HR MANAGEMENT

Dr. Nora Mashhour

Compensation & Benefits
LEARNING OUTCOMES
• Explain types of reward Plans.
• Explain the compensation administration
• Explain the objectives of compensation & benefits
• Explain compensation Structure
Introduction

There are many work motivators, including

• Promotions
• desirable work assignments
• peer recognition
• work freedom
Types of Reward Plans
Rewards Review

Intrinsic Versus Extrinsic

• Intrinsic rewards (personal satisfactions) come from the

job itself such as :-
o pride in one’s work
o feelings of accomplishment
o being part of a work team

• Extrinsic rewards come from a source outside the job,

mainly by management such as :-
o money
o promotions
o benefits
Types of Reward Plans
Financial Versus Nonfinancial

Financial rewards:
o Wages
o Bonuses
o profit sharing
o purchase discounts

Nonfinancial rewards:
o make life on the job more attractive.
Compensation administration

-Compensation & Benefits refers to all forms

of financial returns (cash and non-cash) that
employees receive from their employers.

-Its aim is to attract, retain and motivate

employees by fulfilling their needs.

People have many needs, some of them can be -

,satisfied directly with money (basic need for food
cloth, shelter ..etc), others can only be satisfied
indirectly by money (need for power, self-
.actualization, achievement...etc)
Compensation administration

• 1- Direct Compensation (pay system)

• Salary
• Bonus
• Commission
• Differential pay (overtime, allowances ..etc)
• Short and long term incentives
• Recognition and achievement awards (cash)
• Others

2- Indirect Compensation (benefits)

• Legally mandated benefits
• Medical benefits
• Disability and life insurance
• Retirement programs
• Transportation
• Housing.
The objectives of compensation & benefits
The objectives of compensation & benefits programs are to fulfil and support:

1. Organization strategic direction

2. Workforce
3. External equity
4. Internal equity
Organization’s Strategic Direction

Organization’s Strategic Direction:

• All organizations (regardless of their type of business, profit margins, size or private
or public status) must have their compensation and benefits support the
organization’s strategic direction (mission, vision, values, goals and strategy)

• organizations generally have a strategic business plan, the compensation & benefits
philosophy is usually an outgrowth of that plan

• The HR responsibility is to define a compensation& benefits philosophy (in

alignment with the organization's strategic direction to:
–Attract the right people to the right jobs (salary)
–Retain employees (benefits)
–Motivate them to perform at higher levels (incentives, bonuses, profit share,
rewards...etc).
Workforce
Workforce

• The compensation & benefits programs must fit the

workforce.

• Companies with entry level (or unskilled workers)

have a very different compensation & benefits
package than companies with experienced, highly
educated professionals.
External equity
External equity
• Organizations must maintain external equity to attract
employees.

• This involves comparing the organization's packages and

practices to those of other
• organizations that are in the same market and
competing for the same employees.

• Based upon the market and competition, organizations

typically decide to lead, match the market
Internal equity

Internal equity

• Organizations must maintain internal equity to retain

employees.

• Jobs must be fairly compensated; any differences in pay rates

must be --justified (job related).

• Employees need to see a basic fairness between what they

bring to the company (education, experience, productivity,
knowledge, skills, abilities, efforts ..etc) and how the company
rewards them.
 Compensation Structure
Job evaluation

A complete job evaluation exercise would

generate such an output.

• This is the first step in creating a

compensation benefits system
 Compensation Structure
Market Salary Survey
 Compensation Structure
Pay Structure
Special cases of Compensation Plans
Individual Incentives

• merit pay plans (annual increase, based on performance)

• piecework plans (pay based on number of units produced

typically in a specified time period)

• time-savings bonuses and commissions

 Group Incentives

• Incentives for empowered work teams to exceed established goals

and share equally in rewards:
 clarity of team purpose and goals
 ability of the team to obtain needed resources
 effective team communication skills and trust
 Organization wide Incentives
Direct employee efforts toward ORGANIZATIONAL
goals (such as cost reduction)