Direct Financial Direct Financial CompensationCompensationChapter 9Chapter 9

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–1

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–2

Nature Of Total Rewards and Nature Of Total Rewards and CompensationCompensation• Total RewardsTotal Rewards

Monetary and non-monetary rewards provided to Monetary and non-monetary rewards provided to attract, motivate, and retain employees.attract, motivate, and retain employees.

• Rewards System Strategic Objectives:Rewards System Strategic Objectives: Legal compliance with all laws and regulationsLegal compliance with all laws and regulations

Cost-effectiveness for the organizationCost-effectiveness for the organization

Internal, external, and individual equityInternal, external, and individual equity

Performance enhancement for the organizationPerformance enhancement for the organization

Performance recognition and talent managementPerformance recognition and talent management

Enhanced recruitment, involvement, and retentionEnhanced recruitment, involvement, and retention

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–3

FIGURE 11–1 Total Rewards Components

Managing The Managing The Workforce Workforce

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–5

FIGURE 11–2

Continuum of Compensation Philosophies

Equity TheoryEquity Theory

• Motivation is in proportion to the Motivation is in proportion to the perceived fairness of rewards received perceived fairness of rewards received for amount of effort exerted.for amount of effort exerted.

• Compared to what others around the Compared to what others around the person receive for their efforts, person receive for their efforts,

• Equity and fairness important in Equity and fairness important in compensation.compensation.

9-69-6

Equity in Financial CompensationEquity in Financial Compensation

• Financial equity: Financial equity: Perception of fair pay Perception of fair pay • External equity: External equity: Employees paid comparably to Employees paid comparably to

workers who perform similar jobs in other firmsworkers who perform similar jobs in other firms• Internal equity: Internal equity: Employees paid according to Employees paid according to

relative value of jobs within a single organizationrelative value of jobs within a single organization• Employee equity: Employee equity: Individuals performing similar Individuals performing similar

jobs for same firm paid according to factors such jobs for same firm paid according to factors such as performance level or seniorityas performance level or seniority

• Team equity: Team equity: More productive teams are More productive teams are rewarded more than less productive groupsrewarded more than less productive groups

9-79-7

Primary Determinants of Primary Determinants of Direct Financial CompensationDirect Financial Compensation

9-8

Organization Compensation Policies Organizational Level Ability to Pay

Labor Market Compensation Surveys Expediency Cost of Living Labor Unions Economy Legislation

Employee Job Performance Skills Competencies Seniority Experience Organization Membership Potential Political Influence LuckSalary Compression

Job

Pricing

Direct Financial Compensation

Job Job Analysis Job Descriptions Job Evaluation

9-8

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–9

FIGURE 11–3 HR Metrics for Compensation

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–10

Compensation System Design IssuesCompensation System Design Issues

Compensation Fairness and Equity

External Equity

Internal EquityProcedural JusticeDistributive Justice

Pay Secrecy vs. Openness

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–11

Compensation System Design Issues Compensation System Design Issues (cont’d)(cont’d)

Market Competitiveness and Compensation

“Meet the Market” Strategy

“Lag the Market” Strategy

“Lead the Market” Strategy

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–12

FIGURE 11–5 Compensation Quartile Strategies

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–13

FIGURE 11–6 Possible Components of Global Employee Compensation

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–14

Global Compensation IssuesGlobal Compensation Issues

Compensating Expatriates

Balance-Sheet

Approach

Global Market Approach

Tax Equalization

Plan

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–15

FIGURE 11–8

Compensation Administration Process

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 11–16

Valuing Jobs with Job Evaluation Valuing Jobs with Job Evaluation MethodsMethods• Job EvaluationJob Evaluation

The formal systematic means used to identify the The formal systematic means used to identify the relative worth of jobs within an organization.relative worth of jobs within an organization.

• Compensable FactorCompensable Factor A job value commonly present throughout a group of A job value commonly present throughout a group of

jobs.jobs. Something for which an organization will compensate Something for which an organization will compensate

an employee.an employee.