COMPENSATION AND REWARDS

Compensation

Is what employees receive in exchange for their contribution to the organization.

When managed correctly, it helps the organization achieve its objectives and obtain, maintain, and retain a productive workforce.

Compensation (Cont’d)

Without adequate compensation, current employees are likely to leave and replacements will be difficult to recruit.

The outcomes of pay dissatisfaction harm productivity and affect the quality of work life.

Forms of compensation

Direct Financial Compensation – pay received in forms of wages,

salaries, bonuses and commissions. Indirect Financial

Compensation(benefits)- All financial rewards not included in

direct compensation. For examples workers compensation, Family & medical leave, Disability Protection,

Forms Of Compensation (Cont’d) Nonfinancial Compensation- Satisfaction person receives from

psychological & or physical environment in which person works. For examples, skills variety, experiences, good working conditions, flextime

Objectives in compensation management To help the organization achieve strategic

success while ensuring internal and external equity.

Internal equity- ensures that more demanding positions or better qualified people within the organization are paid more.

External equity - assures that jobs are fairly compensated in comparison with similar jobs in other firms.

Objectives in compensation management (Cont’d)

Acquire qualified personnel Retain current employees Ensure equity Reward desired behaviour Control costs Facilitate understanding

Acquire qualified personnel

Compensation needs to be high enough to attract applicants. Pay levels must respond to the supply and demand of workers in the labour market since employers compete for workers. Premium wages are sometimes needed to attract applicants already working for others.

Retain current employees Employees may quit when

compensation levels are not competitive, resulting in higher turnover.

Ensure equity Compensation management

strives(berjuang) for internal and external equity. Internal equity requires that pay be related to the relative worth of a job so that similar jobs get similar pay. External equity means paying workers what comparable workers are paid by other firms in the labor market.

Reward desired behaviour Pay should reinforce desired

behaviours and act as an incentive for those behaviours to occur in the future.

Effective compensation plans reward performance, loyalty, experience, responsibility, and other behaviours.

Control costs A rational compensation system helps

the organization obtain and retain workers at a reasonable cost.

Without effective compensation management, workers could be overpaid or underpaid.

Comply with legal regulations. A wage and salary system considers

the legal challenges imposed by the government and ensures the employer's compliance.

Facilitate understanding The compensation management

system should be easily understood by human resource specialists, operating managers, and employees.

Organization As A Determinant Of Direct Financial Compensation

It is based on - Compensation policies- Organizational level- Ability to pay

Compensation policies

Pay leaders- pay higher wages & salaries

Pay based on market rate- pay what most employers pay for same job

Pay followers- pay below market rate because poor financial condition or believe do not require highly capable employees

Organizational level Upper management often makes

decisions to ensure consistency Having problems when pressure to

retain top performers may override desire to maintain consistency in pay structure

Ability to pay

Organization’s assessment of ability to pay is important factor in determining pay levels.

Labor Market As Determinant Of Direct Financial Compensation

Employee will be pay based on labor market conditions: It includes:Compensation surveys- what are

other firms paying?, geographic area of survey

Cost of living- when prices rise over a period of time

Labor Unions- mandatory collective bargaining management & unions as wages, hours & other terms and conditions of employment, cost of living (COLA) allowance has been disappearing

Employee will be pay based on labor market conditions (Cont’d):The economy- cost of living often

rises as economy expands.Compensation legislation- states

in wages council Act 1947, government has generally resisted any suggestions for a minimum wage applicable throughout industry and region.

Job as determinant of direct financial Compensation

Job itself continues to be factor. Organizations pay for value they attach

to certain duties, responsibilities, and other job related factors as working conditions.

E.g, professional positions different level of salary

Employee as determinant of direct Financial Compensation

Employees may demands for their salaries based on: Performance Competencies Skills Experiences Seniority