Managing Compensation,

Rewards and Employee Benefits

CHAPTER 8
 OUTLINE
• Total rewards and compensation
– Nature of total rewards and compensation
– Compensation system design issues
– Development of a pay system, pay structures and
determining pay increases
• Incentive plans
– Setting performance measures
– Individual incentive plans
– Group incentive plans
– Organisation incentive plans
– Incentives for executives
 OUTLINE
• Employee benefits
– Benefits and HR strategy
– Benefits management and communications
– Employee benefits required by law
– Discretionary employee benefits
 Part 1
Total rewards and compensation
• Nature of total rewards and compensation
• Compensation system design issues
• Development of a pay system, pay
structures and determining pay increases
 1. Nature Of Total Rewards and
Compensation
• Total Rewards
– Monetary and non-monetary rewards provided to employees
in order to attract, motivate, and retain them.
• Rewards System Strategic Objectives:
– Legal compliance with all laws and regulations
– Cost effectiveness for the organization
– Internal, external, and individual equity for employees
– Performance enhancement for the organization
– Performance recognition and talent management for
employees

12–5
 1. Types of Compensation
• Base Pay
• Basic compensation that an employee receives,
usually as a wage or a salary
• Hourly vs. salaries
• Variable pay
• Compensation linked directly to individual, team or
organizational performance
• E.g. : stock options
• Benefits
• Indirect reward given to an employee or a group of
employees for organizational membership
• Health insurance, vacation pay, or retirement pension
12–6
2. Compensation System Design Issues

a. Compensation Fairness
and Equity

External Internal Equity Pay Secrecy

Procedural Justice
Equity Distributive Justice vs. Openness

12–7
2. Compensation System Design Issues
• Equity
– Perceived fairness between what a person does and what the
person receives.
• External Equity
– Employer does not provide compensation that employees view as
equitable to other employees performing similar jobs.
• Internal Equity – receive compensation -> KSAs
– Procedural justice
• Fairness of the process and procedures used to make
decisions about employees including their pay
– Distributive justice
• Fairness in the distribution of outcomes
 2. Compensation System Design Issues (cont’d)

b. Market Competitiveness
and Compensation

“Meet the “Lag the Market” “Lead the

Market” Strategy Strategy Market” Strategy

12–9
FIGURE 12-5 Compensation Quartile Strategies

“Lead the
Market” Strategy

“Meet the
Market” Strategy

“Lag the Market”

Strategy
12–10
 Compensation System Design Issues (cont’d)

c. Individual vs. Team

Rewards

Team Individual

How to develop How to compensate the

compensation programs individuals whose
that build on the team performance may also
concept. be evaluated on team
achievements.

12–11
 d. Global Compensation Issues

Compensating Expatriates

Balance-Sheet Global Market Tax Equalization

Approach Approach Plan

Cost differences
Variation in tax law and
- Administrative “refer to next slide”
tax rate
complexity
12–12
Possible Components of Global
Employee Compensation

12–13
2. Compensation System Design Issues (cont’d)

Identification of the required

competencies

Progression and compensation

of employees
Competency-
Based Pay
Limitations on who can acquire Systems
more competencies Kwldg based
BP/Skill Based
Training in the appropriate Pay
competencies

Certification and maintenance

of competencies

12–14
 3.Development of a Base Pay System
• Developed using current job description and job
specifications.

12–15
 3. Valuing Jobs with Job Evaluation
Methods
• Job Evaluation
– The formal systematic means used to identify the
relative worth of jobs within an organization.

• Point Method
– Compensable Factor
• A job value commonly present throughout a group of jobs.
• Something for which an organization will compensate an
employee.

12–16
FIGURE 12-9 Examples of Compensable Factors for Different Job Families

12–17
 Job Evaluation Methods

Job Evaluation
Methods

Factor-
Point Ranking Classification
Comparison
Method Method Method
Method

12–18
 Valuing Jobs Using Market Pricing
• Market Pricing
– Using market pay data to identify the relative value of
jobs based on what other firms pay for similar jobs.

