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What is compensation?

Definition : Refers to all forms of financial returns and tangible services and benefits employees receive as part of an employee relationship

1 Direct Financial Compensation 2 Indirect Financial Compensation 3 Non-financial Compensation

Compensation And Organization Strategy

Strategy is the result of integration of mission and organizational goal. Without effective strategies, organizational goal cannot be accomplished

1 Strategic Analysis 2 Strategy Formulation

Evaluate the organization mission and assessment

3 Strategy Implementation

Mapping a vision, mission and organizations strategic route

4 Strategy Observation

Execution of important activities to ensure that organizations strategy is implemented.


Monitoring the organizations progress in implementing the plan

The compensation system results from the allocation, conversion and transfer of a portion of the income of an organization to its employee for their monetary and in-kind claims on goods and services. Monetary claims on goods and services are wages or salaries paid to an employee in the form of money or form that is quickly and easily transferable to money at the discretion of the employee

Compensation System

Pay for work and performance

Disability Income Continuation

Deferred Income

Health, Accident, Liability Protection

Pay for time not worked

Loss-of-job income continuation

Spouse (family) Income Continuation

Income Equivalent Payments

Pay For Work and Performance Typical components within this dimension are base pay, premiums and differentials, short-term bonuses, merit pay and certain allowances Pay for Time Not Worked These components of pay for time not worked significantly increase labor costs and also enhance quality-of work-life opportunities for most employees Loss-of-Job Continuation Not only could accident and sickness problem occur, but personal performance or interpersonal dynamics might cause a temporary layoff or termination of employment.

Disability Income Continuation The possibility always exist that a worker will occur health or accident disability. Because of these disabilities, employees are frequently unable to perform their normal assignments. Deferred Income These programs are provided for two basic reasons. First, most employees do not have sufficient savings at retirement to continue the lifestyles they enjoyed while working. Second, tax laws and regulations make deferred income plans more appealing to many employees. Spouse (Family) Income Continuation Plans are designed to provide dependents with income when an employee dies or is unable to work because of total and permanent disability. Life insurance plan, pension plans, social security and etc.

Health, Accident and Liability Protection Organization provide a wide variety of insurance plans to assist in paying for these goods and services. Income Equivalent Payments Set of compensation components may be grouped under the title of income equivalent payments. Some of the more desirable perks are the use of a company car or company credit card, payment for expenses to professional meetings, subsidized food services and child care services.

These rewards are much more difficult to classify and their components are far more complex than is the case for compensation rewards components. Have an almost-infinite number of components that relate to the work situation and to the physical and psychological well-being of each worker. Non-compensation system are as follow : - Enhance dignity and satisfaction from work - Promote constructive social relationship with -Allocate sufficient resources to perform work -Offer supportive leadership and management -Enhance physiological health, intellectual growth and emotional maturity -Designs job that require adequate attention and effort -Grant sufficient control over the job to meet personal demands

The first step in understanding labour cost in an organization is to recognise the main elements of a compensation programme. These are four elements and they are : 1 Basic wage and salary payment received for a given period. It is typically paid as a salary. 2- Supplementary Wage Includes overtime, shift differences and premium pay for working during weekends, public holiday or after normal work hours. 3- Incentive pay (short and long term) paid to employee for their good work performance. 4- Employee benefits and services This programme include, paid leave, payment while being suspended from work or los of job, payment for stoppage of work due to accident or illness, retirement pay, payment to dependents of worker who dies to work-related injuries and allocated products and services such as companys car, food coupons, child or elder care services.

There are 13 factors to consider in pay rate determination :

1. Knowledge, skill, abilities and other characteristics 2. Type of business 3. Union or Non-union Status 4. Capital or labour Intensity 5. Business size 6. Management philosophy 7. Compensation Package 8. Geographical Location 9.Labour supply 10. Firm Profit 11.Job Security 12.Gender Differences 13.Working Period and Employee Performance

Strategic Perspective An understanding of how organizational strategy and its related tactics interact and become integrated is becoming increasingly important to managers at all levels performing various organizational assignments. Employees as Critical Resources From a strategic and tactical perspective, the quality and quantity of organizational output depend directly on the skill, interest and effort of employee, Certainly, the more highly paid workers might be more critical contributors, but the productive efforts of all employee are essential.

Pay Satisfaction
In developing a compensation system, designers must recognize that people make decisions about pay based on comparisons with others. The others for comparison purposes can be an immediate co-worker with similar if not identical assignments, other employee in the organization performing different activities and even workers in the organizations doing similar or different work for similar or different rates of pay

Job Satisfaction
Ability to perform in a manner, recognition of a job well done and an opportunity to advance in the current career ladder or even take a bringing job to a new career path all enhance job satisfaction.

Organizational Satisfaction
Security in employment for many employees can minimize frustration and stress arising from pays and job dissatisfaction.

Satisfaction: An Employment Perspective

To design, develop and implement reward system that lead to improved pay, job and organizational satisfaction, it is critical to understand the meaning of the word satisfaction from an employment perspective.

Formation of an organizational Hierarchy

One basic approach to distributing rewards focuses on the level of the job in the organizational structure. The higher the level the job is, the greater the responsibility of the incumbent.

Salary Payment : Equality Issues

For most employees, the job rate is an essential issue. Fairness in pay is evaluated by asking how well does may pay compare with that of the members of the work unit and the organization? Comparisons are also made with friends or family members