1. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–1 Learning Objectives  Identify the two general types of compensation and the components of each.  Differentiate two compensation philosophies  Differentiate the two compensation approaches  Define internal vs. external equity  Describe how individual pay increases are determined.

2. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–2 Components of a Compensation System Figure 12–1

3. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–3 Compensation Approaches Figure 12–4

4. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–4 Compensation Issues Quartile Strategies Competency-Based Individual vs. Team Fairness  External  Internal  Secrecy Figure 12–8

5. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–5 Fair Labor Standards Act (FSLA) of 1938 Provisions of the Act Minimum wage requirement sets wage floor Child labor (under 14 years old) is prohibited Requires overtime payments for non-exempt employees Exempts highly-paid computer workers Requires overtime (1½) pay for hours over 40 hours Requires compensatory time at overtime (1½) pay rates

6. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.12–6 Pay Increases Seniority Cost-of-living Lump sum