© 2010 McGraw Hill Ryerson 1-1 COMPENSATION Third Canadian Edition Milkovich, Newman, Cole

© 2010 McGraw Hill Ryerson 1-2 Compensation Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

© 2010 McGraw Hill Ryerson 1-3 Contrasting Perspectives of Compensation Society’s Views Stockholders’ Views Employees’ Views Managers’ Views Global Views

© 2010 McGraw Hill Ryerson 1-4 Total Returns Relational Returns Total Compensation Cash Compensation Benefits Base Merit/Cost of Living Short-term Incentives Long-term Incentives Life, Health, and Disability Insurance Work/Life Programs Allowances Recognition & Status Employment Security Learning Opportunities Challenging Work Total Returns for Work

© 2010 McGraw Hill Ryerson 1-5 Relational Returns from Work Recognition & Status Employment Security Challenging Work Learning Opportunities Employee Engagement

© 2010 McGraw Hill Ryerson 1-6 STRATEGIC POLICIES TECHNIQUES STRATEGIC OBJECTIVES EFFICIENCY  Performance  Quality  Customers & Stockholders  Costs FAIRNESS COMPLIANCE ALIGNMENT COMPETITIVENESS CONTRIBUTORS MANAGEMENT INTERNAL STRUCTURE PAY STRUCTURE INCENTIVE PROGRAMS EVALUATION THE PAY MODEL

© 2010 McGraw Hill Ryerson 1-7 Compensation Objectives Efficiency Fairness Compliance

© 2010 McGraw Hill Ryerson 1-8 Pay System Objectives at Medtronic and Whole Foods Medtronic  Support Medtronic mission and increased complexity of business  Minimize increases in fixed costs  Attract and engage top talent  Emphasize personal, team and Medtronic performance  Recognize personal and family total well-being  Ensure fair treatment Whole Foods  We are committed to increasing long- term shareholder value  Profits are earned every day through voluntary exchange with our customers  Profits are essential to create capital for growth, prosperity, opportunity, job satisfaction and job security  Support team member happiness and excellence  We share together in our collective fate

© 2010 McGraw Hill Ryerson 1-9  Internal alignment comparisons between jobs or skill levels inside a single organization  External competitiveness comparisons of compensation with competitors external to the organization  Employee contributions relative emphasis placed on employee performance  Management policies related to managing the pay system Pay System Policies

© 2010 McGraw Hill Ryerson 1-10 Conclusion  the model presented in this chapter provides a structure for understanding compensation systems  the three main components of the model include: the objectives of the pay system the policy decisions that provide the system’s foundation the techniques that link policies and objectives  two key questions should constantly be asked: first, why do it this way? ->there is rarely one correct way to design a system or pay an individual second, so what? ->what does this technique do for us? ->how does it help achieve organizational goals?