Compensation and Benefits

9
Compensation
and Benefits
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
LEARNING OUTCOMES
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 basic 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 nonmandated benefits
7. Discuss contemporary issues in compensation and benefits
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. HRM3 | CH3
Compensation
• Set of rewards that organizations provide to

individuals for willingness on tasks
performed
• Benefits: Various items of value beyond
wages that employees receive from the
organization
• Rewards
• Incentives
Basic Purposes of Compensation
• To provide appropriate and equitable rewards to

employees
• To help employees focus on activities that the
organization considers important
• To increase employee efforts along desired lines
• Internal equity: Comparisons made by
employees to other employees within the same
organization
Basic Purposes of Compensation
• External equity: Comparisons made by

employees to others employed by different
organizations performing similar jobs
• Pay surveys: Survey of compensation paid to
employees by other employers in a
particular geographic area, industry, or
occupational group
Figure 9.2 Strategic Options for Compensation
Determining what to Pay
• Job evaluation methods: Determines the

relative value of a job to the organization
• Classification system: Attempts to group sets of
jobs together into clusters
• Point system: Requires managers to quantify the
value of various elements of specific jobs in
objective terms
- Point manual: Carefully and specifically

defines the degrees of points from first to fifth
• Factor-comparison method: Assesses jobs on a
factor-by-factor basis using a factor-comparison
scale as a benchmark
• Pay for knowledge: Involves compensating

employees for learning specific information
• Skill-based pay: Rewards employees for
acquiring new skills
Wage and Salary Administration
• Ongoing process of managing a wage and

salary structure
• Pay secrecy: Extent to which the
compensation of any individual in an
organization is secret
Wage and Salary Administration
• Pay compression: Occurs when individuals

with substantially different levels of
experience, or performance abilities, are
paid relatively equal salaries
• Pay inversion: New employees are paid
more than experienced employees
• Occurs due to rapid external market changes
The Nature of Benefits Programs
• Most organizations provide their employees

with an array of benefits
• The cost of benefits programs
• Organizations spend huge amounts on benefits
• Employees are asked to bear more of the costs
• Purposes of benefits programs
• Attracts better qualified people
• Affects job satisfaction
Mandated Benefits
• Unemployment insurance: Intended to

provide a basic subsistence payment to
employees who are between jobs
• Social security: Designed to provide limited
income to retired individuals
• Worker’s compensation: Insurance covering
individuals who suffer a job-related illness or
accident
Nonmandated Benefits
• Private pension plans: Provides income at

retirement
• Defined benefit plans
• Defined contribution plans
• Paid time off
• Other benefits
• Wellness programs
Contemporary Issues in Compensation and
Benefits
SUMMARY
• Compensation: Set of rewards an

organization provides to individuals in return
for their willingness to perform various jobs
and tasks within the organization
• Benefits: Various rewards, incentives, and
other things of value an organization
provides to its employees
KEY TERMS
• Benefits • Pay compression

• Classification system • Pay for knowledge
• Compensation • Pay inversion
• Defined benefit plans • Pay secrecy
• Defined contribution plans • Pay surveys
• External equity • Point manual
• Factor-comparison method • Point system
• Internal equity • Private pension
• Job evaluation plans
• Salary
• Skill-based pay
• Social security
KEY TERMS
• Unemployment insurance
• Wage and salary
• Wages
• Wellness programs
• Workers’ compensation

Compensation and Benefits

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9

1. Describe the basic issues involved in developing a

• Set of rewards that organizations provide to

• To provide appropriate and equitable rewards to

• External equity: Comparisons made by

• Job evaluation methods: Determines the

- Point manual: Carefully and specifically

• Pay for knowledge: Involves compensating

• Ongoing process of managing a wage and

• Pay compression: Occurs when individuals

• Most organizations provide their employees

• Unemployment insurance: Intended to

• Private pension plans: Provides income at

• Compensation: Set of rewards an

• Benefits • Pay compression

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