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Describe the basic issues involved in developing a compensation strategy Discuss how organizations develop a wage and salary structure Identify and describe the basic issues involved in wage and salary administration Discuss the basic considerations in understanding benefit programs Identify and describe mandated benefits Identify and describe nonmandated benefits Discuss contemporary issues in compensation and benefits

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

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

Determining what to Pay 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

Determining what to Pay 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

Private pension plans: Provides income at retirement Nonmandated Benefits Private pension plans: Provides income at retirement Defined benefit plans Defined contribution plans Paid time off Other benefits Wellness programs Cafeteria-style benefits

Contemporary Issues in Compensation and Benefits Executive compensation Growing legal issues Evaluating compensation and benefit programs

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

Pay compression Pay for knowledge Pay inversion Pay secrecy Pay surveys Point manual Point system Private pension plans Salary Skill-based pay Social security Benefits Cafeteria-style benefits plans Classification system Compensation Defined benefit plans Defined contribution plans External equity Factor-comparison method Internal equity Job evaluation Maturity curve

Unemployment insurance Vesting rights Wage and salary Wages Wellness programs Workers’ compensation