Session 7

Compensation, Benefits and Motivation

Human Resource Management 17 thedition, Dessler, Gary 2023

Contemporary Human Resource Management 6 th edition, Wilkinson, Adrian and Dundon, Tony
2021
Programme Coordinator Dr. Dorra Yahiaoui & Dr. Ghulam Murtaza Guidance Materials
 Introduction
• Employee perform their job responsibilities and in return they look for a
payoff or reward.
• The most obvious reward is pay, but there are many others, including:
• Promotions
• Desirable work assignments
• Peer recognition
• Work freedom
Rewards
 Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Intrinsic rewards (personal satisfactions) come from the job itself, such
as:
• pride in one’s work
• feelings of accomplishment
• being part of a work team
 Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Extrinsic rewards come from some source i.e., Financial or Nonfinancial
• include rewards offered mainly by management
• Money
• Promotions
• Benefits
 Types of Reward Plans
Financial Versus Nonfinancial Rewards
• Financial rewards include:
• wages
• bonuses
• profit sharing
• pension plans
• paid leaves
• purchase discounts
• Nonfinancial rewards emphasize making life on the job more attractive; employees
vary greatly on what types of rewards they find desirable / prefer.
 Types of Reward Plans
Performance-based versus Membership-Based Rewards
• Performance-based rewards are tied to specific job performance criteria.
• Commissions
• Incentive systems
• Performance bonuses
• Merit pay plans
• Membership-based rewards such as Monthly living budget increases,
Labor market adjustment, time in rank increase, Protection programs and
pay for the time not worked to employees.
 Difference between Compensation and
Benefits
• Compensation refers to pay or the exchange in monetary terms of the
work performed by the employees and is paid by the employer. This can
be in the form of wages, salary, or tips.
• Benefits refer to the exchange in value to the employees as part of their
packages for the work that has been performed. In other words, benefits
do not involve money but are presented in the form of value.
 Compensation Administration
• The process of managing a compensation program so that the organization
can attract, motivate and retain competent employees who perceive that
the program is fair.
 Compensation Administration
Job evaluation
• The process used to determine each job’s appropriate worth within
the organization.
• Based on job analysis information.
 Compensation Administration
Government Influence on Compensation Administration
Fair Labor Standards Act 1938 act which requires
• minimum wage
• overtime pay
• record-keeping
• child labor restrictions
 Compensation Administration
Government Influence on Compensation Administration
Equal Pay Act of 1963 act requires that men and women hired for the same
job, should be paid the same.
Civil Rights Act
• broader than Equal Pay Act
• prohibits discrimination on the basis of gender
• Salaries should be established on the basis of skill, responsibility, effort, and
working conditions.
 Job Evaluation and Pay Structure
Job Evaluation
• Use of job analysis information to determine the relative value of each job
in relation to all jobs within the organization.
• The ranking of jobs
• Labor market conditions
• Collective bargaining
• Individual skill differences
 Job Evaluation and Pay Structure
Isolating Job Evaluation Criteria
• Judgment is involved in defining what factors should be used to compare jobs.
• Typical criteria:
• mental requirements
• supervisory control
• complexity
• physical demands
• personal contacts
• Jobs are grouped according to type and compared within their group. For example, Clerical Jobs,
Sales Job and Professional jobs.
 Job Evaluation and Pay Structure
Job Evaluation Methods
Ordering Method A committee places jobs in a simple rank order from highest
(worth highest pay) to lowest.
Classification method Evaluating jobs based on predetermined job grades
• Jobs are placed in classification grades
• Look for a common denominator such as skills, knowledge, or responsibility to create
distinct classes or grades of jobs. Examples may include shop jobs, clerical jobs, technical
jobs and sale jobs.
• Chemical engineer in Engineering Department and Accountant in Finance Department are
considered in Grade 7.
 Job Evaluation and Pay Structure
Job Evaluation Methods
Point method
• Jobs are rated and then allocating points on several identifiable criteria (such as
skills, effort and responsibilities)
• Appropriate weights are given, depending on the importance of each criterion to
performing the job, points are summed, and jobs with similar point totals are placed
in similar pay grades.
 Job Evaluation and Pay Structure
Establishing the Pay Structure
Compensation surveys
• Used to gather factual data on pay rates from other organizations
• Information is often collected on employee benefits as well
