1. COMPENSATION AND BENEFIT
Human Resources Management 12e Gary Dessler
COMPENSATION AND BENEFIT
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2. PART A: Compensation management PART B: Benefits
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3. PART A: Compensation management
Compensation Is what employees receive in exchange for their labour in an organization
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4. Basic Factors in Determining Pay Rates
Human Resources Management 12e Gary Dessler
Basic Factors in Determining Pay Rates
Direct financial payments
Indirect financial payments
Employee Compensation Components
Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations).
There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance.
(wages, salaries, incentives,
commissions, and bonuses)
(employer-paid insurance and
vacations).
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5. Direct financial payments to employees
Increments of time
On performance.
Time- based-
*hourly/daily wages- blue collar
*week/month salary- manager
On performance
* piece rate/work- paid based on amount of production
* unit completed- production.\, sales commission

6. Factors determining the design of any pay plan
Legal consideration-
Malaysian Act & Law
Union –
MTUC & CUEPECS
Company strategy and policy
Aligned Reward Strategy
Reward package need to support strategy
Compensation pay policies issues
Equity

7. Legal Considerations in Compensation
Employment Act To protect employees from exploitation and ensure they receive basic benefits.
Wages Councils Act To establish Councils which will determine which workers should have a minimum wage and to establish the quantum of that wage
Sabah Labour Ordinance (as amended 2005)-& Sarawak Labour Ordinance (as amended 2005)- To protect employees from exploitation and ensure they receive basic benefits.

8. Forms of Compensation Equity:
External equity refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies.
Internal equity refers to how fair the job’s pay rate is when compared to other jobs within the same company (for instance, is the sales manager’s pay fair, when compared to what the production manager is earning?).
Individual equity refers to the fairness of an individual’s pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individual’s performance.
Procedural equity refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.”

9. Establishing Pay Rates
Human Resources Management 12e Gary Dessler
Establishing Pay Rates
Steps in Establishing Pay Rates 1
Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). 3 2 4
Determine the worth of each job in your organization through job evaluation (to ensure internal equity). 5
Group similar jobs into pay grades.
Price each pay grade by using wave curves.
The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps.
Fine-tune pay rates.
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10. Sources for Salary Surveys
Human Resources Management 12e Gary Dessler
Sources for Salary Surveys
Self-Conducted Surveys
Government Agencies
Consulting Firms
Sources of Wage and Salary Information
Professional Associations
The Internet
Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies.
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11. Job evaluation
is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization.
Compensable factors:
Skill
Effort
Responsibility
Working condition

12. Methods for evaluating jobs
Human Resources Management 12e Gary Dessler
Methods for evaluating jobs
Ranking
Job classification
Point method
Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

13. Job Evaluation Methods: a. Ranking
Human Resources Management 12e Gary Dessler
Job Evaluation Methods: a. Ranking
Ranking each job relative to all other jobs, usually based on some overall factor e.g. job difficulty.
The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.”
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Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

14. Human Resources Management 12e Gary Dessler
TABLE 11–3 Example of Job Ranking
Ranking Order
Annual Pay Scale
1. Office manager
$43,000
2. Chief nurse
42,500
3. Bookkeeper
34,000
4. Nurse
32,500
5. Cook
31,000
Table 11-3 illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate.
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Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

15. Job Evaluation Methods: b. Job Classification/job grading
Human Resources Management 12e Gary Dessler
Job Evaluation Methods: b. Job Classification/job grading
Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes.
Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different.
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Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