Advantages Disadvantages

• Ties organizational pay levels
to the external job market,
without “internal” job
evaluation distortion.
• Communicates to employees
that the compensation system
is “market linked.”
12–19
• Survey data are limited or may not
be gathered in methodologically
sound ways.
• A specific job may differ from a
“matching” job in the survey.
• The market data’s scope (range of
sources) is a concern.
• Tying pay levels to market data
can lead to wide fluctuations.
 Pay Surveys
• Pay Survey
– Collection of data on compensation rates for workers
performing similar jobs in other organizations.
• Benchmark Jobs
– Jobs found in many organizations.
• Internet-Based Pay Surveys
– Pay survey questionnaires are distributed electronically
rather than as printed copies.
12–20
 Pay Structures
• Job Family
– A group of jobs having common organizational
characteristics.
• Common Pay Structures
– Hourly and salaried
– Office, plant, technical, professional, managerial
– Clerical, information technology, professional, supervisory,
management, and executive
• Pay Grades
– Groupings of individual jobs having approximately the same
job worth. 12–21
FIGURE 12-10

Compensation
Administration
Process

12–22
 Pay Structures (cont’d)
• Setting Pay Grades Using Market Banding
– Grouping jobs into pay grades based on similar market
survey amounts.
• Setting Pay Grades Using Job Evaluation Points
– Plotting a Market Line
– Graph line that shows relationship between job value as
determined by job evaluation points and job value as
determined by pay survey rates.
– Shows distribution of pay for the surveyed jobs, allowing a
linear trend line to be developed by the least-squares
regression method.
12–23
FIGURE 12-11 Market-Banded Pay Grades for Local Bank

12–24
FIGURE 12-12 Example of Pay Grades and Pay Ranges

12–25
 Pay Ranges
• Broadbanding
– The practice of using fewer pay grades with much
broader pay ranges that in traditional systems.
– Benefits
• Encourages horizontal movement of employees
• Is consistent with trend towards flatter organizations
• Creates a more flexible organization
• Encourages competency development
• Emphasizes career development

12–26
 Individual Pay
• Rates Out of Range
– Red-Circled Employees
• An incumbent (current jobholder) who is paid above the range
set for the job.
– Green-Circled Employees
• An incumbent who is paid below the range set for the job.
• Pay Compression
– A situation in which pay differences among individuals
with different levels of experience and performance in
the organization becomes small.

12–27
 Determining Pay Increases
• Performance-Based Increases
– Targeting High Performers
• Some target top 10% of employees for significantly greater
increases
• Reason is to reward and retain critical high-performing
individuals
– Pay Adjustment Matrix
• Use pay adjustment matrices that base adjustments partly on
a person’s compa-ratio

12–28
 Part 2
Incentive plans
• Setting performance measures
• Individual incentive plans
• Group incentive plans
• Organization incentive plans
• Incentives for executives
Variable Pay: Incentives for Performance

Better performing
Some people perform
employees should
better and are more
receive more
productive than others
compensation

Variable
Pay
Assumptions

Part of compensation Some jobs contribute

should be tied directly more to
to performance and organizational
results success than others

13–30
FIGURE 13-1

Examples of
Incentives

13–31
 Developing Successful
Pay-for-Performance Plans
Pay-for-
Performance
Plans

Enhance results Reward and

Link strategic goals Promote
and reward recognize
and employee achievement of
employees employee
performance HR objectives
financially performance

13–32
 Successful Variable Pay Plans

Effective Incentive Plans

Does the Plan

Does the Plan Is the Plan
Reward the
Fit the Administered
Appropriate
Organization? Properly?
Actions?

13–33
FIGURE 13-2

Metric Options
for Variable
Pay Plans

13–34
Developing Successful Incentive Plans
Develop clear, understandable
plans that are continually
communicated.

Use realistic performance

measures.

Successful
Keep plans current and linked to
organizational objectives.
Incentive
Plans
Link results to payouts that
recognize differences.

Identify variable pay incentives

separately from base pay.

