6 Compensation and Benefits

Chapter 12-1
This topic is part of your
examination scope !!
 Learning Objectives

1. Explain how you would apply two motivation theories

in formulating an incentive plan.
2. Discuss the main incentives for individual employees.
3. Discuss the pros and cons of commissions versus
straight pay incentives for salespeople.

Chapter 12-3
 Learning Objectives
4. Describe the main incentives for managers and
executives.
5. Name and define the most popular organization-wide
variable pay plans.

Chapter 12-4
 Linking Strategy, Performance and
Incentive Pay

Clearly indicate the

outcome expected

Must motivate
employee to perform

Variable Pay – Tying

with performance

Chapter 12-5
Equal Pay for Equal Work

Chapter 12-6
Explain how you would apply
two motivation theories in
formulating an incentive plan.

Chapter 12-7
What is
motivation?
What is motivation?
Let’s do a survey

Chapter 12-10
Theory number 1: Herzberg’s Two-Factory Theory

Chapter 12-11
 HYGIENE FACTORS
 Hygiene factors are associated with job dissatisfaction

 Hygiene factors are extrinsic factors that eliminate job

dissatisfaction but do not motivate

 Extrinsic motivators tend to represent more tangible, basic

needs, such as status, job security, salary,
and fringe benefits
 MOTIVATORS

Intrinsic factors that are related to job satisfaction

and motivation

Intrinsic factors increase job satisfaction

Intrinsic motivators tend to represent less tangible,

more emotional needs, such as challenging work,
recognition, relationships, and growth potential.
Without With Without With

Hygiene Factors Motivators

Dissatisfaction No Dissatisfaction Satisfaction

Nor Satisfaction
(neutral)
HYGIENE FACTORS
 Working conditions – Physical working conditions of the
company, such as facilities and location.

 Company policies – Does the policies address the adequate

needs of employees ? Are the staff informed of the company
policies ?

 Personal life – Life outside work have an impact on

productivity

 Relationship with people – We refer to relationship with

supervisors, peers and subordinates.
HYGIENE FACTORS
 Salary – Whether the monthly salary is sufficient to sustain
life styles.

 Status – whether the job provides you with the recognition

you need in the society e.g. chauffeur, big office, secretary,
etc.

 Security – Does it provides you with the sense of job security

in the long run ?

 Supervision – Does your supervisor have the necessary skill

sets to guide you ?
Motivators
 Work Itself – Is the work challenging or is it a mundane
work ? This involves the employees’ perception of
whether the work is too difficult or challenging, too
easy, boring or interesting.

 Achievement – Does the work gives you a sense of

accomplishment ? An example of positive achievement
might be if an employee completes a task or project
before the deadline and receives high reviews on the
result, the satisfaction the employee feels would increase
Motivators
 Recognition – Does it provides you with recognition for
the efforts you have put into the job ? When the
employee receives the acknowledgement they deserve
for a job well done, the satisfaction will increase

 Growth – Does the company offers you training to

nurture you as a better staff ? This motivation factor
includes the chance one might have for advancement
within the company. This could also include the
opportunity to learn a new skill or trade..
Motivators
 Advancement – Are there promotion opportunities when one
performs well ?

 Responsibility – Is the person given the responsibility to do

the work ? This involves the degree of freedom an employee
has to make their own decisions and implement their own
ideas. The more liberty to take on that responsibility 9 the
more inclined the employee may be to work harder on the
project, and be more satisfied with the result. .
 Satisfaction

No Dissatisfaction
Not motivated
Hygiene Factors
Dissatisfaction
 Implications to HR
 Management not only must provide hygiene factors to avoid employee
dissatisfaction, but also must provide factors intrinsic to the work itself in
order for employees to be satisfied with their jobs

For example:

 The job should have sufficient challenge to utilize the full ability of the
employee.
 Employees who demonstrate increasing levels of ability should be given
increasing levels of responsibility.
 If a job cannot be designed to use an employee's full abilities, then the
firm should consider automating the task or replacing the employee with
one who has a lower level of skill. If a person cannot be fully utilized,
then there will be a motivation problem.
Theory 2: Expectancy Theory