Wage curves
• Drawn by plotting job evaluation data (such as job points or grades) against pay rates
(actual or from survey data).
• Indicate whether the pay structure is logical
 Job Evaluation and Pay Structure
Establishing the Pay Structure
Wage structure
• Designates pay ranges for groups of jobs which are
• similar in value to the organization
• grouped by their classifications, grades or points.
• Results in a logical hierarchy of wages
 Special Cases of Compensation
Incentive Compensation Plans
• Incentives can be added to the basic pay structure to provide rewards for
performance.
• Clear objectives are set.
 Individual Incentives include
• Merit pay plans (annual increase, based on performance)
• Piecework plans (pay based on number of units produced typically in a specified
time period.)
• Time-savings bonuses and commissions
 Special Cases of Compensation
Incentive Compensation Plans
 Group Incentives
• Incentives can be offered to groups, rather than individuals, when employees' tasks require
cooperation.
 Organization wide Incentives:
• Direct employee efforts toward achieving overall organizational goals (such as cost reduction).
One of best-known organization wide incentives are
 Scanlon Plan - supervisor and employee make a mutual committee and suggest savings /
improvements and then productivity gains are shared by all employees and not just the individual
who suggested the cost saving.
 IMPROSHARE - formula is used to determine bonuses based on each Individual contribution in
cost savings for organization. Specific employee get his/her share.
 Special Cases of Compensation
Paying for Performance
• Pay is based on some measure of performance.
• Common performance measures are:
• piece-rate plans
• gainsharing
• wage incentive plans
• profit sharing
• lump sum bonuses.
 Special Cases of Compensation
Paying for Performance
Competency-based compensation Rewarded employees for skills,
knowledge and behaviors. These behaviors and skills may include
• leadership
• problem solving
• decision making
• strategic planning .
 Special Cases of Compensation
Team-Based Compensation
• Pay based on how well the team performed.
It Depends on:
• Clarity of team purpose and goals
• Resources available to team to fulfill their specific goals.
• Trust among all team members is very important.
 Executives Compensation Programs
Salaries of Top Managers
• Executive salaries, bonuses and stock options may seem high.
• Competition for executive talent raises the price of hiring an executive.
• High salaries can be a motivator for executives and lower-level managers.
 Executives Compensation Programs
Supplemental Financial Compensation
• Deferred bonuses – paid to executives over extended time periods, to encourage
them to stay with the company.
• Stock options – allow executives to purchase stock in the future at a fixed price.
• Hiring bonuses – compensate new executive because of leaving a former company /
loss of pension rights.
 Executives Compensation Programs
Supplemental Nonfinancial Compensation: Perquisites
Perquisites also known as Perks (offered to executives) may include:
• Paid life insurance
• Club memberships
• Company cars
• Expense accounts
• Interest-free loans
• Legal and tax counseling
• Mortgage assistance
 Executives Compensation Programs
Supplemental Nonfinancial Compensation: Perquisites
• Golden parachutes protect executives when a merger or hostile
takeover occurs by providing severance pay or a guaranteed position.
 International Compensation
• Important to understand the statutory requirements of each country.
• International compensation packages generally utilize the “balance-sheet
approach,” using the four factors below:
• Base Pay
• Differentials
• Incentives
• Assistance Programs
 International Compensation
• Base Pay: The pay of employees in comparable jobs at home.
• Differentials: Compensation given to offset higher costs of living abroad.
• Incentives: Inducements given to encourage employees to accept
overseas assignments.
• Assistance Programs: Payment for expenses involved in moving a family
abroad and in providing some services overseas.
 Employee Benefits
• Have grown in importance and variety
• Typically, membership-based rewards offered to attract and keep
employees
• Do not directly affect a worker’s performance, but inadequate benefits
lead to employee dissatisfaction.
 Legally Required Benefits
• Social Security
• Unemployment Compensation
• Workers’ Compensation (Losses from work-related incidents)
• Family and Medical Leave
 Retirements Benefits
• Pension Benefits (Can be Based on Years of Service)
• Individual Retirement Accounts (for lower-income workers who don’t
have pension programs at work).
• 401(k)s (Permit workers to set aside a specified amount of income on a
tax-deferred basis).
 Paid Time Off
• Vacation and Holiday Leave
• Disability Insurance programs
 Thanks
Any Questions!!