© 2010 South-Western, a part of Cengage Learning All rights reserved.

Compensation Pay is a statement of an employee’s worth by an employer. Pay is a perception of worth by an employee. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Total Compensation Direct Indirect Time Not Worked Wages / Salaries Vacations Breaks Holidays Commissions Insurance Plans Medical Dental Life Bonuses Gainsharing Security Plans Pensions Employee Services Educational assistance Recreational programs © 2010 South-Western, a part of Cengage Learning. All rights reserved. 6

The Bases for Compensation Hourly Work Work paid on an hourly basis. Piecework Work paid according to the number of units produced. Salary Workers Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Factors Affecting the Wage Mix FIGURE 9.3 Factors Affecting the Wage Mix © 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Wage Mix—Internal Factors Employer’s Compensation Strategy Establishes the internal wage relationship among jobs and skill levels Sets organization compensation policy to lead, lag, or match competitors’ pay. Rewards employee performance Guides administrative decisions concerning elements of the pay system such as overtime premiums, payment periods, and short-term or long-term incentives. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Wage Mix—Internal Factors (cont’d) Worth of a Job Job’s value should be based on the total value delivered to he organisation. Employee’s Relative Worth Rewarding individual employee performance Employer’s Ability-to-Pay Having the resources and profits to pay employees. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Wage Mix—External Factors Labor Market Conditions Availability and quality of potential employees is affected by economic conditions, government regulations and policies, and the presence of unions. Area Wage Rates A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Wage Mix—External Factors Cost of Living Local housing and environmental conditions can cause wide variations in the cost of living for employees. Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power. Consumer Price Index (CPI) A Bureau of Labor Statistics measure of the average change in prices over time in a fixed “market basket” of goods and services © 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Wage Mix—External Factors Collective Bargaining Unions bargain for real wage increases that raise the standard of living for their members. Real wages are wages that increase larger than rises in the consumer price index; that is, the real earning power of wages. © 2010 South-Western, a part of Cengage Learning. All rights reserved.