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Fall 2021 Compensation Chap 1-2 2
Fall 2021 Compensation Chap 1-2 2
Martocchio
Independent Learning/Discussion:
Support: HR planning, job analysis and job design, legal compliance and employee
and labour relations. Legal compliance in seen by some as a core HR activity but in
most texts, it is seen as a support function.
Independent Learning/Discussion:
Do you know the differences between personnel management and human resource
management? Find out 3-5 differences.
The roles of HR departments have changed, and they are still evolving. HR
professionals now focus on the impact HR has on organizational performance by
using people analytics and metrics. Researchers also investigate the HR-Performance
relationship.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Independent Learning/Discussion:
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
HR practices are interconnected and should be internally consistent (i.e., all that is
done in an HR department should support each other). Compensation is related to
all HRM practices. Read the details in chapter 1 on pages 16-18:
What is compensation?
Both the intrinsic and extrinsic rewards employees receive for performing their jobs.
The intrinsic rewards reflect the psychological mind-sets of employees and the
extrinsic rewards are those that come from outside. They are tangible and visible to
the employee and others. Both types of rewards motivate employees to behave in
certain ways. A company’s total compensation includes both intrinsic and extrinsic
rewards. See figure 1-1 on page 4. See the differences between extrinsic and intrinsic
motivation in the following table.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Monetary rewards are also called core compensation. These include the legally
required wages and salaries that employees get. Non-monetary rewards, also
referred to as employee benefits and are legally required too. Employees get these
on top of their wages and basic salaries. Organizations also offer rewards on a
discretionary basis; the employer chooses to give these rewards. These are not
required by the law. They are called discretionary benefits or fringe benefits, perks
(short for perquisites), privileges and voluntary benefits.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
There are seven types of core compensation. The first two types are base-pay and
include hourly wages and monthly salaries. The other five types come under ‘pay-
adjustments’ and include cost of living adjustments, seniority pay, merit pay,
incentive pay and skill-based pay.
Wages
Base pay
Salaries
Core compensation
(Monetary rewards)
Cost of living
adjustments
Seniority pay
Pay adjustments
Merit pay
Incentive/variable pay
Person-focused pay
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Base pay is given for performing a job. This type of pay continues if the person is in
their position. Companies decide on base pay by evaluating the worth of jobs. They
identify factors in each job that they decide to pay people for. These are called
compensable factors like skills, effort, working conditions etc.
The other five types of core compensation besides wages and salaries are:
a. Cost-of-living adjustments
b. Seniority pay
c. Merit pay
d. Incentive pay or variable pay
e. Person-focused pay
See table 1-1 on page 5 of chapter 1 and read details on pages 5, 6 and 9.
These include a variety of programs and plans that promote safety, good health and
ensure a good standard of living for employees. Some of these are legally required
(legally required benefits) while others are voluntarily given by organizations
(discretionary benefits). Different forces in history led to the rise to both types of
benefits.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Independent Learning/Discussion:
a. Search for the legally required benefits in Oman? Ask an HR/ Compensation manager
and consult the Labour Law.
b. Think why organizations offer discretionary benefits too? Give some examples of these
benefits.
c. What kind of benefits would you love to get in your first job? Why these not others?
d. Let us say you have a business, what kind of benefits will you have to offer your
employees in Oman? Also, will you offer any discretionary benefits? Why?
Businesses make strategic and tactical decisions. Strategic decisions are for 2 years
or more. They result from environmental scanning and analyses. Managers interpret
the environmental opportunities and threats differently and based on their analyses
and understanding, they make choices on what products/services to produce for
which markets and how to compete.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Tactical decisions are short-term, and they are made in different functional areas to
support the strategic decisions.
The company's
competitive
strategy
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
HR departments support competitive strategies by hiring the right people at the right
time, developing them in the needed areas, motivating them to perform the desired
behaviours at the required levels, rewarding them and retaining them.
