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What Is Compensation?

• Compensation represents the rewards employees receive for performing their job. They are either:
– Intrinsic: intrinsic compensation represents employees’ critical psychological states that result from performing their jobs. – Extrinsic: extrinsic compensation includes both monetary and nonmonetary rewards.


Skill-based .Person-focused pay 1-2 Base pay adjustments .Seniority pay .Elements of Core Compensation Base pay .Annual salary .Merit pay pay .COLAs .Hourly pay .Incentive pay .

Base Pay Compensable Factors: • An employee’s skill level • An employee’s effort • An employee’s level of responsibility • The severity of the working conditions Copyright © 2013 Pearson Education. Publishing as Prentice Hall 1-3 . Inc.

by differences in job performance. at least in part. 1-4 .Base Pay Adjustments COLAs—COLAs represent periodic base pay increases that are founded on changes in prices as indexed by the consumer price index (CPI). Seniority Pay—seniority pay systems reward employees with periodic additions to base pay according to employees’ length of service in performing their jobs Merit Pay—merit pay programs assume that employees’ compensation over time should be determined.

Pay-for-Knowledge Plans—pay-for-knowledge plans reward managerial. service. or professional workers for successfully learning specific curricula Skill-based Pay—skill-based pay is used mostly for employees who perform physical work and increases these workers’ pay as they master new skills. 1-5 .Base Pay Adjustments (Cont’d) Incentive Pay—incentive pay (or variable pay) rewards employees for partially or completely attaining a predetermined work objective.

Employee Benefits • Discretionary Benefits • Legally Required Benefits 1-6 .

disability. and guard against income loss caused by such catastrophic factors as unemployment.Discretionary Benefits Three Broad Categories: •Protection programs—provide family benefits. promote health. or serious illness •Paid time-off—provides employees with pay for time when they are not working •Services—provides such enhancements as tuition reimbursement and day care assistance to employees and their families 1-7 .

Legally-Required Benefits Federal Legislation Designed to: • • • • Promote worker safety and health Maintain family income Assist families in crisis Provide assistance in case of – Disability – Unemployment 1-8 .

Summary Learning Objective 1 • • • • • • • What is compensation? Elements of core compensation Base pay Base pay adjustments Employee benefits Discretionary benefits Legally-required benefits 1-9 .

Learning Objective 2 Historical perspective on compensation 1-10 .

• Time-and-motion studies analyzed the time it took employees to complete their jobs. These studies literally focused on employees’ movements and the identification of the most efficient steps to complete jobs in the least amount of time. as well as welfare practices to maintain control over labor.Historical Perspective on Compensation • Many employers instituted so-called scientific management practices to control labor costs. 1-11 .

Historical Perspective on Compensation (Cont’d) • Welfare practices were generous endeavors undertaken by some employers. to promote good management and to enhance worker productivity. • Competitive advantage refers specifically to a company’s ability to maintain market share and profitability over a sustained period of several years. 1-12 . motivated in part to minimize employees’ desire for union representation.

Summary Learning Objective 2 • Historical perspective on compensation 1-13 .

Strategic Versus Tactical Decisions • Strategic decisions—guide the activities of companies in the market • Tactical decisions—support the fulfillment of strategic decisions 1-14 .

Competitive Strategy • The planned use of company resources – Technology – Capital – Human Resources Two or more years of time span Competitive strategy choices: – Lowest cost strategy – Differentiation strategy • • 1-15 .

Competitive Strategy Choices Lowest Cost Strategy: focus on being lowest cost producer/seller of goods or services Differentiation Strategy: focus on offering unique goods or services to the public 1-16 .

Lowest-Cost Strategy Effective when Jobs: • • • • Include predictable behaviors Have a short-term focus Require autonomous activity Focus on quantity of output Ex: Ryanair (reduced operations costs) 1-17 .

Differentiation Strategy Effective when Jobs: • • • • Require highly creative behaviors Have a long-term focus Demand cooperation and independence Involve risk-taking Ex: P&G differentiates Eukanuba from Iams (Brand image and price premiums) 1-18 .