EMPLOYEES’ EMPLOYEES’

COMPENSATIONCOMPENSATION

Chapter 7Chapter 7

Prepared by : Ly SokcheuPrepared by : Ly SokcheuUpdated : 1Updated : 1stst September, 2012 September, 2012

11

Chapter Objectives

Define the compensationIdentify the objectives of compensationDescribe the various forms of compensation.Explain the compensation processIdentify the determinants of financial and

nonfinancial compensation.Explain how compensation is determined and

the types of compensation.Understand the compensation responsibilitiesIdentify the types of employee incentives Explain the employees benefits

After studying this chapter, you should be able to:

22

I. Definitions of CompensationI. Definitions of Compensation

Consists of wages paid directly for time Consists of wages paid directly for time worked, as well as more indirect benefits that worked, as well as more indirect benefits that employees receive as part of their employees receive as part of their employment relationship with an organizationemployment relationship with an organization..

Is the type of all payment used by managers Is the type of all payment used by managers to pay and reward employees direct in return to pay and reward employees direct in return of their time worked with an organization.of their time worked with an organization.

Is total of all rewards provided employees in Is total of all rewards provided employees in return for servicesreturn for services

33

II. Objectives of CompensationII. Objectives of Compensation

\ Is to create a system of rewards that is equitable Is to create a system of rewards that is equitable to the employer and employee alike.to the employer and employee alike.

To be equitable:To be equitable:

• compensation should focus on internally compensation should focus on internally equitable pay for each employee relative to equitable pay for each employee relative to other employees in organization & externally other employees in organization & externally equitable pay relative to other employees equitable pay relative to other employees doing the similar work of other organizations.doing the similar work of other organizations.

To be legal:To be legal:• Compensation should be consistent with Compensation should be consistent with

government regulations such as Labor Law, government regulations such as Labor Law, Equal Pay Act…Equal Pay Act…

44

II. Objectives of Compensation (Cont.)II. Objectives of Compensation (Cont.)

To be adequateTo be adequate

• compensation should focus on adequate compensation should focus on adequate pay to employees in order to attract them pay to employees in order to attract them to joint & stay with the organization.to joint & stay with the organization.

To be motivatingTo be motivating

• Compensation should provide sufficient Compensation should provide sufficient incentives to employees in order to incentives to employees in order to motivate them to perform jobs efficiently.motivate them to perform jobs efficiently.

55

Refers to every types of reward that individual Refers to every types of reward that individual receive in return for their labor.receive in return for their labor.

FinancialFinancial

¬hirBaØvtßú ¦¬hirBaØvtßú ¦

-WagesWages ¬R)ak;em¬R)ak;em

:ag¦:ag¦- salariessalaries

¬R)ak;Ex¦¬R)ak;Ex¦- CommissionCommission ¬kMéreCI¬kMéreCI

gsar¦gsar¦- BonusesBonuses

¬R)ak;b¬R)ak;bMNac;¦MNac;¦- ………… …………....

DirectDirect IndirectIndirect- InsuranceInsurance ¬karFan¬karFanara:b;rg¦ara:b;rg¦

- Social Social BenefitsBenefits

¬plRbey¬plRbeyaCn_sgÁaCn_sgÁ

m¦m¦- Paid Paid

AbsencesAbsences ¬bg;R)ak¬bg;R)ak;Gvtþma;Gvtþma

n¦n¦- …………… ……………..

Non-FinancialNon-Financial ¬minEmnhirBaجminEmnhirBaØ

vtßú ¦vtßú ¦ JobJobEnvironmeEnvironme

ntntJobJob- InterestInterest ¬cMNab;¬cMNab;GarmµN_¦GarmµN_¦

- ResponsibilitResponsibilit

yy ¬karTTYl¬karTTYlxusRtUv¦xusRtUv¦- RecognitionRecognition ¬ekr_þeQ¬ekr_þeQ

µaH ¦µaH ¦- …………… ……………..

