Chapter One: Compensation: A Component of Human Resource Systems

Chapter One
Compensation: A Component of
Human Resource Systems
What Influences Pay?

Chris Smith and Pat
Jones are both
computer programmers.
Chris earns $45,000,
while Pat earns
$35,000.
What could cause this
difference?
Equity Policies
Internal
Consistency
External
Competitiveness
Employee
Contributions
Administration
Compensation
Departments Main Goals
Internal equity --Internal consistency

Relative value of each job among all jobs within a company
Value of the job, regardless of the person in the job
Jobs that require greater qualifications, more responsibilities, and
more-complex job duties should receive higher pay than other jobs.
Done through job analysis and job evaluation
External equityMarket-competitiveness
Jobs within a company are paid similarly to same jobs outside
Companies pay policies fit with business objectives
Done through strategic analysis and salary surveys
Individual equity--Recognizing individual contributions

Pay people differently within jobs according to job performance.
Done through pay grades and ranges
Compensation Techniques
INTERNAL:
Job Analysis, Job Descriptions, Job Evaluation,
Internal Work Structure
EXTERNAL:
Market definitions, Market surveys,
Policy lines, Pay structures
INDIVIDUAL:
Seniority based, Performance based,
Incentive guidelines, Incentive programs
ADMINISTRATION:
Planning,Budgeting,Communicating, Evaluating
What is Compensation?
Intrinsic compensation
Reflects employees psychological mind sets that
result from performing their jobs.
Through effective job design
Extrinsic compensation
Rewards given you by others
Includes both monetary and non-monetary (e.g.,
benefits) rewards.
Through compensation systems
The Influence of Core Job Characteristics on

Intrinsic Compensation and Subsequent
Benefits to Employers
Core Job
Characteristics
Skill variety
Task identity
Task significance
Autonomy
Feedback
Critical Psychological
State
Experienced
meaningfulness of
the work
Experienced
responsibility for
work outcomes
Gained knowledge
of results from
work activities
Benefit to
Employers
Lower turnover
Lower
absenteeism
Enhanced job
performance
Greater job
satisfaction
Exhibit 1-3
Elements of Core
Compensation
Base Pay (recurring)

Hourly pay/wage
Annual salary
How Base Pay is Adjusted Over Time
Cost-of-living adjustments (COLAs)
Seniority pay
Merit pay
Incentive pay or variable pay
Pay-for-knowledge and skill-based pay
Exhibit 1-4
Elements of Fringe
Compensation (1 of 3)
Social Security Act of 1935
Unemployment insurance
Retirement insurance
Benefits for dependents
Disability benefits
Medicare
State compulsory disability laws

Workers Compensation
Family and Medical Leave Act of 1993 (12

weeks of annual unpaid leave)
Exhibit 1-4
Elements of Fringe
Discretionary Benefits
Protection Programs
Income protection programs
Health protection programs
Pay for time-not-worked
Holidays
Vacation
Sick leave
Personal leave
Jury duty
Funeral leave
Military leave
Cleanup, preparation, travel time
Exhibit 1-4
Elements of Fringe
Discretionary Benefits (cont.)

Services
Employee assistance programs (EAPs)

Family assistance programs
Tuition reimbursement
Transportation services
Outplacement assistance
Wellness programs
Strategic vs. Tactical

Decisions
Strategic decisions guide activities in the market

Tactical decisions support the fulfillment of strategic decision
Strategic
Decisions
General Tactical Specific Tactical

HR Decisions
HR Decisions
(Compensation)
Competitive
strategy
HR strategy
Compensation
strategy
Recruitment and
Selection
Performance
appraisal
Compensation
Training
Seniority pay
Merit pay
Incentive pay
Benefit options
Etc.
Competitive Strategy
Planned use of resources to promote & sustain competitive

advantage
Lowest-cost strategy
Efficient-scale, cost minimization
Southwest Airlines, Wal-Mart
Employee roles: repetitive, predictable behaviors, short-term focus,
individual activity, concern for quantity, primary concern for results.
Differentiation Strategy
Unique products: design image, technology, etc

Build brand loyalty, price premium, invest in R&D
Iams company, Saks Fifth Avenue
Employee roles: creative behavior, long-term focus, cooperative and
interdependent behavior, risk taking, openness to novel work.
Compensation and
Recruitment, Selection
$ to get top candidates,

signing bonus, benefits
Career Development
Promotions, lateral
moves
Employee Termination
Severance pay, pension,
early retirement
Training
Pay for knowledge
Collective bargaining
agreements, pay, COLAs,
incentives
Performance Appraisal
Basis for merit pay and
incentives
Labor-Management
Relations
Legislation
Income and continuity,
safety, work hours, pay
discrimination, disabilities
and family needs
Stakeholders of the
Compensation System
Employees
Line managers
Executives
Unions
U.S. government

Chapter One: Compensation: A Component of Human Resource Systems

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Chapter One: Compensation: A Component of Human Resource Systems

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Chapter One

What Influences Pay?

Internal equity --Internal consistency

Individual equity--Recognizing individual contributions

The Influence of Core Job Characteristics on

Base Pay (recurring)

Social Security Act of 1935

State compulsory disability laws

Family and Medical Leave Act of 1993 (12

Pay for time-not-worked

Discretionary Benefits (cont.)

Employee assistance programs (EAPs)

Strategic vs. Tactical

Strategic decisions guide activities in the market

General Tactical Specific Tactical

Planned use of resources to promote & sustain competitive

Unique products: design image, technology, etc

$ to get top candidates,

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