L i Objectives

Learning Obj ti
y Differentiate between “wages”
wages and “salaries”
salaries
y Objectives of compensation
y Describe the factors of compensation estimates
y Identify and correctly describe the compensation
structure
y Issues in wage determination and administration
y Incentive compensation
Definition of Concept
Wages Salary
- The payment, usually - Is usually paid for
of money for labor or services requiring
services special training or
- The money usually abilities,
biliti ini fixed
fi d
paid on hourly, daily or amount, and for a
piece rate basis for longer period of time,
time
chiefly physical work especially by month
Definition of Concept
Wage and salary administration

- is simply creation of a system

of orderly payments that is
equitable to both the
employee and the employer
and motivates employees to
exert an acceptable effort in
the performance of their job
Purpose of remuneration
y Obtaining sufficient trained personnel
y Retaining the recruited personnel
y To keep expenditure at a reasonable level
y Incentives to allow personnel to aspire to
promotion
i and d to accept promotion
i
y Encouraging personnel to be more productive
y Ensuring
E i g th
thatt workk is
i purposeful
f l
y Ensuring equality of remuneration
y Giving effect to policy decision
Determination of Individual Pay
Should we pay all
employees doing the If not, on what basis
How should one employee should distinctions be
be paid relative to another same work at the same
level the same? made? Seniority, merit,
when they both hold the or some other basis?
same job in the
organization?
Variants of people-based pay:
Skill-Based Knowledge-
Pay Based Pay

People-Based
Pay

Credential- Competency-
Based Pay
y Based Pay
y

Feedback
Pay
 people-based
Variants of people based pay:
Skill-Based Pay Knowledge-based Credential-based Feedback Pay Competency-
Pay Pay Based Pay

¾Skill-based pay sets ¾Knowledge-based pay ¾Credential-based pay ¾Feedback pay is based ¾An employee is paid for
pay levels on the basis rewards employees for rests on the fact that an on: the following
of: acquiring additional individual must have: ‰Aligning pay with
knowledge strategic business ‰range, depth and
‰Applies to both the
‰How many skills ‰A diploma or license,
license objectives types of skills and
current and new job
employees have, or or ‰Establishing a direct knowledge he/she is
‰Stretches the skill-based
‰How many jobs they model to professionals, ‰Pass one or more connection between the capable of using in the
can do managers, and some examinations from jobholder and his/her job rather than for the
technical personnel a third-party professional part in accomplishing position they hold.
¾Expected positive or regulatory goals
outcomes include: ¾A study compared two agency ¾The "new pay"
manufacturing plants ¾This design must approach to
‰Increased quality ‰One used the job- conform to four compensation attempts
¾Credential-based pay
‰Higher productivity centered pay design; the principles: to address
is more cut-and-dried
‰A more flexible other a knowledge-based ‰Flows directly from organizational needs to
design than skill-based or
workforce
kf knowledge-based pay strategic
t t gi business
b i ggoals
l motivate
ti t employees
l andd
‰After 10 months, the
‰Improved morale ‰Directly links support organizational
pay-for-knowledge facility
‰Decreased had higher quality, lower employees' actions to strategies.
absenteeism and absenteeism, fewer these goals
turnover accidents ‰Provides sufficient
‰The traditional plant had opportunity for rewards
higher productivity to hold employees'
attention
‰Is timely
M th d off Payment
Methods P t
The time they work

The output they produce

Skills

Knowledge

Competencies

A combination of these factors

Factors in Compensation Estimate

y Value added Factor y Hierarchy of Jobs

y Ability-to-Pay Factor y Non-Wage Benefit factor
y Government Wage Policy y Seniority factor
y Union Pressure y Hazard factor
y Cost of living Factor y Scarcity Factor
Issues in wage determination
y Attracting Quality Workers
y Retaining Quality Workers
y Giving Skill Based Pay
y Value of seniority
y Rate Differentiation
y Criteria for wage variation
y Pay
ay Progression
og ess o period
pe od
y Highly Paid Operative’s
Promotion to Supervisory
Position
Types of Incentive Pays

y Productivity Pay y Distant Assignment

y Cost Saving Incentive Incentive Pay
y Innovation Incentive Pay y Social sacrifice
y Overtime Rates ti
compensation
y Hazard Pay y Scarce Skill Incentive Pay
y Commissions
y Bonus
I ti compensation
Incentive ti
Issues in Compensation Administration
y Managers must make policy decisions that involve the
extent to which:
y Compensation
C will be secret
y Compensation will be secure
y Pay is compressed
P S
Pay Secrecy or O
Openness
y There are degrees of pay secretiveness and openness
y In many organizations,
organizations pay ranges and individual pay are open to the
public and fellow employees (open system)
y With the secret system, pay is known only to the employee, her/his
superior and HRM/payroll
superior,
y In some organizations, employees cannot discuss pay matters and,
specifically, their own pay
y Opening
p g up
p a system
y has costs and benefits
y To reduce the manipulative aura surrounding pay, a company must
share pay information with employees
y As firms post job openings, information on pay becomes a critical
decision
y When deciding on secrecy or openness:
y Determine what employees want to know about pay
y Decide
D id if theh information
i f i will
ill h
harm or h
help
l the
h fi
firm
y Weigh performance, interdependence, and causal relationships
Pay Security
y Current compensation can motivate performance
y So can the belief that there will be future compensation security

y Plans for providing this security include:

y A guaranteed annual wage
y Supplementary unemployment benefits
y Cost of living allowances (COLAs)
y Severance pay
y Seniority rules
y Employment contracts
 Pay Compression
y Occurs when employees perceive too y Solutions for pay compression include:
narrow a difference between their pay and y Reexamining
R i i how
h many entry-level
t l l
that of colleagues people are needed
y There is a narrowing gap between y Reassessing recruitment
senior and jjunior employees
p y and y Emphasizing performance instead of
between supervisors and subordinates salary-grade assignment
y Differentials of 10 percent or less are
y Basing all salaries on longevity
not unusual
y Giving first
first-line
line supervisors and other
y Junior employees are sometimes
managers the authority to
brought in at salaries greater than recommend equity adjustments
those of their superiors
y Limiting the number of new hires
y The
Th resulting
lti g llow morale
l can llead
d tto with excessive salaries
decreasing productivity, higher
absenteeism, and turnover
y To identify pay compression, compare
salaries and incumbents' years of
experience with the company``