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Compensation

Compensation. All forms of financial return & tangible benefits that employees receive as part of an employment relationship; i.e., the total rewards provided employees in return for their service. Compensation.

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Compensation

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  1. Compensation All forms of financial return & tangible benefits that employees receive as part of an employment relationship; i.e., the total rewards provided employees in return for their service

  2. Compensation is divided into two parts: direct or cash compensation; and indirect or fringe compensation

  3. Inputs Refer to employee characteristics (e.g., education, experience, certifications), efforts (e.g., how long it takes to solve a problem), and performance (e.g., end product)

  4. Outcomes Refer to what employees get out of their jobs (e.g., salary, fringe benefits, promotion, feelings of accomplishments)

  5. Equity Theory People assess their performance & attitudes by comparing both their contributions & benefits they derive to others who may or may not be similar to them. If inequity is perceived, people will strive for equality by changing their inputs or outcomes.

  6. Effective Compensation Systems • Enable orgs to attract/retain qualified, competent workers • Motivate employee performance, foster feelings of equity, provide direction • Support, communicate & reinforce the culture, values & strategy of orgs • Reflect orgs’ ability to pay • Comply with government regulations

  7. Legislation Directly Affects Compensation Fair Labor Standards Act of 1938 & Equal Pay Act of 1963

  8. Compensation: Considerations • Organizational cultures & structures • Employee empowerment • Team approaches • Labor unions • Gender equity • Laws • Global workplace

  9. Structuring Cash Compensation Systems How to administer base pay programs: internal & external equity

  10. Internal Equity: Traditional Job Evaluation Methods • Ranking • Classification • Point-factor

  11. Job Classification • Use of classes/grades to describe a group of jobs (GS-1 through GS-18) • Descriptions reflect differences between groups at various difficulty levels • Specific job descriptions compared to & assigned the pre-established class/grade descriptions • Simple yet ambiguous

  12. Point-Factor Comparison Method • Numerical values assigned to specific job factors • Mental & physical requirements, skills, responsibilities, working conditions • Conducted within job family • Tailored to organization • Weighted & scored factors • Hay Plan

  13. External Equity • Market pricing • Benchmark positions • Salary surveys • Bias in the marketplace

  14. Traditional Single rates Pay grades/ranges Tenure-based Merit-based Commission Trends Broadbanding Knowledge, skill, competence-based Team plans Organizational Pay Structures

  15. Pay Equity: Comparable Worth • Pay structure strictly based on internal equity within job families • Gender wage gap • Equal Pay Act (EPA)

  16. Earnings Gap(What women of various races earn, compared with a dollar earned by a white male)

  17. Fair Labor Standards Act (FLSA) • Minimum wage • Federal • State • Overtime pay requirements • Exempt • Non-exempt • Child labor rules • Employer record-keeping

  18. Structuring Indirect Compensation Programs Fringe compensation: employee benefits

  19. Indirect Compensation: Fringe Benefits • Maintain or improve employees quality of life • Provide a level of protection & financial security for workers & their families • Attract, retain & motivate qualified, competent employees • Tax deductible; tax free • Current trends: variety & flexibility

  20. Fringe: Mandated • Social Security • Retirement • Survivor • Disability • Health benefits (Medicare) • Unemployment Insurance • Workers’ Compensation Insurance • Consolidated Omnibus Budget Reconciliation Act (COBRA) • Family & Medical Leave Act

  21. Fringe: Discretionary • Health care • Managed care • PPO • Personal responsibility clauses • Paid time off • Life insurance • Retirement • Defined benefits (pension plans) • Defined contributions (401K)

  22. Vacation Days Per Year

  23. Current Trends • Cafeteria plans • Flexible spending accounts • Educational assistance • Wellness programs • On site child care • Telecommuting • Job sharing • Paid sabbaticals

  24. Current Issues In compensation

  25. International Compensation • Host country employees v. expatriates • Laws & standards • Base salary • Foreign service premium

  26. Pay Inequity: Executive Compensation • Average Fortune 500 CEO base salary: $10.9 million • Gap: 431 to 1 (compared to factory worker) • Top 3 earners: • Richard Fairbanks, Capital One Financial: $249.3 million • Terry Semel, Yahoo!: $231 million • Henry Silverman, Cendant: $140 million

  27. CEO Pensions

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