EMPLOYEE COMPENSATION AND BENEFITS

• Types of compensations• Types of employee benefits

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Nature of Compensation• Objectives of effective compensation program:

a) Legal compliance with all appropriate laws and regulations

b) Cost effectiveness for the organizationc) Internal, external and individual equity for employeesd) Performance enhancement for the organization

• Types of Rewards:a) Extrinsic

– Tangible, monetary and non-monetary effects of compensation

b) Intrinsic– Intangible, psychological and social effects of compensation

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Components of a Compensation Program

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Direct Compensation

Base PayBase Pay

SalarySalary

WagesWages

The basic monetary compensation that an employee The basic monetary compensation that an employee receives, usually as a wage or salary.receives, usually as a wage or salary.

Payments calculated on the amount of time worked.Payments calculated on the amount of time worked.

Consistent payments made each period regardless Consistent payments made each period regardless of the number of hours worked in the period.of the number of hours worked in the period.

Variable Variable PayPay

Compensation linked to individual, team, or Compensation linked to individual, team, or organizational performance.organizational performance.

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Indirect Compensation

• Employer-provided benefits—like health insurance—that are provide employees for being a member of the organization.

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Variable Plan Compensation linked to individual, group/team, and/or organizational performance.

• The development of clear, understandable plans that are continually communicated.

• The use of realistic performance measures.

• Keeping plans current and linked to organizational objectives.

• Strong links among performance results and payouts that truly recognize performance differences.

• Clear identification of variable pay incentives separately from base pay.

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Types of Variable Pay Plans:

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Individual Incentives• Conditions necessary for the use of individual

incentives plans:a) identification of individual performancesb) independent workc) individual competitivenessd) individualism stressed in organizational culture

• Sales Compensation Plans:a) Salary onlyb) Straight Commissionc) Salary Plus Commission / Bonuses

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• Types of Individual Incentives:a) Straight Piece-Rate Systems

Wages are determined by multiplying the number of pieces produced by the piece rate for one unit.

b) Differential Piece-Rate SystemsEmployees are paid one piece-rate for units produced up

to a standard output and a higher piece-rate wage for units produced over the standard.

c) BonusA one-time payment that does not become part of the

employee’s base pay.d) Awards

Cash or merchandise used as an incentive reward.e) Recognition Awards

Recognition of individuals for their performance or service to customers in areas targeted by the firm.

f) Service AwardsRewards to employees for lengthy service with an

organization.

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Group/Team Based Variable Pay• Primary approaches for distributing team rewards:

a) Same size reward for each team memberb) Different size rewards for each team member

• Why establish team pay plans:a) enhances productivityb) ties earnings to team performancec) improves qualityd) aids recruiting & retention of employeese) improves employees morale

Types of Group Incentives:a) Work teams result

• May reward all members equally on the basis of group output, costs savings / quality improvement

b) Gain sharing• The sharing with employees of greater-than-expected

gains in profit &/ productivity

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Organizational Incentives• Types of Organizational Incentives:a) Profit Sharing

• A system to distribute a portion of the profits in the organization to employees

• Primary objectives of profit-sharing plans:1. improve productivity2. recruit/retain employees3. improve product/service quality4. improve employee morale

• Drawbacks of Profit-Sharing Plan:1. to disclose financial & profit information to

employees2. profits may vary a great deal from year to year3. payoffs far removed from employees’ effort

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b) Employee Stock Option• It give employees the right to purchase a

fixed number of shares of company stock at specified price for a limited period of time

• If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit.

• If the market price of the stock is below the specified option price, the stock option is “underwater” and is worthless to employees.

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Benefits• An indirect compensation given to an

employee or group of employees as a part of organizational membership.

• Strategic Perspectives on Benefits– Benefits absorb social costs for health care and

retirement.– Benefits influence employee decisions about

employers (e.g., recruitment and retirement).– Benefits are increasingly seen as entitlements.– Benefit costs average over 40% of total payroll

costs.

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Other Benefits

Benefits

Relocation Expenses

Life, Disability, Legal Insurances

Educational Assistance

Social and Recreational

Family-Oriented Benefits

Family-Care Benefits

Credit Unions Purchase Discounts

Stock Investment

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Family Medical Leave Act (FMLA)• Coverage

– Employers with 50 or more employees– Employees who have worked at least 12 months

and 1,250 hours in the previous year.• Requirements

– Employers must allow eligible employees to take up to a total of 12 weeks of unpaid leave in a 12-month period to attend to a family or serious medical condition.

– Employees have the right to continued health benefits and the right to return to their job.

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Benefits for Domestic Partners• Domestic Partners or Spousal Equivalents

– Unmarried employees who are living with individuals of the opposite sex

– Gay and lesbian employees who have partners• Affidavit of Spousal Equivalence

– Each is the other’s only spousal equivalent.– They are not blood relatives.– They are living together and jointly share

responsibility for their common welfare and financial obligations.

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Time-Off Benefits• Holiday Pay

– Eligibility• Vacation Pay

– Eligibility and scheduling• Leaves of Absence

– Family Leave– Medical and Sick Leave– Military Leave– Election Leave– Jury-duty Leave– Funeral Leave

• Paid Time-Off (PTO) Plans– Combine all sick leave,

vacation time, and holidays into a total number of hours or days that employees can take off with pay.