16. Human Resources Management 12e Gary Dessler
FIGURE 11–4 Example of a Grade Level Definition
This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart.
Based on certain compensable factors, raters write a grade definition like that in Figure This one shows one grade description (GS-7) for the federal government’s pay grade system.
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17. Sample of job grading table
Grade
Grade definition 1
General supervision, advanced skill required, responsible for equipment or safety 2
Work is moderately complex with some variation, general supervision, high level of skill, responsible for equipment 3
Work is simple with little variation, general supervision, training or skill required, minimal responsibility 4
Work is simple and repetitive, close supervision, some training or skill, rarely requires responsibility 5
Work is simple and highly repetitive, close supervision, minimal training, little responsibility
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18. Job Evaluation Methods: c. Point Method
Human Resources Management 12e Gary Dessler
Job Evaluation Methods: c. Point Method
Job are evaluated based on certain factors of the job and points are allocated with job scoring more points placed in higher grades
Example of job factor decision making, problem solving, knowledge OR education, responsibility, contacts, complexity
A quantitative technique that involves:
Identifying the degree to which each factor is present in the job.
Awarding points for each degree of each factor.
Calculating a total point value for the job by adding up the corresponding points for each factor.
The point method is a quantitative technique. It involves identifying (1) several factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor.
Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.
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19. Human Resources Management 12e Gary Dessler
FIGURE 11–A2 Example of One Factor (Complexity/Problem Solving) in a Point Factor System
Level
Point Value
Description of Characteristics and Measures
Seldom confronts problems not covered by job routine or organizational policy; analysis of data is negligible. Benchmark: Telephone operator/ receptionist. 1 40
Follows clearly prescribed standard practice and demonstrates straightforward application of readily understood rules and procedures. Analyzes noncomplicated data by established routine. Benchmark: Statistical clerk, billing clerk. 2 80
Frequently confronts problems not covered by job routine. Independent judgment exercised in making minor decisions where alternatives are limited and standard policies established. Analysis of standardized data for information of or use by others. Benchmark: Social worker, executive secretary. 3
120
Exercises independent judgment in making decisions involving nonroutine problems with general guidance only from higher supervision. Analyzes and evaluates data pertaining to nonroutine problems for solution in conjunction with others. Benchmark: Nurse, accountant, team leader. 4
160
Uses independent judgment in making decisions that are subject to review in the final stages only. Analyzes and solves nonroutine problems involving evaluation of a wide variety of data as a regular part of job duties. Makes decisions involving procedures. Benchmark: Associate director, business manager, park services director. 5
200
Uses independent judgment in making decisions that are not subject to review. Regularly exercises developmental or creative abilities in policy development. Benchmark: Executive director.
Definitions for each degree for the compensable factor “complexity” are shown in Figure 11-A2.
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20. Human Resources Management 12e Gary Dessler
TABLE 11–A5 Evaluation Points Assigned to Factors and Degrees
First-Degree
Points
Second-Degree
Third-Degree
Fourth-Degree
Fifth-Degree
Decision making 41 82
123
164
204
Problem solving 35 70
105
140
174
Knowledge 24 48 72 96
Once the point manual is complete, the actual evaluations can begin. Raters (usually the committee) use the manual to evaluate jobs. Each job based on its job description and job specification is evaluated factor by factor to determine the number of points that should be assigned to it.
First, committee members determine the degree (first degree, second degree, and so on) to which each factor is present in the job.
Table 11-A5 shows corresponding points (as shown in) that were previously assigned to each of these degrees.
Finally, they add up the points for all factors, arriving at a total point value for the job. Raters generally start with rating key jobs and obtain consensus on these. Then they rate the rest of the jobs in the cluster.
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21. Human Resources Management 12e Gary Dessler
The Wage Curve
Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.
Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades.
The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation.
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22. Human Resources Management 12e Gary Dessler
FIGURE 11–5 Plotting a Wage Curve
The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs.
Figure 11-5 presents an example. Note that it shows pay rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis.
The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job.
Current pay rates falling above the rate range are “red circle,” “flagged,” or “overrates” which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job.
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23. Human Resources Management 12e Gary Dessler
FIGURE 11–6 Wage Structure
Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

