CHAPTER 7

MANAGING TOTAL COMPENSATION

AND OTHER RELATED MATTERS
MANAGING THE SYSTEM

 isthe financial conditions of the organization, the

competitive pressures it faces, and budgeting are
important factors to consider in managing total
compensation.
ADMINISTRATION AND THE TOTAL PAY MODEL

 Managing labor costs

 Variable pay as a cost control
 Value-added returns on compensation
 Inherent controls
 Communication
 Structuring the compensation function
MANAGING LABOR COSTS

Labor costs = Employment x (Average Cash Compensation + Average

Benefit Cost)

CONTROLLING EMPLOYMENT
HOURS
Controlling Average Cash Compensation

TOP DOWN
 Current Year’s Rise - This is the percentages by which the average wage
changed in the past year. It can be computed using the formula:

(average pay at year end-

average pay at the beginning) x 100
Percent of Level Rise =
Average pay at the beginning of the year

 Ability to pay
 Competitive Market Pressures
 Turnover effects
 Cost of living
BOTTOM UP
Distribute forecasting instruction and worksheets

Provide consultation to managers

Check data and compile reports

Analyze forecasts

Review and revise forecasts and budgets with management

Conduct feedback with management

Monitor budgeted versus actual increases

INHERENT CONTROLS
 Range Maximum and Minimum
 Compa-ratios

average rates actually paid

Compa-ratios =
Range midpoint

A compa-ratio lower than 1 means that employees receive less than the
intended policy.
A compa-ratio greater than 1 means that rates exceed the intended policy.

 Variable pay
 Analyzing costs
COMPENSATION AS A MESSAGE FOR COMMUNICATION

Defining the
objectives

Evaluating Obtaining the

the program information

Conducting Developing
the sessions the strategy

Determining
the media
PAY: CHANGE AGENT IN RESTRUCTURING

 Pay can be a catalyst

 Pay is a follower of change

STRUCTURING THE COMPENSATION FUNCTION

 Centralization and Decentralization

 Flexibility within Corporate-Wide Principles
 Reengineering and Outsourcing