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2. 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.

3. 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
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4. 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.

5. Factors Affecting the Wage Mix
FIGURE 9.3
Factors Affecting the Wage Mix
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6. 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.
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7. 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.
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8. 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.
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9. 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
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10. 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.