13–35
Categories of Variable Pay Plans

13–36
 Part 3
Employee benefits
• Benefits and HR strategy
• Benefits management and communications
• Employee benefits required by law
• Discretionary employee benefits
 Benefits and HR Strategy
• Benefit
– An indirect reward given to an employee or group of
employees for organizational membership
• In Singapore, employers are required by law to
provide major benefits to their employees
– Retirement, paid annual leave, paid sick, hospitalization
leave, long-term healthcare (ex. Medisave)
– The Government plays the role of controlling healthcare
costs by preventing unrestrained medical spending, helping
the needy, poor and aged to cope
14–38
FIGURE 14-1 Sample Breakdown of an Employee’s Total Compensation and Benefits Costs

14–39
FIGURE 14-2

Strategic
Benefits
Considerations

14–40
FIGURE 14-3

Benefits
Management
Components

14–41
 Benefits as Competitive Advantage
• Some Employers see benefits as reinforcing the
company philosophy of social and corporate citizenship
• The role of benefits for workforce attraction and
retention
– Benefits influence employees’ decisions about which
particular employer to work for
– Generally, benefits are not taxed as income to employees
• Benefits represents a somewhat more valuable reward than an
equivalent cash payment

14–42
 Benefits Design
• Decisions Affecting Benefit Design:
– How much total compensation?
– What part of total compensation should benefits comprise?
– What expense levels are acceptable for each benefit?
– Which employees should get which benefits?
– What is being received by the organization in return for each
benefit?
– How flexible should the benefits package be?

14–43
 Benefits Design
• Part-Time Employee Benefits
– Employees working for < 35 hours a week are considered part-time
employees
• Entitled to benefits as specified under the Employment Act to be
calculated on a prorated basis
• Flexible Benefits
– Program that allows employees to select the benefits they prefer from
groups of benefits established by the employer
– Adverse selection
• Only higher risk employees select and use certain benefits
• An inappropriate benefits may be chosen by an employee

© 2016 Cengage Learning Asia Ltd 14–44

FIGURE 14-4 Typical Division of HR Responsibilities: Benefits Administration

14–45
HR and Benefits Administration
Benefits Administration Issues
and Trends

Outsourcing of Internet-Based Benefits

Benefits Administration Measurement
Administration Systems (Return vs. Costs)

14–46
FIGURE 14-5 Common Benefits Metrics

14–47
FIGURE 14-6 How a Benefits Dollar May be Spent in Singapore

14–48
FIGURE 14-7 Types of Mandated and Voluntary Benefits

14–49
 Security Benefits

Types of Security Benefits

Workers’ Unemployment Severance

Compensation Compensation Pay

Employees out of work and EMPLOYEE leave by mutual

Person injured on the job
looking for job - US agreement with employer
14–50
 Health-Care Benefits
• In Singapore, health benefits costs are less of a major burden to
employers than in the U.S.
• Healthcare costs in Singapore take up not more than 1-2% of an
employee’s payroll on average
1. The Government consistently subsidizes patient care at public
hospitals and outpatients polyclinics heavily
2. MediShield: A risk-pooling mechanism so insurance companies
can offer affordable hospitalization insurance schemes to
everyone
3. Individuals are made responsible for their healthcare
consumption behaviors
4. Government has set up Medifund (program designed to provide
Government-funded subsidies to the needy)
5. Government directly encourages individuals to engage in a
healthy and active lifestyle
14–51
FIGURE 14-10 Higher Tax Deduction for Employers Who take up These Plans in
Singapore

14–52
 HealthCare Preventative and Wellness Efforts
• Many employers offer programs to educate employees about healthcare
costs and how to reduce them
– Newsletters, formal classes, offering financial incentives
• HealthCare Legislation
– In Singapore, employees contribute 20% of their monthly payroll to
their CPF accounts (including Medisave) using pre-tax dollars, thus
enjoying some tax benefits when they purchase medical benefits
using their Medisave accounts
– Portable Medical Benefits Scheme (PMBS)
– Transferable Medical Insurance Scheme (TNIS)

14–53
 Retirement Benefits
• Singapore’s prolonged low fertility rates means a
drastically deteriorating support ration in the next
few decades
– The working-age persons to elderly ratio (aka.
“Support” Ratio)

14–54
 Pension Plans

Types of Pension Plans

Defined- Defined- Cash

Benefit Plan Contribution Plan Balance Plan

14–55
 Central Provident Fund

• CPF system is a defined-contribution retirement scheme in

which wage earners must make monthly contributions to their
CPF accounts
• Contributions are split and credited into
– Ordinary
• May be used to buy homes, insurance, investments
– Medisave
• May be used to pay for hospital expenses, buy health insurance
– Special
• Meant for old age use, can also be invested in approved assets