Chapter 12-22
Expectancy theory
The theory that states that an individual tends to act in

a certain way based on the expectation that the act will

be followed by a given outcome and on the
attractiveness of that outcome to the individual
 Expectancy Model

A B C
Individual Individual Organizational Individual
Effort Performance Rewards Goals

A = Effort-performance linkage

B = Performance-reward linkage
Please know how to
draw the process
C = Attractiveness

16-24
A = Expectancy or
effort-performance linkage

The probability perceived by

the individual that exerting a given amount of effort will
lead to a certain level of performance
B = Instrumentality or
performance-reward linkage

The degree to which the individual believes that

performing at a particular level is instrumental in
attaining the desired outcome
C= Valence or
attractiveness of reward

The importance that the individual places on the

potential outcome or reward that can be achieved
on the job.

Valence considers both the goals and needs of the

individual.
Discuss the main incentives
for individual employees

Chapter 12-28
Incentives for individual employees
Financial Incentives
Piecework
Merit Pay

Non-Financial Incentives
Recognition programme
Piecework Plans
Piecework plans
A system pay based on the number of items
processed by each individual worker in a unit of
time.

2 variations
Straight piecework
Standard hours plan

Chapter 12-30
Piecework Plans
 Straight Piecework
A system where a person is being paid for a sum for
each item he or she makes or sells, with a strict
proportionality between results and rewards.

 Standard Hour Plan

A plan where a worker is paid an hourly wage

Chapter 12-31
Piecework Plans
 Advantages
Simple to calculate
Easily understood by employees
Equitable as tie directly to performance

 Disadvantages
Focus on outputs rather than quality
Resist to change to jobs that are not piece-work rated
Refusing to adapt to changes that may seen to be impacting
their outputs

Chapter 12-32
Merit Pay
Any salary increase awarded to an employee based
on his or her individual performance.

This is not one-time bonus but adds to basic salary.

This can be based on individual performance or a

combination of individual and company
performance.

Chapter 12-33
Non-Financial Recognition Awards
Employers will supplement financial incentives
with non-financial recognition awards

Some example will be:

Email appreciation
Staff awards (e.g. staff of the month)
Positive feedbacks
Special trainings to recognise effort

Chapter 12-34
Incentives for
Salespeople

Chapter 12-36
 Incentives for Salespeople
Salary plan
Fixed salary
Makes sense when the main task involves account servicing
(i.e. servicing customers)
Advantage
 Easier to switch territory or doing re-assignment
 Foster staff loyalty
Disadvantage
 Not motivating enough to some employees

Chapter 12-37
 Incentives for Salespeople
Commission Plan
Pays for results and only results
No basic salary
Advantages
 Attract high performing sales people
Disadvantage
 Focus on sales and neglect other aspect of works like account
servicing

Chapter 12-38
 Incentives for Salespeople
Combination Plan
Basic Salary + Commission
Advantages
 Attract high performing sales people
 Sales people will not ignore key other duties than sales
Disadvantage
 Complex and not easy to understand

Chapter 12-39
 Review

Types of sales incentives

Basic Plan
Commission plan
Combination Plan

Chapter 12-40
 Incentives for
managers and executives.

Chapter 12-41
 Incentives for Managers and Executives

Short-term incentives
 Annual bonus

Strategic Long-Term Incentives

 Stock Options

Chapter 12-42
Incentives for Managers and
Executives
Annual Bonus
Plans that are designed to motivate short - term
performance of managers and which are tied to
company profitability.
Things to consider
 Who are eligible
 Criteria for eligibility
 Quantum to pay

Chapter 12-43
Incentives for Managers and
Executives
Stock Options
The right to purchase a stated number of shares of a
company stock .
To inject long-term perspectives by encouraging them
to work hard for the company profitability.

Chapter 12-44
 TheMost Popular
Organization-wide
Incentive Plans

Chapter 12-45
Team & Organization-wide Incentive
Plans
Team Incentive Plans
A plan in which a production standard is set for a
specific work group, and its members are paid
incentives if the group exceeds the production
standard.

