Compensating Employees Definition Objective Bases Types Determining Reward Job Evaluation Compensation Structure

Compensation Definition: It is what employees receive in exchange for their work. In personnel management, compensation refers to the function of providing adequate and equitable remuneration of personnel for their contribution to organization objectives. Compensation Administration – process of managing a company’s compensation program. Strategic compensation – pattern of planned compensation program intended to enable an organization to achieve its goals. Pay for performance – system that rewards employees based on their performance.

Compensation Objective:  Attract and maintain employees of the right quality and mix  Continually motivate employees to attain the desired level of output.  It must be maintained at the desired competitive level.  Fair and equitable  Cost efficient  Comply with legal requirement  Acceptable to the employees  Support the organization’s corporate strategy.

Compensation Bases:  Time - paid according to time spent on the job, hourly or salaried, according to number of hours worked.  Productivity - paid according to output commission piece rate 3. Time and productivity – paid based on salary in addition to a percentage of the amount of output produced.

Compensation Types:  Pay – base salary/standard salary  Incentives – rewards given to employee for performing beyond standard requirements.  Benefits – rewards given to employee or group of employees for maintaining membership in the organization

Compensation Determining Rewards:  The External Factor 1)Labor market condition – price depends on supply and demand 2)Area wage rate – forces employers to adopt wage rates that are competitive 3)Cost of living – inflation erodes the purchasing power of employees, periodic adjustment in the compensation 4)Collective bargaining – done when labor union exist  The Internal Factor 1)Employer’s compensation policy - 2)Employee’s relative worth 3)Employer’s ability to pay

Compensation Components of compensation program:  Job analysis  Job evaluation  Salary survey  Performance evaluation  Pay for performance Job evaluation system: Job evaluation – is the process of determining the relative worth of jobs in an organization. 1. Ranking method 2. Classification method 3. Factor comparison method 4. Point method

JOB EVALUATION SYSTEMS 1. Ranking method- involves the arrangement of jobs in a simple rank order from the highest and the least important, the lowest. 2. Classification Method- where the various jobs are categorized under various classes and grades. 3. Point method- where jobs are broken down into characteristics or factors like skill, responsibility, complexity and decision making

Compensation Job evaluation: is the process of determining the relative worth of jobs in an organization. Purpose: Job evaluation system is to establish a compensation structure. the compensation structure is set after certain decision is compensation are made;  pay-level decision (high, low, comparable)  Pay structure decision  Individual pay decision

COMPENSATION STRUCTURE 1. Pay level- which concerns the level at which the organization wants to compete in the labor market. 2. Pay structure decision- which concerns setting a value for each job within the organization to all the other jobs. 3. Individual pay decision- which concerns they pay of employees working on the same job within the organization.

PAY-LEVEL DECISIONS 1. High-pay strategy- Employees are paid at higher-than-average levels if this strategy is adapted. If effective, it will help the organization to attract and maintain the best employees. 2. Low-pay strategy- This is a decision made by management to pay at minimum levels just enough to hire the required number of employees. This strategy is often used by firms, which cannot afford higher rates.

PAY-LEVEL DECISIONS 3. Comparable-pay strategy- this is decision made by management to pay at levels comparable with other organizations.