1. Compensation: A Component of Human Resource Systems
Chapter One
Compensation: A Component of Human Resource Systems

2. What Influences Pay?
Chris Smith and Pat Jones are both computer programmers.
Chris earns $45,000, while Pat earns $35,000.
What could cause this difference?

3. Equity Policies Internal Consistency External Competitiveness Employee
Contributions
Administration

4. Compensation Department’s Main Goals
Internal equity --Internal consistency
Relative value of each job among all jobs within a company
Value of the job, regardless of the person in the job
Jobs that require greater qualifications, more responsibilities, and more-complex job duties should receive higher pay than other jobs.
Done through job analysis and job evaluation
External equity—Market-competitiveness
Jobs within a company are paid similarly to same jobs outside
Companies’ pay policies fit with business objectives
Done through strategic analysis and salary surveys
Individual equity--Recognizing individual contributions
Pay people differently within jobs according to job performance.
Done through pay grades and ranges

5. Compensation Techniques
INTERNAL:
Job Analysis, Job Descriptions, Job Evaluation, Internal Work Structure
EXTERNAL:
Market definitions, Market surveys, Policy lines, Pay structures
INDIVIDUAL:
Seniority based, Performance based, Incentive guidelines, Incentive programs
ADMINISTRATION:
Planning,Budgeting,Communicating, Evaluating

6. What is Compensation? Intrinsic compensation Extrinsic compensation
Reflects employees’ psychological mind sets that result from performing their jobs.
Through effective job design
Extrinsic compensation
Rewards given you by others
Includes both monetary and non-monetary (e.g., benefits) rewards.
Through compensation systems

7. Critical Psychological
Exhibit 1-1 The Influence of Core Job Characteristics on Intrinsic Compensation and Subsequent Benefits to Employers
Core Job
Characteristics
Critical Psychological
State
Benefit to
Employers
Skill variety
Task identity
Task significance
Experienced meaningfulness of the work
Lower turnover
Lower absenteeism
Enhanced job performance
Greater job satisfaction
Experienced responsibility for work outcomes
Autonomy
Feedback
Gained knowledge of results from work activities

8. Exhibit 1-3 Elements of Core Compensation
Base Pay (recurring)
Hourly pay/wage
Annual salary
How Base Pay is Adjusted Over Time
Cost-of-living adjustments (COLAs)
Seniority pay
Merit pay
Incentive pay or variable pay
Pay-for-knowledge and skill-based pay

9. Exhibit 1-4 Elements of Fringe Compensation (1 of 3)
Social Security Act of 1935
Unemployment insurance
Retirement insurance
Benefits for dependents
Disability benefits
Medicare
State compulsory disability laws
Workers’ Compensation
Family and Medical Leave Act of 1993 (12 weeks of annual unpaid leave)

10. Exhibit 1-4 Elements of Fringe Compensation (2 of 3)
Discretionary Benefits
Protection Programs
Income protection programs
Health protection programs
Pay for time-not-worked
Holidays
Vacation
Sick leave
Personal leave
Jury duty
Funeral leave
Military leave
Cleanup, preparation, travel time

11. Exhibit 1-4 Elements of Fringe Compensation (3 of 3)
Discretionary Benefits (cont.)
Services
Employee assistance programs (EAPs)
Family assistance programs
Tuition reimbursement
Transportation services
Outplacement assistance
Wellness programs

12. Strategic vs. Tactical Decisions
Strategic decisions guide activities in the market
Tactical decisions support the fulfillment of strategic decision
Strategic Decisions
General Tactical HR Decisions
Specific Tactical HR Decisions (Compensation)
Competitive strategy
HR strategy
Compensation strategy
Recruitment and Selection
Performance appraisal
Compensation
Training
Seniority pay
Merit pay
Incentive pay
Benefit options
Etc.

13. Competitive Strategy
Planned use of resources to promote & sustain competitive advantage
Lowest-cost strategy
Efficient-scale, cost minimization
Southwest Airlines, Wal-Mart
Employee roles: repetitive, predictable behaviors, short-term focus, individual activity, concern for quantity, primary concern for results.
Differentiation Strategy
Unique products: design image, technology, etc
Build brand loyalty, price premium, invest in R&D
Iams company, Saks Fifth Avenue
Employee roles: creative behavior, long-term focus, cooperative and interdependent behavior, risk taking, openness to novel work.

14. Compensation and… Labor-Management Relations Recruitment, Selection
Collective bargaining agreements, pay, COLAs, incentives
Employee Termination
Severance pay, pension, early retirement
Legislation
Income and continuity, safety, work hours, pay discrimination, disabilities and family needs
Recruitment, Selection
$ to get top candidates, signing bonus, benefits
Performance Appraisal
Basis for merit pay and incentives
Training
Pay for knowledge
Career Development
Promotions, lateral moves

15. Stakeholders of the Compensation System
Employees
Line managers
Executives
Unions
U.S. government