24. PART B: BENEFIT Types of benefit Types of productivity-linked wages
Pay for time not worked
Insurance benefits
Retirement and termination benefits
Flexible benefit (optional)
Types of productivity-linked wages
Incentives
Gain sharing
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25. Motivation, Performance, and Pay
Human Resources Management 12e Gary Dessler
Motivation, Performance, and Pay
Incentives
Financial rewards paid to workers whose production exceeds a predetermined standard.
Frederick Taylor
Popularized scientific management and the use of financial incentives in the late 1800s.
Systematic soldiering
Fair day’s work
Linking Pay and Performance
Understanding the motivational bases of incentive plans
Frederick Taylor popularized using financial incentives—financial rewards paid to workers whose production exceeds some predetermined standard—in the late 1800s. Compensation experts argue that managers need to have a better understanding of the motivational bases of incentive plans in order for their plans to succeed.
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Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

26. a. Types of benefit: Pay for time not worked
Human Resources Management 12e Gary Dessler
a. Types of benefit: Pay for time not worked
Annual leave
based on length of service
Medical and hospitalisation leave
Public holidays
Minimum 10 public holidyas
Maternity leave
For any female employee who at the time of confinement has fewer than five surviving children
Piecework is the oldest and still most popular individual incentive plan. Here the worker is paid a sum (called a piece rate) for each unit he or she produces.
The standard hour plan is like the piece rate plan, except that, instead of getting a rate per piece, the worker gets a premium equal to the percent by which his or her performance exceeds the standard.
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27. a. Types of benefit: Insurance benefits
Human Resources Management 12e Gary Dessler
a. Types of benefit: Insurance benefits
Death-in service benefits
To be paid to an employee’s dependence should he /she die while still in the service of organization
Personal accidents insurance
If employee involved in an accident resulting in serious injury/death
Social security organization
SOCSO Act provide compulsory registration of employers and eligible employee. Covered for those injured/ killed by industrial accident either at work or while travelling to and from work
Medical and hospitalization insurance
Cover the cost of medical and hospitalization of serious illness or injury requring hospitalization
Piecework is the oldest and still most popular individual incentive plan. Here the worker is paid a sum (called a piece rate) for each unit he or she produces.
The standard hour plan is like the piece rate plan, except that, instead of getting a rate per piece, the worker gets a premium equal to the percent by which his or her performance exceeds the standard.
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28. a. Types of benefit: Personal service and family friendly benefits
Human Resources Management 12e Gary Dessler
a. Types of benefit: Personal service and family friendly benefits
Personal service
Social and recreational facilities
Transport and food
Subsidized transport and low price canteen
Education subsidy
Family-friendly benefits
Child care, elder care , flexible work schedule etc
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29. a. Types of benefit: Retirement and termination benefits
Human Resources Management 12e Gary Dessler
a. Types of benefit: Retirement and termination benefits
Employee Provident Fund
Set up by government to provide for compulsory savings for employees to use in their old age. Deductions comprising a percentage of salary are made monthly basis for employees with slightly higher contributions by the organization
Extra statutory redundancy pay
Help employee who lose their job when they are retrentched
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30. Human Resources Management 12e Gary Dessler
b. Types of productivity-linked wages : Incentive/Individual employee incentive program
Piecework pay
Compensate/pay employee for each unit of output. The pay is computed by multiplying the output in units with the rate perunit
Production bonuses
The incentive are paid to production employees for exceeding a specified level of output called standard
Commissions
Usually found in sales jobs, with the sales person being paid either a percentage of selling price or a fixed sum of money for each unit sold
Merit pay
Salary increment given to individual employees based on their performance
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31. b. Types of productivity-linked wages : Gain sharing
Human Resources Management 12e Gary Dessler
b. Types of productivity-linked wages : Gain sharing
Employee ownership
Allow employees to buy their shares so that employee owns a small part of the organization
Profit sharing plan
Share the organization’s profit with employee.
Cost reduction plan
Aimed at rewarding employees for something they can control i.e the cost of labour.
The employee are rewarded for the effort if the cost are reduced
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