thirdly. Improving working conditions is one of the goals of the EU. improved living and working conditions. skills and employability. (and considered) it essential to ensure the increasing involvement of labour and management in the economic and social decisions of the Community’. and. Both reports recommended that there was no need for an interventionist social dimension for the proposed common market. and to stimulate and provide the scientific basis for the Community’s legislative initiatives.’ The original EC Treaty of 1957 took a more narrowly economic view. secondly.• Employers get stable labor force by providing welfare facilities. and working time and work-life balance. increased involvement of management and labour in the economic and social decisions of the Community and of workers in the life of undertakings. save for certain measures against ‘unfair competition’. . so as to make possible their harmonisation while the improvement is being maintained…. The objectives of improved living and working conditions were to be achieved primarily through the mechanisms of the common market... among other matters. A revision of this policy was made at the summit of the Heads of the Member States in Paris in October 1972. The three main objectives of the 1974 SAP were. first. Working conditions Working conditions refers to the working environment and to the non-pay aspects of an employee’s terms and conditions of employment. greatly expanded the social competences of the Community to include. Intervention was only to secure what was consistent with the common market: the free movement of labour. Progress towards these objectives took the form of a legislative programme during the 1970s. The Council also established the European Foundation for the Improvement of Living and Working Conditions in 1975 to undertake research into the new and developing area of Community social policy. later the new Social Chapter of the EC Treaty. the Commission was instructed to draw up a Social Action Programme (SAP). The ‘Social Chapter’ (Chapter 1: Social Provisions of Title XI of the EC Treaty) provides in Article 136 EC: ‘The Community and the Member States… shall have as their objectives the promotion of employment. ‘working conditions’ (Article 137(1)(b)). Workers take active interest in their jobs and work with a feeling of involvement and participation. safety and well-being.. training. Accordingly. improvement of living and working conditions. attainment of full and better employment in the Community. which concluded with the final communiqué that the Member States ‘attached as much importance to vigorous action in the social field as to the achievement of economic union. The Protocol on Social Policy of the 1992 Treaty of Maastricht (Treaty on European Union). health.
The employer is obliged to prepare a document with the requisite information. If the employer unilaterally drafts the written information. When the employer has not the right in the contract – if he tries to alter rates of pay. or the status or grade of the employee – he or she must obtain the employee’s consent before the change can have any legal effect. and give it to the employee not later than two months after the commencement of employment. The existence of a written statement does not mean that it has been agreed and is thus binding. when such modifications are outside the management prerogative. One problem is that workers may not have precise information about their working conditions in the first place. challenges concerning the accuracy. This could be avoided if the document itself cites a collective agreement as the source for changes in terms and conditions. The normal rule is that an employer cannot change the terms and conditions of employment without the consent of the employee. To maintain the directive’s objective of keeping the employee informed. . of the document purporting to comply with the directive’s requirements may arise in the absence of any worker input to the document.Changes in working conditions Changes in working conditions and other aspects of the employment relationship can generate serious industrial relations problems. some workers ‘have neither a written contract of employment nor a letter of appointment explaining the elements of the employment relationship or referring to a collective agreement or any other easily accessible written document’ (COM (90) 563 final). So merely informing the employee by a written statement is not conclusive of the existence of an agreed change in the terms. a new document that reflects anychanges in core working conditions will have to be issued. hours of work. The directive stipulates that the employer must provide information covering all ‘essential aspects’ of the employment relationship. This was addressed by Council Directive 91/533/EEC of 14 October 1991 on an employer’s obligation to inform employees of the conditions applicable to the contract or employment relationship. and hence validity. As the Explanatory Memorandum to the proposed directive put it.
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