- CoworkerCoworker ¬GñkeF¬GñkeFVIkarCaVIkarCa

mYy¦mYy¦- FlextimeFlextime ¬PaBbt¬PaBbt;Ebn ¦;Ebn ¦

- CafeteriaCafeteria ¬mane¬maneBlkaehBlkaeh

V ¦ V ¦ - …………… ……………

CompensationCompensation ¬karTUTat;s¬karTUTat;s

MNg¦ MNg¦

III. Compensation ProcessIII. Compensation Process

66

IV. Compensation ResponsibilitiesIV. Compensation Responsibilities

HRD, Manager is responsible for:HRD, Manager is responsible for:

• Developing compensation policies, Developing compensation policies, structuresstructures

• Conducting job evaluation and pay Conducting job evaluation and pay surveysurvey

Managers are responsible forManagers are responsible for::

• Matching performance and rewardsMatching performance and rewards• Recommending pay rates, pay increases Recommending pay rates, pay increases

based on guideline from HRD.based on guideline from HRD.

77

V. Salary and Wage V. Salary and Wage ¬R)ak;Ex ¬R)ak;Ex nigR)ak;QñÜl¦nigR)ak;QñÜl¦SalarySalary

• Is a part of compensation that used by Is a part of compensation that used by managers to pay their employees in managers to pay their employees in the exchange of their services with a the exchange of their services with a company on monthly basis.company on monthly basis.

WageWage

• Is a part of compensation that used by Is a part of compensation that used by managers to pay their employees in managers to pay their employees in the exchange of their services with an the exchange of their services with an organization on hourly, unit basis.organization on hourly, unit basis.

88

V. Salary and Wage (Cont.)V. Salary and Wage (Cont.)

1.Development of a pay system

¬karGPivDÆn_énRbB½n§R)ak;ExnigR)ak;QñÜl¦

Development of a pay system requires Development of a pay system requires the three basic of pay level decisions:the three basic of pay level decisions:

• The wage level decisionThe wage level decision

• The wage structure decisionThe wage structure decision

• Individual wage decision Individual wage decision

99

A.A. The wage level decision The wage level decision ¬karseRmccitþelIkRmiténR)ak;QñÜl¦ The wage level decision is made by The wage level decision is made by

top managers at all levels of top managers at all levels of organization in compensation.organization in compensation.

1010

How does company pay for How does company pay for their employees?their employees?

The decision in this level is involved The decision in this level is involved the wage or salary for sufficiency of the wage or salary for sufficiency of employees.employees.

A.A. The wage level decision (Cont.)The wage level decision (Cont.)

1)1) Establishing the wage & salary level:Establishing the wage & salary level:

• This decision is a policy made by top This decision is a policy made by top managers in order to pay their employees, managers in order to pay their employees, according to market rates such as above, according to market rates such as above, the same, and below the market.the same, and below the market.

1111

o Involve the enough of labor supplyInvolve the enough of labor supplyo Attract employees to joint & stay Attract employees to joint & stay

with a long time in organization.with a long time in organization.o Avoid costly turnover.Avoid costly turnover.

• The objectives of this policy are:The objectives of this policy are:

A.A. The wage level decision (Cont.)The wage level decision (Cont.)2)2) Factors influence pay level decisionFactors influence pay level decision::

• The decision on wages and salary are The decision on wages and salary are affected by policy and satisfaction of affected by policy and satisfaction of employers.employers.

• Sometime, wages and salary are affected Sometime, wages and salary are affected by other factors such as size of business, by other factors such as size of business, unionization and, productivity.unionization and, productivity.

1212

o Generally, managers use high pay strategy Generally, managers use high pay strategy because they want to get good employees stay because they want to get good employees stay with organization, reduce employees turnover.with organization, reduce employees turnover.

o Generally, managers use low pay strategy Generally, managers use low pay strategy because they want to reduce costs & maximize because they want to reduce costs & maximize profits.profits.

A.A. The wage level decision (Cont.)The wage level decision (Cont.)

3)3) Pay survey Pay survey ¬karsÞg;emIlR)ak;ExnigR)ak;QñÜl¦• The decision on wages and salary, The decision on wages and salary,

managers conduct a survey for collecting managers conduct a survey for collecting data on existing compensation rates and data on existing compensation rates and benefits from other organizations in the benefits from other organizations in the same industry.same industry.

