Compensation and

Benefits

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How Would You Define Benefits?

•Rewards
•Incentives
•Things of value

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 Pay Surveys

•Pay Surveys are surveys of compensation paid to employees by

other employers in a particular geographic area, industry, or
occupational group.

Copyright ©2012 by Cengage Learning. All rights

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reserved.
Wages Versus Salaries

•Wages generally refer to

hourly compensation paid to
operating employees. The basis
for wages is time.
•Salary is income paid to an
individual on the basis of time.
•A maturity curve is a schedule
specifying the amount of
annual
increases a person will receive.

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 Determining What to Pay

•Job evaluation is a method for determining the

relative value or worth of a job to the organization so
that individuals who perform that job can be
compensated adequately and appropriately.
•Classification system attempts to group sets of jobs
together into clusters, which are often called grades.
•The point system requires managers to qualify, in
objective terms, the value of the various elements of
specific jobs.

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Pay-for-Knowledge and Skill-Based Pay

•Pay-for-knowledge involves
compensating employees for
learning specific information.

•Skill-based pay rewards employees

for acquiring new skills.

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Wage and Salary Administration

•Wage and salary administration is the ongoing

process of managing a wage and salary structure.
•All managers must be sensitive to these costs and
must be vigilant about managing them properly.

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Pay Secrecy

•Pay secrecy refers to the

extent to which the
compensation of any
individual in an
organization is secret or
the extent to which it is
formally made available
to other individuals.

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Pay Compression and Pay Inversion

•Pay compression occurs when individuals with

substantially different levels of experience and/or
performance abilities are being paid wages or salaries
that are relatively equal.
•Pay inversion occurs when the external market
changes so rapidly that the new employees are
actually paid more than experienced employees.

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Mandated Benefits

•Unemployment Insurance is a mandated protection

plan that provides a basic substance payment to
employees who are between jobs.
•Social Security provides limited income to retired
individuals.
•Workers’ Compensation is insurance that covers
individuals who suffer a job-related illness or accident.

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Non-mandated Benefits
•Private Pension Plans are administered by the
organization and provide income to the employees at
their retirement.
•Defined benefit plans: a private pension plan where
the benefit is precisely known based on a simple
formula such as years of service.
Defined contribution plans: a private pension plan in
which the size of the benefit depends on how much
money is contributed to the plan.

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Additional Benefits
•Wellness programs
concentrate on keeping
employees from becoming
sick rather than simply paying
expenses when they do
become ill.
•Child care programs assist
parents with child care
expenses.
•Cafeteria-style benefits allow
employees to choose the
benefits they really want.

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Executive Compensation

Most senior executives

receive their
compensation in 2
forms:
1. base salary
2. a form of incentive pay
(usually a bonus which is
based on company
performance)

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Legal Issues in Compensation

•The Fair Labor Standards Act includes provisions for the

minimum wage, overtime, and child labor.
•HR managers must
adhere to overtime
laws.

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