Compensation The compensation is return on investment made

Compensation The compensation is return on investment made by a person in shape of time, energy, education, experience and creativity from the organization.

Categories of Rewards can be divided into two broad categories: 1. Intrinsic Rewards- satisfaction derived from the job itself, such as pride in one’s work, a feeling of accomplishment, or being part of a team. 2. Extrinsic Rewards- Benefits provided by the employer, usually money, promotion, or benefits.

Types of Intrinsic Rewards 1. Participation in decision making 2. Greater job freedom and discretion (authority) 3. 4. 5. 6. More responsibility More interesting work Opportunities for personal growth Diversity of activities

Types of Extrinsic Rewards Extrinsic rewards can be sub-divided into two: 1. a. b. i. ii. Financial Rewards- two sub-divisions: Performance-based Membership-based: Implied membership-based Explicit membership-based 2. Non-financial Rewards-

1. Financial Rewards A. 1. 2. 3. 4. 5. Performance-Based Rewards: Piecework Commission Incentive plans Performance bonuses Merit pay plans

B. Membership-Based Implied Rewards- 1. 2. 3. 4. cost-of-living increases Labor market adjustment Time-in-rank increases Profit sharing Explicit Rewards- 1. Protection programs 2. Pay for time not worked 3. Services and perquisites

2. Non-Financial Rewards 1. 2. 3. 4. 5. 6. 7. Preferred office furnishings Preferred lunch hours Assigned parking spaces Preferred work assignments Business cards Own secretary Impressive titles

Compensation Administration The process of managing a company’s compensation process. Bases: 1. Skills of the person 2. Responsibilities one has to accept 3. Worth of the job one is performing Above three bases provide the information for the job evaluation of an employee.

Job Evaluation Using job analysis information to systematically determine the value of each job in relation to all jobs within the organization. It means that job evaluation ranks the jobs in hierarchy that reflects in relative worth of job not of the person who is performing that job.

Methods of job Evaluation Three methods of job evaluation 1. Ordering Method- jobs are ranked according to their importance and level of difficulty. 2. Classification Method- evaluating jobs based on predetermined job grades- skills, knowledge, responsibilities- jobs may be at shop, clerical, sales etc. 3. Point Method-breaking down jobs based on identifiable criteria and the degree to which these criteria exist on the job. The job having higher degree or greater points is considered high paying job.

Establishment of Pay Structure As we complete our job evaluation by three methods of job evaluation then we move to establish pay for each and every job on the basis of points gathered for each job category. 1. Compensation Survey-used to gather factual data on pay practices among firms and companies within specific communities. 2. Wage Curves- this method is based on points system and pay according to their points scored. 3. Wage Structure- a pay scale showing ranges of pay within each grade.

Factors Affecting pay structure. 1. Geographic Differences-cost of labor is function of demand for labor in an area. 2. Labor Supply-when unemployment rates are low employers have to increase wages. 3. Competition- a. Match b. Lead c. Lag in market 4. Cost of Living- reducing purchasing power of money to pay for consumer goods. 5. Collective Bargaining- raise on demand of union 6. Communicating with Employees-how wages are determined and how employees are communicated and proper communication leaps towards achieving compensation goals.

Special Cases of Compensation 1. Incentive Compensation Plan a. Individual Incentive Plans- motivation system based on individual work performance. b. Group Incentives- motivational plan provided to a group of employees based on their collective work. c. Organization-wide Incentives-a motivation system that rewards all facility members based on how well the entire group performed.

Special Cases of Compensation 2. Paying for Performance- rewarding employees based on their job performance. a. Competency-based compensation- organizational pay system that rewards skills, knowledge, and behaviors. b. Broad-banding- paying employees at preset levels based on their level of competency. 3. Team-Based Compensation-

Special Cases of Compensation 3. Team-Based Compensation- how well the team performed. Compensation for team performance on collective basis.

Executive Compensation Programs - Stock Option Bonuses Interest-free loans Perquisites (perks) Salaries of Managers. Supplemental Financial Compensation

Top Managers Salaries 1 -Management superstars & Professional athletes - Signing bonus - Performance incentive packages - Guaranteed contracts 2 -Supplemental Financial Compensation -Base salary plus bonuses and stock option -hiring and rehiring bonuses -Stock options as future payment- is also called performance bonus.

. 3 - Supplemental Nonfinancial Compensation. Perquisites: a. Perquisites- Attractive benefits, over and above a regular salary, granted to executives, also known as perks- like- insurance premium, club membership, company automobiles, liberal accounts, special retirement packages. b. Golden parachute- A financial protection plan for executives in case they are severed from the organization.

International Compensation 1 -Base Pay- pay at home country Foreign currencies Laws of the land are considered Taxes to be paid in foreign appointment 2 - Differentials- fluctuations in cost of living according to the currency rates and inflation rates. 3 - Incentives- cost of mobility, housing, a car, chauffeur, a percent of salary paid in home country 3 - Assistance Programs- relocation, transfer cost, major appliances, legal clearance for pets, temporary expenses.