For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

CHAPTER 11 Managing

compensation & benefits

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Chapter outcomes• Explain the link between pay, motivation and performance• Define job evaluation and discuss four popular methods of

performing it• Develop a time-based pay system using pay grades and steps• Discuss three types of individual incentives• Discuss why gainsharing, profitsharing and employee stock

ownership plans (ESOPs) have grown as organisational incentive plans

• Understand executive compensation methods• Understand the growth of employee benefits and their

organisational objectives

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Definitions• Compensation/total rewards

• Wage and salary administration

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Compen-sation of employees

Extrinsic rewards(Financial)

Monetary rewards(Direct payments)

Hourly wage

Salary

Bonuses

Commissions

Pay incentives

Skills-based/competency-based

Benefits(Indirect payments)

Insurance

Retirement

Paid holidays

Paid public holidays

Food services

Medical

Recreation

Intrinsic rewards(Non-financial)

Recognition

Promotion opportunities

Working conditions

Interesting work

Training opportunities

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Compensation objectives

• • • •

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Objectives of a compensation system1. _______________

2. _______________

3. _______________

4. _______________

Wage survey to determine the “going rate” in the labour market

Job evaluation system that employees perceive as “equitable”

Reward good performance

Documentation of HR records

Government legislation

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Motivation and performance model

Feedback to employee

Employee sets new goals and expectations based on prior experiences

Emplo-yee

Emplo-yee

performs job

Re-wards

are given

Employee sets expectations

and goals

Performance is evaluated

Employee considers equity of performance

rewards

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Job evaluation (JE)• Definition:

• Result is a pay system with pay rates for each job depending on the status of the job according to the hierarchy

• Does NOT review the employees in the job but the worth of the position

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Job evaluation (JE) (continued)• JE methods:

– – – – – – – –

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Job evaluation (JE) (continued)

• Job evaluation committee• Outside assistance

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Pay systems

• _______ based systems

• _______ based systems

• __________ based systems

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Guidelines for incentive plans

• Bold incentives• Emphasis on team performance• Quick feedback• Above-average base• Simple formula

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Incentive plans• Problems with incentive plans• Different types:

– Cash profit-sharing– – Business incentives– – Team/group incentives– –

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Executive compensation

• 4 forms of pay:– (1) – (2) – (3)– (4)

• Golden parachutes• Stock options

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Benefits• Types of benefits• Benefits required by law:

– Unemployment insurance– Compensation for injuries and diseases

• Voluntary benefits• Paid time off• Insurance• Employee services

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Total benefit planning

• Flexible benefit plans– – –

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Advantages of flexible plans

• • • • Attract and retain employees• • Avoid duplicate coverage

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Summary• Organisations use both extrinsic and intrinsic rewards to

compensate employees for their time and effort. Pay systems are designed to attract, retain and motivate employees while complying with government legislation.

• Job evaluation is used to evaluate jobs systematically and to assign them to pay grades. The HR specialist strives to maintain a pay system that employees view as equitable, both internally and externally. Standard methods of evaluation include ranking, classification, point and factor comparison. Each offers different advantages.

• Pay systems are usually designed to compensate people for the amount of work they produce (piecework), the skills they learn and use or the time they spend on the job (hourly and salaried). Most employees in South Africa are paid through time-based systems.

• Individual employee, team-based and organisationwide systems, such as profit-sharing and gainsharing, are replacing automatic pay increases to relate pay to performance.

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Summary• Executive compensation has become a complex area of HR

functions. Top executives often receive compensation in as many as four areas, including salary, bonuses, long-term incentives and benefits.

• Employee benefits are not just a fringe cost to employers; they represent a substantial percentage of the total payroll. Benefits are usually awarded to all workers or on a seniority basis.

• Certain benefits are required by law, including unemployment insurance and compensation for injuries and diseases.

• Retirement income is provided through private/government pension plans and personal savings. Employers believe that they directly or indirectly provide all these sources - which constitute the single most expensive benefit area.

For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al

ISBN: 1408019515 © 2010 Cengage Learning

Summary• Health insurance programmes provided by employers have expanded to

include life/disability insurance, as well as the traditional medical and hospitalisation coverage.

• Paid time off from work represents a major benefit cost. • Flexible benefit plans are of great interest to employers because they

help contain benefit costs and provide employees with more individualised benefit programmes.

• Changing employee demographics have caused employers to offer childcare programmes to help employees meet their family needs.