© 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Learning Objectives After studying this chapter, you should be able to: Describe the basic issues involved in developing a compensation strategy Discuss how organizations develop a wage and salary structure Identify and describe the basic issues involved in wage and salary administration Discuss the basic considerations in understanding benefit programs Identify and describe mandated benefits Identify and describe nonmandated benefits Discuss contemporary issues in compensation and benefits © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

What Is Compensation? The set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization. © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

What are Benefits? Purposes of Benefits Rewards Incentives Items of Value Purposes of Benefits © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Beyond the Book: Components of the Compensation System © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Understanding the Basic Purposes of Compensation Internal Equity External Equity Pay Surveys Developing a Compensation Strategy © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Example of a Pay Survey © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Wages Versus Salaries Wages Salary Is hourly compensation paid to operating employees; basis for wages is time. Salary Is income paid to an individual on the basis of time. © 2012 South-Western, Cengage Learning, Inc. All rights reserved. 8

Which pay level is a firm on the decline likely to choose? Strategic Options for Compensation Which pay level is a firm on the decline likely to choose? © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Job Evaluation: Determining What to Pay Point system Classification system Job Evaluation Methods © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Job-Classification System © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Organizational objectives Beyond the Book: Linking Pay to Performance Motivation Productivity Cost savings Organizational objectives Retention © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Pay-for-Knowledge and Skill-Based Pay Compensating employees for learning specific information Skill-based Pay Rewards employees for acquiring new skills © 2012 South-Western, Cengage Learning, Inc. All rights reserved. 13

Wage and Salary Administration The ongoing process of managing a wage and salary structure; managers must be sensitive to these costs and must be vigilant about managing them properly. © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Understanding Compensation Pay Secrecy Pay compression Pay Inversion Wage and Salary Administration Issues © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Types of Benefits Mandated Benefits Non-Mandated Benefits Unemployment Insurance Social Security Workers’ Compensation Non-Mandated Benefits Private pension plans Defined benefit plans Defined contribution plans Paid time off Health insurance coverage Additional Benefits Wellness programs Child care programs Cafeteria-style benefits © 2012 South-Western, Cengage Learning, Inc. All rights reserved. 16

Beyond the Book: Benefits for U.S. Private Industry Workers 0% 20% 40% 60% 80% 100% Defined Benefit Pension Defined Contribution Plan Access to Paid Holiday Acess to Paid Sick Leave Access to Paid Vacation Child Care Assistance © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Minimum Annual Vacation by Law in Different Countries © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Executive Compensation Components Base Salary Incentive Payments Usually a bonus based on company performance Perquisites © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Senior Executive Perquisites in Different Countries © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Number of Executives Receiving a Bonus of at Least $1 Million in 2008 © 2012 South-Western, Cengage Learning, Inc. All rights reserved.

Legal Issues in Compensation Fair Labor Standards Act Includes provisions for the minimum wage, overtime, and child labor HR managers must adhere to overtime laws Vesting Rights Entitle employees to guaranteed rights to receive pension benefits © 2012 South-Western, Cengage Learning, Inc. All rights reserved. 22

Evaluating Compensation Policies Organizations should provide reasonable compensation and appropriate benefits to its employees—employees should be aware of them! It is in the best interests of stockholders and other constituents of the organization that the firm manages its resources wisely. © 2012 South-Western, Cengage Learning, Inc. All rights reserved. 23