Organisation-Wide Incentive Plans

A plan where all or most of the employees can
participate.

Chapter 12-46
Team & Organization-wide Incentive
Plans
Team Incentive Plans
Purpose is to encourage teamwork and to focus team
members on performance.
Rewards are tie to certain outcomes
Example: to win in a HR competition.
But team incentive plans do not take into
consideration free-riders.

Chapter 12-47
Team & Organization-wide Incentive
Plans
Organisation – Wide Plans
Profit Sharing Plan
 Employees will share the company’s profit.
 Boost employee’s morale and productivity
 Enhance employees’ organizational
commitment

Copyright © 2013 Pearson Education Chapter 12-48

END OF LECTURE
 Assignment 2
Benefits and Services
Exam Focus
How to do well for Assignment 2 – Training Session
Plan your agenda well – keep it within 30 minutes
Every training must have an introduction, body and a
conclusion
Assign someone to do the introduction... Some to do the
actual training and someone to do the conclusion
Divide the time well.
Introduction can be 5 minutes, actual training can be
15 minutes, conclusion can be 5 minutes.
Take into consideration set-up and clearing time
How to do well for Assignment 2 – Training Session
 Always take care of the smallest detail
How do you have a cosy environment ? Soft music ? Nice
pictures ?
What is your seating arrangement
Where do you want your classmates to put their bags ?
What attire should they be wearing ?
What if the laptop is not working ?
What if the projector is not working ?
Is power-point slides and video enough ?
What props do I need ?
How many props should I provide ?
How can I make it interesting and fun ? Hands on, games,
competition ?
Who to do what ? Everyone MUST be involved
How to do well for Assignment 2 – Report
 Start preparing the report now
 The report requirement is MINIMUM 1,500 words. The more the better.
 Submission date – 11 March 2016, 5pm (through turn-it in)
 Report should be in this format:
 Cover Page
 Content Page
 Introduction
 Body
 Conclusion
 Appendices
 Reference list
How to do well for Assignment 2 – Report
 Introduction (15% of words)
 What is the skill / knowledge the group wants to impart to trainer
 What are the key highlights of the training

 Body (75% of words)

 What are the learning outcomes ?
Always include
 How did you organise the trainings ? And why – i.e. setup and the agenda.
 What are the training methods used ? And why – i.e. the advantages theory and
 What are the training aids used ? And why i.e. the advantages concepts

 Conclusion (10% of words)

 Short conclusion to round up the training
Do your research
 Appendices
 Photos of training aids
Training Discussion
 Chapter 13:
Benefits and Services
 Learning Objectives

1. Name and define each of the main pay for time not
worked benefits.
2. Describe each of the main insurance benefits.
3. Discuss the main retirement benefits.
4. Outline the main employees’ services benefits.
5. Explain the main flexible benefit programs.

Chapter 13-57
What are Benefits ?
Benefits are indirect financial and non-financial
payments receive for continuing their employment
with the company.
Indirect – it does not depends on performance. In other
words, as long as you are with the company, you get to
enjoy these benefits.
Example: Health Insurance, Child Care Assistance
Why provide benefits ?
• 4 main reasons:
• Company Branding. Good and positive company brands will
help to attract and retain good staff.

• Better Morale. By understanding and addressing the needs of

the staff, your staff will dedicate and take their jobs more
seriously. Showing that you care about your staff will increase
loyalty and in return better work productivity.

• Healthier staff. Companies that provide health related benefits

will be in better state of health. Therefore lesser medical leaves.

• Better Job Performance. By offering benefits, you give staff

more reason to care about your company and remain loyal.
Staff will work harder, which can lead to growth and better
productivity.
Who gets the benefits ?
Companies must be careful when designing benefits
package.
Decisions to make are:
Who gets the benefits – Is it all staff ?
How to pay for the benefits – Benefits cost money (e.g.
insurance)
What benefits are required by law – example annual
leave, medical leave
How to communicateto staff – Not able to
communicate is equal to none.