• There are 3 types of survey:There are 3 types of survey:

Survey from government or private Survey from government or private agencies.agencies.

Survey from business professional.Survey from business professional. Survey from private companies or NGO.Survey from private companies or NGO.

1313

A.A. The wage level decision (Cont.)The wage level decision (Cont.)

3)3) Pay surveyPay survey

• Methods of pay surveyMethods of pay survey

Personal interviews: Personal interviews: Asking other Asking other organization’s employees that organization’s employees that involved with their payment.involved with their payment.

1414

Telephone:Telephone: To clarify information with To clarify information with mailed questionnaires in order to obtain mailed questionnaires in order to obtain information about pay quickly. information about pay quickly.

Mailed questionnaires:Mailed questionnaires: Sending the Sending the list of questions related with payment list of questions related with payment to other organizations complete.to other organizations complete.

B.B. The wage structure decision The wage structure decision ¬karseRmccitþelIrcnasm½<nénR)ak;QñÜl¦ The decision on wages and salary The decision on wages and salary

structure is involved identifying to each structure is involved identifying to each performance in organization.performance in organization.

This decision, generally happened byThis decision, generally happened by

a)a) Management edictManagement edictb)b) Collective bargaining between Collective bargaining between

managers and union.managers and union.c)c) Job evaluationJob evaluation

1515

B.B. The wage structure decision (Cont.)The wage structure decision (Cont.)

a)a) Management edict:Management edict: Managers discuss with Managers discuss with HRD and Accounting officers in order to HRD and Accounting officers in order to find out market rates, various pay structure.find out market rates, various pay structure.

1616

c)c) Job evaluation:Job evaluation: Is the systematic Is the systematic determination the value of individual jobs determination the value of individual jobs in relation to other jobs in the organization, in relation to other jobs in the organization, and avoid inequality of wages.and avoid inequality of wages.

b)b) Collective bargaining:Collective bargaining: Is the process Is the process whereby employers and employee whereby employers and employee representative jointly negotiate a contract representative jointly negotiate a contract that specifies wages, hours, vacation and that specifies wages, hours, vacation and other conditions of employment.other conditions of employment.

B.B. The wage structure decision (Cont.)The wage structure decision (Cont.)

n In order to implement job evaluation In order to implement job evaluation effectively, it requires:effectively, it requires: Obtaining the cooperation between Obtaining the cooperation between

managers and employees.managers and employees.

1717

Paired comparison MBO (Actual Paired comparison MBO (Actual performance compares with goals)performance compares with goals)

Choosing a job evaluation system Choosing a job evaluation system Job rankingJob ranking

Obtaining job descriptions: Job evaluation Obtaining job descriptions: Job evaluation committee should have access to write job committee should have access to write job descriptions.descriptions.

Choosing job evaluators: Consists of 5 Choosing job evaluators: Consists of 5 or more people work as job evaluation or more people work as job evaluation committee.committee.

c)c) Individual wage decisionIndividual wage decision

¬karseRmccitþelIR)ak;QñÜlbuKÁl¦ This decision concerns with relative This decision concerns with relative

payment to employees who perform payment to employees who perform similar jobs in company.similar jobs in company.

i.i. Performance:Performance:

1818

• Employee who works more gets Employee who works more gets more pay.more pay.

• Employee will feel un-satisfaction Employee will feel un-satisfaction when they work more but get less.when they work more but get less.

Factors influence individual wage pay are:Factors influence individual wage pay are:

c)c) Individual wage decision (Cont.)Individual wage decision (Cont.)

ii.ii. Work experience & evaluation:Work experience & evaluation:

• High salary is provided depend on High salary is provided depend on employee’s work experience and employee’s work experience and education such as BBA, MBA experience.education such as BBA, MBA experience.

1919

• Potential: Potential: o Which employee demonstrate he or she Which employee demonstrate he or she

has potential to become supervisor or has potential to become supervisor or upper level of management get high pay.upper level of management get high pay.

• Seniority or length of service:Seniority or length of service:o Faith fullness with a company even if his Faith fullness with a company even if his

or her performance can not justify pay.or her performance can not justify pay.

