Chapter 9

Compensation
and Benefits

Prepared by Joseph Mosca

Monmouth University

Copyright ©2012 by Cengage Learning. All rights reserved. 9- 1

Learning Objectives
1. Describe the basic issues involved in developing a
compensation strategy.
2. Discuss how organizations develop a wage and
salary structure.
3. Identify and describe the basis issues involved in
wage and salary administration.
4. Discuss the basic considerations in understanding
benefit programs.
5. Identify and describe mandated benefits.
6. Identify and describe non-mandated benefits.
7. Discuss contemporary issues in compensation and
benefits.
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How Would You Define Benefits?

 Rewards
 Incentives
 Things of value

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Pay Surveys

 Pay Surveys are surveys of compensation

paid to employees by other employers in a
particular geographic area, industry, or
occupational group.

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Wages Versus Salaries
 Wages generally refer to
hourly compensation paid
to operating employees.
The basis for wages is
time.
 Salary is income paid to an
individual on the basis of
time.
 A maturity curve is a
schedule specifying the
amount of annual
increases a person will
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receive. 9- 5
Determining What to Pay
 Job evaluation is a method for determining the
relative value or worth of a job to the organization
so that individuals who perform that job can be
compensated adequately and appropriately.
 Classification system attempts to group sets
of jobs together into clusters, which are often
called grades.
 The point system requires managers to
qualify, in objective terms, the value of the
various elements of specific jobs.

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Pay-for-Knowledge and Skill-Based Pay

 Pay-for-knowledge
involves compensating
employees for learning
specific information.

 Skill-based pay
rewards employees for
acquiring new skills.

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Wage and Salary Administration

 Wage and salary administration is the

ongoing process of managing a wage and
salary structure.
 All managers must be sensitive to these
costs and must be vigilant about managing
them properly.

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Pay Secrecy

 Pay secrecy refers to

the extent to which
the compensation of
any individual in an
organization is secret
or the extent to which
it is formally made
available to other
individuals.

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Pay Compression and Pay Inversion

 Pay compression occurs when individuals

with substantially different levels of
experience and/or performance abilities are
being paid wages or salaries that are
relatively equal.
 Pay inversion occurs when the external
market changes so rapidly that the new
employees are actually paid more than
experienced employees.
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Mandated Benefits

 Unemployment Insurance is a mandated

protection plan that provides a basic
substance payment to employees who are
between jobs.
 Social Security provides limited income to
retired individuals.
 Workers’ Compensation is insurance that
covers individuals who suffer a job-related
illness or accident.
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Non-mandated Benefits

 Private Pension Plans are administered by the

organization and provide income to the
employees at their retirement.
 Defined benefit plans: a private pension plan
where the benefit is precisely known based on a
simple formula such as years of service.
Defined contribution plans: a private pension
plan in which the size of the benefit depends on
how much money is contributed to the plan.

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Additional Benefits
 Wellness programs
concentrate on keeping
employees from
becoming sick rather than
simply paying expenses
when they do become ill.
 Child care programs
assist parents with child
care expenses.
 Cafeteria-style benefits
allow employees to
choose the benefits they
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really want. 9- 13
Executive Compensation

Most senior
executives receive
their compensation
in 2 forms:
1. base salary
2. a form of incentive pay
(usually a bonus
which is based on
company
performance)

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Legal Issues in Compensation

 The Fair Labor Standards Act includes

provisions for the minimum wage,
overtime, and child labor.
 HR managers must
adhere to overtime
laws.

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