Chapter 13-60
Classification of Benefits
Pay for Time Not
Worked Benefits.

Chapter 13-62
Pay for Time not Worked
Also called as Supplemental Pay Benefits.
It is a very costly benefits because of the large amount
of time off most employees will receive.
Staff are given salary for not working in the office.
Many are legislated by Government (e.g. public
holidays, Hospitalisation Leave, Vacation Leave, Child-
Care Leave etc.),
Some are own initiative by the company (e.g. study
leave).

Chapter 13-63
Pay for Time not Worked
• Majority of these Pay for Time not Worked are legislated in
Singapore Employment Act
7
• Vacation Leave – Minimum days
• Medical Leave - Minimum
1 days
• Hospitalisation Leave – Minimum
4 6 days
• Maternity Leave (for mummy) –0minimum weeks
8
• Paternity Leave (for daddy) – minimum
2 weeks

• Company who provides less than minimum will be prosecuted.

• What if you are a non-singaporean working in Singapore, can
you claim under Employment Act ?
• What happen if you cannot complete the leave consumption by
year end ?
Pay for Time not Worked (examples over
the world….)
Israe Singapore Sweden
l

Chapter 13-65
Pay for Time not Worked
Cost Reduction Measure
Companies tried different ways to reduce cost
Sick leave
Pay lump sum if staff did not obtain any medical leave.
Provide legitimate medical leave and keep for audit
Vacation Leave
To provide valid reason before approval
No accruals. That means, forfeit if not completed.

Chapter 13-66
 Describe each of the
main insurance benefits.

Chapter 13-67
Collapse of Nicoll Highway
Insurance Benefits
 Workman Insurance Benefits:
 Workman’s Compensation Act makes it compulsory for all employers
to insure their employees who are doing manual work and all
employees who earn less than $1600.00 per month irrespective of
whether they are local or foreign workers. This applies to part-time
employees too.
 Non-mandatory Insurance benefits include:
Life Insurance
Medical Insurance
Travel Insurance
Motor Insurance
Accident Insurance

Chapter 13-69
Main Retirement Benefits

Chapter 13-70
Retirement Age Around the World
(examples over the world….)

60 55 Man and Woman - 60

 Retirement Benefits

The Retirement and Re-Employment Act now requires

every employer to offer re-employment to all those
employees reaching the age of 62 until the age of 65.
For those who cannot be afforded re-employment, Tripartite
guidelines suggests paying 3 months salary with a minimum
of $4500.00 to a maximum of $10,000.00. for those who
have been in employment for less than 18 months, a benefit
payment of 2 months salary is suggested.

Chapter 13-72
 Retirement Benefits
Pension Plans
 Provide a fixed sum when employees reach a pre-determined
retirement age or when they can no longer work.
 Not every company provides such plans as it is intensive.
 For some countries, the government will provide pension
payments.
 Example: Norway

Chapter 13-74
Main Employees’
Services Benefits

Chapter 13-75
Google Office Around the World
Employee Services Benefits

Chapter 13-77
Personal Services
Employment Assistance Programme
Provides employees with counseling
and/or treatment programs for problems
such as alcoholism, gambling or stress.
Example: Sleeping pods in Google office
Family – Friendly Benefits
Benefits such as child-care and fitness facilities to
make employees to balance their work and
responsibilities. Some of them are:
Subsidized child care
Sick child benefits
Eldercare
Flexible Work Schedules
Flexible Work Schedules
 Flexi Time
Allow employees to select different working hours based on
their convenience instead of the usual starting time.

 Telecommuting
Employees are allowed to work away from the office using
technology.
Popular, but also require a change in mind-set

 Compressed Workweek
Works longer hours but fewer days
More applicable for hospital, manufacturing plants, etc.
Flexible Benefit Programs

Chapter 13-81
Flexible Benefits Programs
Individualized plans allowed by
employers to accommodate employee
preferences for benefits.
Employees given pre-fixed points to buy
benefits that he/she prefers. Balance will
not be carried over.

Chapter 13-82