COMPENSATION AND REWARDS

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COMPENSATION AND REWARDS
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Compensation

• Is what employees receive in exchange for their
  contribution to the organization.
• When managed correctly, it helps the organization
  achieve its objectives and obtain, maintain, and
  retain a productive workforce.

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Compensation (Contd)

• Without adequate compensation, current employees
  are likely to leave and replacements will be
  difficult to recruit.
• The outcomes of pay dissatisfaction harm
  productivity and affect the quality of work life.

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Forms of compensation

• Direct Financial Compensation
• pay received in forms of wages, salaries,
  bonuses and commissions.
• Indirect Financial Compensation(benefits)
• All financial rewards not included in direct
  compensation. For examples workers compensation,
  Family medical leave, Disability Protection,

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Forms Of Compensation (Contd)

• Nonfinancial Compensation
• - Satisfaction person receives from psychological
  or physical environment in which person works.
  For examples, skills variety, experiences, good
  working conditions, flextime

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Objectives in compensation management

• To help the organization achieve strategic
  success while ensuring internal and external
  equity.
• Internal equity- ensures that more demanding
  positions or better qualified people within the
  organization are paid more.
• External equity - assures that jobs are fairly
  compensated in comparison with similar jobs in
  other firms.

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Objectives in compensation management (Contd)

• Acquire qualified personnel
• Retain current employees
• Ensure equity
• Reward desired behaviour
• Control costs
• Facilitate understanding

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Acquire qualified personnel

• Compensation needs to be high enough to attract
  applicants. Pay levels must respond to the supply
  and demand of workers in the labour market since
  employers compete for workers. Premium wages are
  sometimes needed to attract applicants already
  working for others.

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Retain current employees

• Employees may quit when compensation levels are
  not competitive, resulting in higher turnover.

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Ensure equity

• Compensation management strives(berjuang) for
  internal and external equity. Internal equity
  requires that pay be related to the relative
  worth of a job so that similar jobs get similar
  pay. External equity means paying workers what
  comparable workers are paid by other firms in the
  labor market.

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Reward desired behaviour

• Pay should reinforce desired behaviours and act
  as an incentive for those behaviours to occur in
  the future.
• Effective compensation plans reward performance,
  loyalty, experience, responsibility, and other
  behaviours.

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Control costs

• A rational compensation system helps the
  organization obtain and retain workers at a
  reasonable cost.
• Without effective compensation management,
  workers could be overpaid or underpaid.
• Comply with legal regulations.
• A wage and salary system considers the legal
  challenges imposed by the government and ensures
  the employer's compliance.

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Facilitate understanding

• The compensation management system should be
  easily understood by human resource specialists,
  operating managers, and employees.

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Organization As A Determinant Of Direct Financial
Compensation
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• It is based on
• Compensation policies
• Organizational level
• Ability to pay

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Compensation policies

• Pay leaders- pay higher wages salaries
• Pay based on market rate- pay what most employers
  pay for same job
• Pay followers- pay below market rate because poor
  financial condition or believe do not require
  highly capable employees

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Organizational level

• Upper management often makes decisions to ensure
  consistency
• Having problems when pressure to retain top
  performers may override desire to maintain
  consistency in pay structure

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Ability to pay

• Organizations assessment of ability to pay is
  important factor in determining pay levels.

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Labor Market As Determinant Of Direct Financial
Compensation
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Employee will be pay based on labor market
conditions

• It includes
• Compensation surveys- what are other firms
  paying?, geographic area of survey
• Cost of living- when prices rise over a period of
  time
• Labor Unions- mandatory collective bargaining
  management unions as wages, hours other terms
  and conditions of employment, cost of living
  (COLA) allowance has been disappearing

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Employee will be pay based on labor market
conditions (Contd)

• The economy- cost of living often rises as
  economy expands.
• Compensation legislation- states in wages council
  Act 1947, government has generally resisted any
  suggestions for a minimum wage applicable
  throughout industry and region.

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Job as determinant of direct financial
Compensation
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• Job itself continues to be factor.
• Organizations pay for value they attach to
  certain duties, responsibilities, and other job
  related factors as working conditions.
• E.g, professional positions different level of
  salary

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Employee as determinant of direct Financial
Compensation
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Employees may demands for their salaries based on

• Performance
• Competencies
• Skills
• Experiences
• Seniority