MOS 1021 HRM Chapter 7 Summary

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Western University
Management and Organizational Studies
Management and Organizational Studies 1021A/B
James O' Brian

MOS 1021 HRM Chapter 7 Introduction Managers decide who gets paid what Important to understand how compensation is derived & what factors influence the setting of wage & benefit structure Work-related variables leading to job satisfaction: o Challenging work o Interesting job assignments o Equitable rewards o Competent supervision o Rewarding careers Employees want compensation that is fair & commensurate with their skills & expectations Direct compensation: employee wages & salaries, incentives, bonuses & commissions Indirect compensation: benefits supplied by employers & nonfinancial compensation like employee recognition programs, rewarding jobs & flexible work hours Total compensation/total rewards approach: combination of direct & indirect compensation How compensation is allocated communicates what management sees as important Compensation constitutes a sizable operating cost Rewards as Part of Company Strategy Structure compensation to enhance employee motivation & growth while aligning employee efforts with objectives, philosophies & culture of organization Companies that make rewards strategy part of overall motivational framework have higher organizational performance Organizations use compensation to attract & retain scarce skills Organization should ensure it has a systematic way to manage employee compensation & that it is linked to business performance o As pay increases, # of applicants will increase and so selection standards increase Total rewards also includes peer-to-peer recognition & fun events etc. Linking Compensation to Organizational Objectives Compensation revolutionized by heightened domestic competition, globalization, increased employee skill requirements & new technology Pay philosophies shifted from paying by position to paying by individual Shift employees focus to achieving business goals Employees will find off-the-clock ways of rewarding themselves if their employer is not acknowledging extra efforts (ie. longer coffee breaks) Common compensation goals: o To reward employees past performance o To remain competitive in the labour market o To maintain salary equity among employees o To mesh employees future performance with organizational goals o To control the compensation budget o To retain key staff o To influence employee behaviours & attitudes The Pay-for-Performance Standard Standard by which managers tie compensation to employee effort & performance Raises productivity & lowers labour costs Employees see link between performance & reward Range of direct compensation to differentiates between pay of average & outstanding performers Difficult to design due to difficulty in determining how to measure employee performance, how to allocate monies, who & what will be paid etc. Other difficulties include perceived value to employees vs. cost of living The Motivating Value of Compensation Pay is a quantitative measure of an employees relative worth o Direct bearing on standard of living & status/recognition Pay must be equitable in relation to contributions & others Equity: anything of value earned through the investment of something of value Equity Theory: individuals form a ration of their inputs in a situation to their outcomes and then compare the value of that ration with the value of others in a similar situation o Role of perception in motivation & comparisons o Inequity creates tension & motivates employee to reduce inequity Equitable Pay: compensation received is perceived to be equal to value of work performed Line managers do not design compensation systems but must respond to employee concerns Compensation policies are internally equitable when employees believe that wage rates for job approximate job worth to organization Compensation policies are externally equitable when employees believe that the organization is paying relatively equal to what other employers are paying The Bases for Compensation Hourly work: work paid on an hourly basis (more common) Piecework: work paid according to the # of units produced Hourly employees/wage earners: employees compensated on an hourly basis Salaried employees: employees compensated on a weekly, biweekly or monthly basis o Paid same amount for each period regardless of hours worked o Receive extra benefits not provided to hourly employees Internal Factors in Determining Compensation Employers compensation strategy o Organizations state compensation objectives & policies such as: Internal wage relationship among jobs & skills levels External competition or an employers pay position relative to competitors A policy rewarding employee performance Administrative decisions concerning elements of the pay system (ie. overtime premiums, payment periods & short-/long-term incentives) Worth of a job o Without formal compensation program, worth of job is based on subjective opinions o Pay rates influenced heavily by labour market or collective bargaining (unions)o Organizations with formal compensation program rely on system of job evaluation o Job evaluation: systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others in an organization Helps establish internal equity o Measured by level of skill, effort, responsibility & working conditions of job o Determined by comparing it with others in organization o Comparisons made on basis of job as whole or parts constituting job Employees relative worth o Performance recognized & rewarded through promotion & incentives o Superior performance rewarded by granting merit raises within a rate range o Merit raises must be determined by an effective performance appraisal system that differentiates the deserving & undeserving Must provide visible & credible relationship between performance & raise o Tendency to compare performance of one employee to another Employers ability and willingness to pay o Compensation in public sector limited by budgeted taxpayer funds o Compensation in private sector limited by profits, economy, competition & finances External Factors in Determining Compensation Economy o Organizations actions to adjust compensation to recession: Differentiating between average & high performers when making c
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