Copyright ©2012 by Cengage Learning. All rights reserved.9- 1 Chapter 9 Compensation and Benefits Prepared by Joseph Mosca Monmouth University

Copyright ©2012 by Cengage Learning. All rights reserved.9- 2 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.

Copyright ©2012 by Cengage Learning. All rights reserved.9- 3 How Would You Define Benefits? Rewards Incentives Things of value

Copyright ©2012 by Cengage Learning. All rights reserved.9- 4 Pay Surveys Pay Surveys are surveys of compensation paid to employees by other employers in a particular geographic area, industry, or occupational group.

Copyright ©2012 by Cengage Learning. All rights reserved.9- 5 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 receive.

Copyright ©2012 by Cengage Learning. All rights reserved.9- 6 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.

Copyright ©2012 by Cengage Learning. All rights reserved.9- 7 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.

Copyright ©2012 by Cengage Learning. All rights reserved.9- 8 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.

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

Copyright ©2012 by Cengage Learning. All rights reserved 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.

Copyright ©2012 by Cengage Learning. All rights reserved 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.

Copyright ©2012 by Cengage Learning. All rights reserved 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.

Copyright ©2012 by Cengage Learning. All rights reserved 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 really want.

Copyright ©2012 by Cengage Learning. All rights reserved 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)

Copyright ©2012 by Cengage Learning. All rights reserved 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.