HRM2600-Managing Human Resources
Chapter 9-Managing Compensation
Compensation-statement of ee’s worth by an er & perception of worth by an ee
•direct: wage/salary, bonus, commission, gainshare
•indirect: benefits; insurance plans, time not worked, security, ee services
Compensation Management & Other HRM Functions:
Strategic Compensation Planning
concerns in Compensation of EE to enhance motivation and growth while aligning efforts with objectives, culture of
organization plus specific function of the HR program in establishing a pay-for-performance standard.
strategic 1. Linking Compensation to Organizational Objectives
compensation Value-added Compensation: evaluating individual components of compensation program to see if they
program. advance the needs of EE & goals of organization.
“How does the compensation practice benefit the org?”
“Does the benefit offset the admin costs?”
Common Strategic Compensation Goals:
a. Reward EE’s past performance
b. Remain competitive in the labour market
c. Maintain salary equity among EE
d. Mesh EE’s future performance with org goals
e. Control compensation budget
f. Attract new EEs
g. Reduce unnecessary turnover
>To achieve these goals, there are some strategic compensation policy concerns at hand:
a. The rate of pay within the org & whether it is to be above, below or at the equivalent market rate.
b. The ability of the pay program to gain EE acceptance while motivating EEs to perform to their best.
c. The pay level at which EEs may be recruited & the pay differential between new & more senior EEs.
d. The pay levels needed to facilitate the achievement of a sound financial position in relation to products offered.
2. The Pay-For-Performance Standard
A standard by which managers tie compensation to EE effort and performance (merit-based, bonuses,
•It is not easy designing this system because how to measure EE performance is difficult.
3. Motivating Employees through Compensation
A direct bearing on standard of living plus status and recognition they may be able to achieve.
1 •Pay Equity:EE’s perception that compensation received is equal to value of performed work with a
motivation theory (explains how people respond to situations in which they feel they have received less/more than
they deserve). ^input/output : v comparison person’s input/output
Determining Compensation—The Wage Mix
various Internal Factors
factors thatEmployer’s Compensation Strategy:
influence the•setting org compensation policy to lead, lag, or match competitor’s pay.
wages. Worth of a Job:
•establishing the internal wage relationship among jobs and skill levels.
Employee’s Relative Worth
•rewarding individual EE performance though appraisal system