Employee compensation refers to all forms of pay or rewards going to employees and arising from their employment. It consists of 2 parts Direct financial payments Indirect financial payments
Direct or Indirect compensation is given based on
Increments of time Hourly Salaried Performance Piecework Commission
Piecework - Pay is tied directly to what the worker produces
Wages – generally refer to hourly compensation paid to operating employees; the basis for wages is time. Salary – is income that is paid an individual not on the basis of time, but on the basis of performance.
Phase:-1. Evaluate every job to ensure internal equity based on each job’s relative worth. Phase:-2. Conduct wage and salary surveys to find the rates paid in the labour market. Phase:-3. Price each job to determine the rate of pay based.
Objectives of Effective Compensation Management
The “Big Three” Attract qualified employment applicants Retain qualified employees, while discouraging retention of low performing Motivate employee behavior toward organization objectives
Ensure Equity Reward Desired Behavior Control Costs Comply With Legal Regulations Facilitate Understanding
Achieve external competitiveness Support organization priorities Strategy and goals Culture and values Easy to administer
Equity Theory Description – Pay should be based upon contributions made by the Employees. Higher effort should be rewarded with higher pay. Application to Compensation – Pay should be tied to the performance level of individual Employee
Advantages Higher quality of human resources at midrange of market- driven compensation costs Disadvantages Does not attract higher performers Turnover will vary with labor demands of competing firms
Advantages Lower compensation costs Useful in labor markets where unemployment is high Disadvantages Lower-quality employees Low morale/job satisfaction Higher turnover; especially among high performers
Conditions Necessary for Perceptions of Pay Fairness Internal consistency External competitiveness Employee contributions