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Chapter 9

Compensationand Benefits

Prepared by Joseph Mosca

Monmouth University

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Learning Objectives

1. Describe the basic issues involved in developing a compensation strategy.

2. Discuss how organizations develop a wage and salary structure.

3. Identify and describe the basis issues involved in wage and salary administration.

4. Discuss the basic considerations in understanding benefit programs.

5. Identify and describe mandated benefits.

6. Identify and describe non-mandated benefits.

7. Discuss contemporary issues in compensation and benefits.

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How Would You Define Benefits?

RewardsIncentivesThings of value

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Pay Surveys

Pay Surveys are surveys of compensation paid to employees by other employers in a particular geographic area, industry, or occupational group.

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Wages Versus Salaries

Wages generally refer to hourly compensation paid to operating employees. The basis for wages is time.

Salary is income paid to an individual on the basis of time.

A maturity curve is a schedule specifying the amount of annual increases a person will receive.

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Determining What to Pay

Job evaluation is a method for determining the relative value or worth of a job to the organization so that individuals who perform that job can be compensated adequately and appropriately.

Classification system attempts to group sets of jobs together into clusters, which are often called grades.

The point system requires managers to qualify, in objective terms, the value of the various elements of specific jobs.

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Pay-for-Knowledge and Skill-Based Pay

Pay-for-knowledge involves compensating employees for learning specific information.

Skill-based pay rewards employees for acquiring new skills.

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Wage and Salary Administration

Wage and salary administration is the ongoing process of managing a wage and salary structure.

All managers must be sensitive to these costs and must be vigilant about managing them properly.

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Pay Secrecy

Pay secrecy refers to the extent to which the compensation of any individual in an organization is secret or the extent to which it is formally made available to other individuals.

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Pay Compression and Pay Inversion

Pay compression occurs when individuals with substantially different levels of experience and/or performance abilities are being paid wages or salaries that are relatively equal.

Pay inversion occurs when the external market changes so rapidly that the new employees are actually paid more than experienced employees.

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Mandated Benefits

Unemployment Insurance is a mandated protection plan that provides a basic substance payment to employees who are between jobs.

Social Security provides limited income to retired individuals.

Workers’ Compensation is insurance that covers individuals who suffer a job-related illness or accident.

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Non-mandated Benefits

Private Pension Plans are administered by the organization and provide income to the employees at their retirement.

Defined benefit plans: a private pension plan where the benefit is precisely known based on a simple formula such as years of service.Defined contribution plans: a private pension plan in which the size of the benefit depends on how much money is contributed to the plan.

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Additional Benefits

Wellness programs concentrate on keeping employees from becoming sick rather than simply paying expenses when they do become ill.

Child care programs assist parents with child care expenses.

Cafeteria-style benefits allow employees to choose the benefits they really want.

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Executive Compensation

Most senior executives receive their compensation in 2 forms:

1. base salary

2. a form of incentive pay (usually a bonus which is based on company performance)

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Legal Issues in Compensation

The Fair Labor Standards Act includes provisions for the minimum wage, overtime, and child labor.

HR managers must adhere to overtime laws.