CHAPTER 11

Compensation
Compensation

Group Members
Clamor, Matthew
Fortich, Joel
Valencerina, Angelo
Vergara, Christian Joseph

The most obvious reward employees receive from work is Pay.

However, rewards also include promotions, desirable work
assignments, and a host of other less obvious payoffs- a smile,
peer acceptance, work freedom, or a kind word of recognition.

The action or process of awarding someone money as a

recompense for loss, injury, or suffering.
SYNONYMS
Recompense
Repayment
Reimbursement

INTRINSI
C VS
EnXTRISIC

INTRINSIC REWARDS
Intrinsic Meaning
-belonging naturally; essential.

Satisfactions derived from the job itself, such as pride of ones

work, a feeling of accomplishment, or being part of the team.

JOB ENRICHMENT

-Enhancing jobs by giving employees more opportunity to plan and

control their work

EXTRINSIC REWARDS

-Benefits provided by the employer, usually money, promotion, or

benefits.

NON FINANCIAL REWARDS

Present a variety of desirable extras for employees and
organizations. These do not directly increase the employees
financial position; but make life on the job more pleasant

COMPENSATION ADMINISTRATION

The process of managing a companys compensation program.

Job evaluation
The process whereby an organization systematically establishes
its compensation program. In this process, jobs are compared to
determine each job appropriate worth within the organization.

Employees exchange work for rewards

The most important reward, and the most obvious is money.
But not all employees earn the same amount of money. Why?
The search for this answer moves us directly into the topic of
compensation administration
Goal of Compensation Administration
To design a cost effective pay structure that will attract,
motivate, and retain competent employees. The structure
should also appear fair to employees. Fairness is a term that
frequently arises in the administration of an organizations
compensation program

Government Influence on Compensation Administration

FAIR LABOR STANDARD ACT (FLSA)
Passed in 1938, this act established laws outlining minimum wage,
overtime pay, and maximum hour requirements for most U.S
Workers
EXEMPT EMLOYEES
Employees positions that are exempt from most employee
protection outlined in the Fair Labor Standards Act, especially
overtime pay.

Non-exemp Employees
Employees who are covered by the Fair Labor standards Act ,
including overtime pay and minimum wage provisions

Job Evaluation and Pay Structure

Job Evaluation

Job evaluation is determining the value of job in an

organization as well as its importance

Job Evaluation Criteria and Methods

Criteria is not constant in ever type of organization as
well as different jobs in general.

Ordering Method

Ranks jobs by comparing which is more important

than the other to form a hierarchy.
This method is limited because you do not know the
distance between each job. As well as the
manageability will be difficult in a large organization.
And lastly no definite standard or non consistent
standard for job value.

Classification Method

The most popular method; Classifies first what kinds

of jobs are there in an organization for example is HR
jobs, Consulting Jobs, and PR jobs.
The limits are that some jobs can be more complex
and can be difficult to be placed, or may even be
placed in more than one class

Point Method

Creates a criteria on where points are given to weigh

the importance on each criterion.
Once the criteria is placed there will also be included a
degree on how satisfactory can a job be done.
This method can be highly accurate to precisely
determine a jobs proper value. Unfortunately it is
limited to the high costs of money and time.

Pay Structure

Compensation Surveys
Organizations can gather information to determine if their pay rates
are inline with other organizations with similar fields. Such
information can be gather from Compensation Surveys published
from other organizations, or Government Departments of Labor.

Wage Curve
Plots jobs in position to their amount of points
against their hourly rates to determine if the pay
rate fall within acceptable area.

Wage Structure
After the plotting of the wage curve you classify the
pay groups by point amounts. Jobs with similar
points in amount are grouped to create a
hierarchical payout ladder.

External Factors

Geographic Difference

Labor Supply

Competition

Cost of Living

Collective Bargaining

Communicating with Employees

Geographic Difference

Labor supply in the certain area can affect employment and wage
pays.
Example High demand job with low labor supply can give a high wage
while low demand and high labor supply may provide minimum wage.
Other examples are questions such as how far are you to travel for a
job?

Labor Supply

The attractiveness of a payout to the labor supply can either increase

or decrease employment rate.
For example a low demand job with high supply, increase from the
minimum wage may influence people to consider applying.

Competition

Match where the organization

competition's pay wage.

matches

the

Lead where the organization pays higher than most

other organizations.
Lag where the organization pays lower than most
organizations.

Cost of Living

As the economy changes the cost of living wages must also climb or
descend accordingly.
For example if the the economy is experiencing inflation, wages must
rise to accommodate the costs of living.

Communicating with Employees

Communication is key to creating a good pay structure, so that

problems within the employees will less likely arise.
Communicating about the pay plan is also believed to be a great leap
towards compensation goals.

Special Cases of Compensation

As organizations can rapidly change as well as the dynamic

environment, pay rates can also change along but notably that
increasing or decreasing the rate won't do.

Incentive Compensation Plan

Paying for Performance

Team Based Compensation

Incentive Compensation Plan

Incentive compensation plan is not to replace the basic wage but to be

added to the basic wage depending on the performance.

Individual Incentives

Group Incentives

Organization-wide Incentives

Individual Incentives

Individuals are given a piece work to be done

independently with a specific goal.
Merit changes depending if the output meets or
exceeds goals. Wherein exceeding the goal grants
higher merits.

Group Incentives

Same as individual incentives except the piecework

requires cooperation of more than one employee.

Organization-Wide Incentives

The pay comes to every member of the organization

where they exceed the goal.
This is mainly achieved through cooperation between
employee and management.

One problem is that employees can have a difficult

time seeing how their performance can affect the
organizations progress.
Another problem is the recurrence can cause
employees to almost always changes their work
patterns as well as their motivation.

Paying for Performance

Wherein merit is given on performance which is also

similar to Individual incentive.

Paying for performance expands to Competency

Based Compensation wherein an employee is
merited on how competent he/she is.

Team Based Compensation

Compensation is given by group output

performance. Similar to Group Incentives.

or

International Compensation

Probably one of the hardest functions of an international HR.

The balance sheet approach lets you consider four factors; Base Pay,
Differentials, Incentives and Assistance Programs.

Base Pay

Wage for similar jobs can be different per country mostly affected by
the currency value and country's economic status.
Differentials

The cost of living is different in each country.

Incentives

These are compensations to employees who are

given overseas assignments.
This requires detailed planning because it adds in
other factors that surround the personal life of the
employee.

Assistance Programs

Assistance programs are incentives given to families

who are moving along with the employee to his
overseas assignment.