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BA 2204 and BAS 324 Human Resource Management Managing compensation

Explore the intricacies of compensation systems in HR management, from fixed vs. variable pay to job-based vs. individual pay structures. Learn about internal and external equity, performance-based vs. membership-based systems, and more.

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BA 2204 and BAS 324 Human Resource Management Managing compensation

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  1. BA 2204 and BAS 324Human Resource ManagementManaging compensation Instructor: Çağrı Topal

  2. Compensation • Package of quantifiable rewards an employeereceives for his or her labor • Base compensation • Pay incentives • Benefits

  3. Compensation systemInternal vs. external equity • Internal equity: perceived fairness of the pay structure within a firm • External equity: perceived fairness of pay relative to what other employers are paying for the same type of labor • Distributive justice (internal equity) • Labor market (external equity) • Individual equity

  4. Compensation systemFixed vs. variable pay • Fixed: pay that is fixed • No risk for employees • Variable: pay that fluctuates according to some pre-established criterion • Risk for both company and employees

  5. Compensation systemPerformance vs. membership • Performance: substantial portion of employees’ pay tied to individual or group contributions • Mostly flat organizations • Membership: same or similar wage to every employee in a given job as long as satisfactory performance achieved • Mostly hierarchical organizations

  6. Compensation systemJob vs. individual pay • Job-based: pay based on the value or contribution of a job • Limited scope for meaningful difference by an employee • Individual-based: pay based on the knowledge and skills of an employee • Large scope for meaningful difference by an employee

  7. Compensation systemElitism vs. egalitarianism • Elitist: pay system with different compensation plans by organizational level and/or employee group and incentives offered only to specific employee groups • Egalitarian: pay system with the same compensation plan for most employees and incentives offered to most employees as well

  8. Compensation systemBelow-market vs. above-market • Below-market: pay level below the going rate for a particular job in the labor market • Commonly used for lower level employees and in small/young firms • Above-market: pay level above the going rate for a particular job in the labor market • Used only for critical employee groups and in large/mature firms

  9. Compensation systemMonetary vs. nonmonetary rewards • Monetary rewards: cash or payments that can be converted into cash at some future point such as stock or pension plans • Emphasizing individual achievement and responsibility • Nonmonetary rewards: intangibles such as interesting work, challenging assignments, public recognition, flexible work hours, fitness centers, and day care services • Emphasizing organizational commitment

  10. Compensation systemOpen vs. secret pay • Open pay: pay information open to all employees • Secret pay: pay information known only to the employee concerned and to those responsible for administering the compensation system

  11. Compensation systemCentralization vs. decentralization • Centralized pay: pay decisions tightly controlled in a central location, normally in the HR department at corporate headquarters • Decentralized pay: pay decisions delegated throughout the firm, normally to unit managers at different locations and serving different markets

  12. Compensation tools or plansJob-based plans-1 • Dominant approach • Not all jobs are equally important to a firm • The most important jobs pay the most • Internal equity • External equity • Individual equity • Rational, objective, and systematic • Easy and economical to set up and administer

  13. Compensation tools or plansJob-based plans-2 • Not specific • More or less subjective and arbitrary • Less applicable to higher organizational levels • Less applicable to service jobs • Mechanistic and inflexible • Biased against so-called woman occupations • Based on employers’ not employees’ views • Not much applicable to freelancers

  14. Compensation tools or plansSkill-based plans-1 • Less common approach • Workers should be paid by how flexible or capable they are at performing multiple tasks • The greater the variety of job-related skills workers possess, the more they get paid • Depth skills • Horizontalor breadth skills • Vertical skills

  15. Compensation tools or plansSkill-based plans-2 • Creating more flexible workforce • Promoting cross-training and substitutability • Necessitating fewer supervisors • Increasing employees’ control over their compensation • Higher compensation and training costs • Lossof skills • Limited opportunity for pay raise • Difficulty in determiningskill value • Additional bureaucracy and inflexibility

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