Compensation

Administration
WHEN MOST PEOPLE HEAR the word "compensation," they think about the wages or
salaries that people earn in return for work. However, wages and salaries represent
only the immediate compensation that workers earn from their employers. Imme diate
compensation generally includes base pay (either salaries or wages) and such items as
merit pay or sales commissions.
In addition to immediate compensation. most workers receive some form of
deferred compensation. Deferred compensation can include benefits (including in -
surance, pensions, and social security) and pay for time not worked (including
vacations, holidays, or sick leave). In some cases, workers receive perquisite com -
pensation in such forms as company automobiles, low-cost or free meals, low-cost
or free rooms, travel allowances, and profit sharing. Some companies refer to the
various types of immediate and deferred compensation as direct and indirect com -
pensation. Exhibit l shows a diagram of a sample compensation system.

Major Influences of Compensation Plans

While many people think that compensation programs relate directly to the amount or
type of work done, this is rarely the case. Instead, the rate of compensation is af fected by
many factors in most hospitality companies. Some influences relate to economic
conditions in the company or the community, while others relate to internal or
external labor market conditions. Other factors that affect compensation include
employee perceptions of pay and union and government influences. Even employee
satisfaction and motivation can influence a company's compensation practices. This
section discusses some of the various influences on compensation.

Cost of Living
Cost of living refers to the real dollar value of a worker's purchasing power. The
consumer price index is generally the best overall indicator of the real value—or
purchasing power—of wages or salaries. Basically, the consumer price index is a
measurement of changes in the retail prices of goods and services. It is computed
by comparing the cost of these goods and services at a fixed time with the cost at
subsequent or prior times. The U.S. Consumer Price Index is issued monthly by the
Bureau of Labor Statistics, an agency of the Department of Labor.
The consumer price index varies according to many different environmental
and economic factors. As the consumer price index goes up, the value of money goes