Independent Learning/Discussion:
1. Internal consistency
i. Analyse jobs and evaluate them to develop a job structure and a pay
structure. Ensure that employees in jobs that require greater
qualifications, more responsibilities and more complex job duties are
paid more than employees whose jobs require lesser qualifications,
fewer responsibilities, and less complex job duties. This should be
consistently applied on all positions within the company.
2. Market competitiveness
i. After doing a strategic analysis (external and internal context) and
after studying the salaries offered by others through compensation
surveys, identify how much you can afford to pay and strive to pay at
the market rate.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
As mentioned in Chapter 1 summary and your book, there are three main factors that
influence compensation in organizations:
I. Laws
II. Market forces
III. Labour unions
We also added ‘organizational goals and other characteristics’ as a fourth factor. This
includes nature of jobs, cost-control, and geographical location among other factors.
• Employment laws reflect a reality – employers are more powerful than employees in
the employment relationship.
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
• Legal protections given to employees seek to make the power relationship between
employers and employees fair and equitable
• Employers aim to maximise profits. Laws exist to ensure that while employers focus
on achieving profits, they also pay people in an equitable and fair manner
• In Oman, the Basic Statute of the State (The White Book), the Omani Labour Law and
the Civil Service Law cover compensation-related laws.
Independent Learning/Discussion:
What is the difference between the Labour Law and the Civil Service Law? Which law do
government businesses and private companies follow?
o Minimum wage
o Working hours and overtime-pay
o Legally required benefits
o Pension
o Compensation because of injuries on the job
o Penalties
Independent Learning/Discussion:
a. Download a copy of the Omani labour law from the Internet and look for answers to the
following questions:
b. Identify all the compensation-related laws and put them in a table or list like Table 1-3 on
page 18 of your textbook.
c. What is the minimum wage in Oman? When was the first minimum wage announced in
Oman?
d. What are the legal working hours in Oman?
e. What is overtime pay in Oman?
f. What are the legally required benefits in Oman?
g. What is end-of-service gratuity?
h. What is a pension? Who deserves to get a pension?
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
Discussion/Debate:
a. What do you think would have happened if Oman didn’t have a minimum wage/salary for
Omani nationals? Do we need a minimum wage?
b. Do you think having a minimum wage/salary for expatriates will help increase the number of
Omanis hired? Break your team into two and debate on this issue.
II Market Forces
• Labour market demands – the minimum pay that job seekers accept influence how
much companies pay
• Product markets – their selling price per unit (which is determined by their total
production cost per unit which includes labour cost) indirectly puts pressure on
businesses on how much to pay their workers. The more they pay, the higher the
production cost will be and the higher the selling price. If they charge a higher price,
they are less likely to be able to compete with substitute products effectively and
efficiently unless if they are following a differentiation strategy.
• War for talents - Companies compete for best talents by offering better
compensation packages to the people they need.
• But some companies can’t afford to pay above the market rates or more benefits
and this leads to ‘compensation differentials’ across companies and industries.
Independent Learning:
Can you think of companies or industries that pay more than others in Oman? What do you believe
enables them to pay relatively higher salaries?
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
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Strategic Compensation: A Human Resource Management Approach, Seventh Edition, 2013 by Joseph J. Martocchio
When a trade union engages in collective bargaining, it has talks with an employer about its
members’ pay and working conditions.
(https://www.collinsdictionary.com/dictionary/english/collective-
bargaining)
• A spill-over effect: What unions manage to change in companies influence how other
companies compensate their employees
A spill-over is a situation or feeling that starts in one place but then begins to happen or have an
effect somewhere else.
(https://www.collinsdictionary.com/dictionary/english/spillover)
• Many employees today don’t feel the need to belong to unions because companies
are getting better at managing ‘Employee Relations’. Other reasons are legal
protections for employees, the spread of administrative courts and increase in
numbers of lawyers.
Employee Relations – the HR function that looks after the employee-employer relationship and
covers all aspects of working including compensation, working conditions and resolving workplace
conflicts. The function ensures that relations with employees comply with the local laws and
regulations.
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