2.2.Employee Incentives Employee Incentives ¬karelIkTwkcitþnieyaCit¦1.1. DefinitionDefinition

Incentives are the compensation that Incentives are the compensation that rewards employee's efforts beyond rewards employee's efforts beyond normal performance expectations.normal performance expectations.

2.2. Types of incentivesTypes of incentives ¬RbePTénkarelIkTwkcitþ¦a)a) Individual incentives:Individual incentives:

• Differences piece rate system: Pay Differences piece rate system: Pay lower piece rate wage if employee lower piece rate wage if employee works less than standard output and works less than standard output and higher piece rate wage if they produce higher piece rate wage if they produce over standard output.over standard output.2020

2.2. Types of incentives (Cont.)Types of incentives (Cont.)

a)a) Individual incentives (Cont.)Individual incentives (Cont.)

• Commission: Percentage on unit of salesCommission: Percentage on unit of sales• Straight commission: No salary but Straight commission: No salary but

commission of unit sold.commission of unit sold.• Salary-plus-CommissionSalary-plus-Commission• BonusesBonuses• Special incentive programSpecial incentive program

b)b) Group incentive systems:Group incentive systems:

• Based on group rather individual Based on group rather individual performance: performance: Profit and rProfit and reduce educe production cost.production cost.

2121

2.2. Types of incentives (Cont.)Types of incentives (Cont.)

c)c) Organizational incentivesOrganizational incentives

• Pay all employees based on performance of entire organization.

• Stock ownership employee which employee works well in company, he or she can buy share of stock with low price.

2222

- Equally all employees - Equally all employees - Base on salary- Base on salary- Individual performance- Individual performance- Seniority - Seniority

• Profit sharing plans:

3.3.Employee Benefits Employee Benefits ¬R)ak;bMNac;epSg²rbs;nieyaCit¦a)a) Benefits Benefits

b)b) Types of benefits Types of benefits ¬RbePTénR)ak;bMNac;epSg²¦• Security benefitsSecurity benefits

2323

• Most organizations recognize that they have Most organizations recognize that they have responsibility to their employees to provide responsibility to their employees to provide insurance and other programs for their health, insurance and other programs for their health, safety, security, and general welfare.safety, security, and general welfare.

• are indirect compensation in a form of are indirect compensation in a form of something rather than money.something rather than money.

• Health care benefitsHealth care benefits

Worker’s compensationWorker’s compensation Unemployment compensationUnemployment compensation

b)b) Types of benefits (Cont.)Types of benefits (Cont.)

• Retirement-related benefitsRetirement-related benefits Retirement policies

¬eKalneya)aycUlnivtþn_¦ Pension plans

¬EpnkarR)ak;esaFn¦

• Time-off benefitsTime-off benefits ¬R)ak;bNac;éneBlevlaQb;sRmak¦ Holiday pay Paid vacations

2424

VI. The objectives of compensationVI. The objectives of compensation function should be:function should be:

1)1) SecureSecure

2525

3)3) Acceptable to the employeeAcceptable to the employee

2)2) Incentive-providingIncentive-providing

• The employee should understand the The employee should understand the pay system and feel it is a reasonable pay system and feel it is a reasonable system for the enterprise and himself system for the enterprise and himself or herself.or herself.

• Pay should motivate effective and Pay should motivate effective and productive work.productive work.

• Pay should be enough to help an Pay should be enough to help an employee feel secure and aid him or employee feel secure and aid him or her in satisfying basic needs.her in satisfying basic needs.

5)5) SecureSecure

2626

7)7) Acceptable to the employeeAcceptable to the employee

6)6) Incentive-providingIncentive-providing

• The employee should understand the The employee should understand the pay system and feel it is a reasonable pay system and feel it is a reasonable system for the enterprise and himself system for the enterprise and himself or herself.or herself.

• Pay should motivate effective and Pay should motivate effective and productive work.productive work.

• Pay should be enough to help an Pay should be enough to help an employee feel secure and aid him or employee feel secure and aid him or her in satisfying basic needs.her in satisfying basic needs.