14–56
 Workfare Income Supplement (WIS) Scheme
• Scheme allows Government to use part of its annual national budget to
supplement the income of the lower-income, older group of people
• To qualify for WIS, the individual must
– Be a Singaporean citizen
– Earn a monthly salary of $1900 or less
– Be more than 35 years old
– Be a resident at a property whose annual value is not more than S$13,000
– Have worked for at least 2 months in any 3-month period during the calendar
year, or for 6 months during the calendar year
– In the case of a self-employed individual, he must have declared his net trade
income
– Not own 2/+ properties by himself or together with his spouse
– Not have a spouse who earns more than S$70,000 in annual assessable
income
14–57
 FIGURE 14-12

Central Provident
Fund (CPF)
Statistics
(September 2014)

14–58
 Legal Requirements for Retirement
Benefits
• The defined-contribution CPF system (the “pillar” for
all wage earners in terms of retirement planning) is
managed by the Government directly

14–59
FIGURE 14-13 Common Types of Financial Benefits

14–60
 Financial Benefits
• Insurance Benefits
 Even when employers do not pay any of the costs,
employees still benefit because of the lower rates
available through group programs
 Life insurance
 Disability insurance
 Long-term care insurance
 Legal insurance
• Financial services
 Credit union sponsored by the employer provides
savings and lending services for employees
 Purchase discounts
 Stock purchase plans
 Relocation assistance
14–61
 Financial Benefits
• Financial services
 Credit union sponsored by the employer provides
savings and lending services for employees
 Purchase discounts
 Stock purchase plans
 Relocation assistance
• Educational assistance
 ROI of tuition aid
• Over 90% of employers offer some form of
education assistance to their employees

14–62
 Family-Oriented Benefits
• Employment Act and Children Development Co-
Savings Act
• In Singapore, there are no separate laws to require
employers to provide family care leave.

• Under the Children Development Co-Savings Act,

married parents who have worked for at least 3 months
and have at least one Singaporean child below the age
of 7 during the year are entitled to 6 days of paid leave
per year for child-care purposes.

• Family-Care benefits
• Adoption benefits
• Child-care assistance
• Elder-care assistance 14–63
 Benefits for Domestic Partners
• USA: Domestic Partners or Spousal Equivalents
– Unmarried employees who are living with individuals of
the opposite sex
– Gay and lesbian employees who have partners
• In Singapore, the culture is still conservative and
the majority of the population wants to maintain the
status quo

14–64
Time-Off and Other Benefits
Holiday Vacation
Pay Pay

Time-Off
and Other
Benefits

Miscellaneous Leaves of
Benefits Absence

Paid-Time-
Off (PTO)
Plans

14–65
 Statutory Benefits
Type Description
Maternity leave Female employees are entitled to 60 days maternity leave.
Inclusive of public holidays and rest days
A weekly rest One rest day per week although this is not a paid rest day.
day
Public 10 pay gazette public holidays per year.
holidays Notice specifying the remaining public holidays
Annual leave The leave is earned in one year and taken in the next.

Sick leave Paid sick leave if they have a medical certificate from a
doctor certifying them unfit for work.
The employees 11% deducted from employee wages
provident fund 12% paid by the employer
(EPF) Remitted by the 15th of each month
Social security Provide employees with benefits should they be involved in
organization an accident at work, contract an occupational disease or
(SOCSO) become an invalid.
12–66
 Non-Statutory Benefits
Type Description
Allowances Transport, food, shift, attendance, housing,
entertainment allowance
Time-off payments Marriage, paternity leave, emergencies, studies,
death of relative
Health care Employee’s dependents, payment of dental and
optical bills, free exercise facilities
Insurance Life and accident insurance group policies
Financial services Loans to buy houses, cars and other items (PC)

Subsidies and services Canteens, transport, childcare facilities, club

membership and accommodation at holiday
resorts
Educational facilities Library of reading materials and video tapes,
and refunds training course, and scholarship
12–67
 THANK YOU

END OF CHAPTER 8