Compensation &

Benefits Management
 Objectives
1. Understand the philosophy, definitions, concept of compensation,
benefits and rewards Management.

2. Understand the strategic considerations, challenges and choices

involved in employees’ compensation, benefits and reward
management.

3. Learn about the contemporary reward practices of the

organizations.
What will be covered in today’s
session?
1. Concept of compensation, benefits and
rewards

2. Types of Rewards

3. Compensation Administration and ‘Total

Reward’
What Is Compensation?

Compensation refers to all forms of

financial returns and tangible services
and benefits employees receive as part
of an employment relationship
 Contrasting Perspectives of
Compensation

Society’s Stockholders’ Views

Views

Managers’ Views
Employees’ Views
 Compensation: Definition
• Society
– Pay as a measure of justice
– Benefits as a reflection of justice in society
– Job losses (or gains) attributed to differences in
compensation
– Belief that pay increases lead to price increases
Compensation: Definition (cont.)
• Stockholders
– Using stock to pay employees creates a sense
of ownership
– Linking executive pay to company performance
supposedly increases stockholders' returns
• Managers
– A major expense
– Used to influence employee behaviors and to
improve the organization's performance
 Compensation: Definition (cont.)
• Employees
– Major source of financial security
– Return in an exchange between employer and themselves
– Entitlement for being an employee of the company
– Reward for a job well done
 Four Policy Choices
• Internal alignment
–Focus - Comparisons among jobs or skill levels inside
a single organization
–Pay relationships within an organization affect
employee decisions to:
• Stay with the organization
• Become more flexible by investing in additional training
• Seek greater responsibility
• External competitiveness
–Focus - Compensation relationships external to the
organization: comparison with competitors
–Pay is ‘market driven’
 Four Policy Choices (cont.)
• External competitiveness (cont.)
– Effects of decisions regarding how much and what
forms:
• To ensure that pay is sufficient to attract and retain employees
• To control labor costs to ensure competitive pricing of
products/ services
• Employee contributions
– Focus - Relation emphasis placed on employee
performance
• Performance based pay affects fairness
• Management
– Focus - Policies ensuring the right people get the right
pay for achieving the right objectives in the right way
 Building Blocks for Compensation
1. The Foundation: 3. The Glue: Pay for
A Compensation Performance Programs
Philosophy
4. The Future: Effective
2.The Basics: Elements of Compensation
Base Pay Administration Management

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4. The Future: Effective Compensation
Management
• S = Strategically-based

• M = Market-driven

• A = Analyze Thoroughly

• R = Reward Results

• T = Transformation
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Maslow’s Hierarchy of Needs

Physiological

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 Types of Reward Plans
Extrinsic versus Intrinsic Rewards
• Extrinsic rewards come from a source
outside the job
– include rewards offered mainly by
management
– Money
– Promotions
– Benefits

Concept of Types of
Reward Reward
 Types of Reward Plans (contd…)
Extrinsic versus Intrinsic 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
 Types of Reward Plans (contd…)
Financial versus Nonfinancial Rewards
• Financial rewards include:
– wages
– bonuses
– profit sharing
– pension plans
– paid leaves
– purchase discounts
• Nonfinancial rewards emphasize making life on the job
more attractive; employees vary greatly on what types
they find desirable.
 Types of Reward Plans (contd…)
Performance-based versus Membership-Based
Rewards
• 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.
Elements of ‘total reward’
 Compensation Administration
• The process of managing a compensation
program so that the organization can
attract, motivate and retain competent
employees who perceive that the program
is fair.

Concept of Types of Adminis-

Reward Reward tration
Reward system objectives
• Primary: • Secondary:
– attract – satisfy relevant human
– retain needs

– develop – equitable

– motivate – legal
– affordable
– cost-effective
– strategically aligned
Concept of Types of Administration -
Reward Reward Objectives
The bases of pay determination

• Base pay
– ‘fixed’ or ‘guaranteed’ and,
– time rather than performance based

– three approaches:job-based, skill-based and

competency based

Concept of Types of Administration –

Reward Reward Bases of Pay
Options for base pay
Performance-based Pay
 Performance-related rewards
• Considerations:
– what is being measured?
– whose performance?
– over what timeframe?
– what form of reward?
• Categories of rewards:
– individual performance
– group performance
– organisational performance

Concept of Types of Administration –

Reward Reward Incentive
Performance-related reward options
Incentive Compensation Plans
• Individual Incentives include
– 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
Incentive Compensation Plans
Individual Incentives:
– Work best where clear objectives can be
set and tasks are independent.
– Many organizations today require
employees to place a percentage of their
salary “at risk” so that merit pay does not
become a substitute for automatic cost-of-
living raises.
Incentive Compensation Plans
• Group Incentives
– Incentives can be offered to groups, rather
than individuals, when employees' tasks
are interdependent and require
cooperation.
Incentive Compensation Plans:
• Plant-wide Incentives:
• Direct employee efforts toward
organizational goals (such as cost
reduction)
– Scanlon Plan - supervisor and employee
committees suggest labor-saving
improvements
• Organization-wide Incentives:
• Collective short term incentive -
Profitsharing
 Executive incentive plans
• Increasing linkage of executive pay to performance

• Short-term incentives:
– Generally one year and linked to goals in organisational
financial performance
– Immediacy and instrumentality
– Susceptible to manipulation

(cont.)
 Executive incentive plans (cont.)
• Long-term:

– Generally for three, five or ten years and in form of

company equity rather than cash

– Main types are; restricted share plans, option plans,

performance shares
BENEFITS
 Benefits
Employee benefits
• Have grown in importance and variety
• 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.
Concept of Types of Administration –
Reward Reward Benefits
 Benefits
• Direct:
– financial that directly supplement cash base pay
– Enhance ability to attract and retain
– Can include retirement, superannuation, loans, mortgage,
school fees…
• Indirect:
– Non-financial
– Enhance appeal, motivation, morale…
– Can range from work-life balance, wellness programs…
Costs of Providing Employee Benefits
– Benefit and service offerings are cost
components for an organization.
– Benefits become the focus of negotiations
with employees when large wage and
salary increases are not feasible.
Contemporary Benefits
Offerings
– Benefits today reflect the diversity
of the work force.
– Challenge -- designing a benefits
package which is attractive to
applicants and current workers,
and provides all the legally
required benefits.
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.
Traditional health insurance
• Typically has the fewest coverage limitations for the
employee
• Usually the most expensive
 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.
An Integrative Perspective on Employee
Benefits

• Flexible benefits programs allow

employees to choose which benefits
they want and help to keep costs
down.
 The C&B Cycle
Corporation’s Strategy on C&B
IMPERATIVES
•Top Management Inputs
•Market Drivers
•HR Strategy
Gauging employee
COMPENSATION POLICY/DESIGN satisfaction
• Policies Designed/Reviewed
•Compensation Structure/Design Issues
•Annual/Cyclical actions (TIR/Bonus/SPP)
•Employee Communication strategy

HR OPERATIONS Payroll

Benefits Employee getting

Operationalizing C&B Administration
the C&B package

Tracking C&B Info

- HRMIS, HRIS
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Thank you!

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