Chapter 1
Strategic Compensation: A Component of Human Resource Systems
What Is Compensation
Compensation represents the rewards employees receive for performing their job, are either:
Intrinsic- Psychological
mindset Extrinsic- monetary and nonmonetary rewards
5 Core Job Dimensions
Skill variety- job requires person to perform different task Task identity- complete an entire job Task significance-impact on others lives or work of other people
Autonomy- Amount of freedom, independence
Feedback- direct information, job outcomes
Elements of Core Compensation
Base Pay
Hourly pay Annual salary
Base pay adjustments
COLAs- (cost-of-living adjustments) periodic base pay increases on changes in prices as indexed by consumer price index (CPI) Skill-based pay- master new skills Pay for knowledge- successfully learning specific curricula Merit pay-based on job performance Incentive/variable pay- partially or completely attaining predetermined work objective Seniority /longevity pay- periodic additions to base pay according to the length of service
Four Compensable Factors
An employees skill level
An employees effort An employees level of responsibility The severity of the working conditions
Fringe compensation or employee benefits
1. Legally-Required Benefits Federal
Assist families in crisis Provide assistance in case of
Disability Unemployment
Discretionary Benefits
Three Broad Categories
Protection programs
Pay -for-time-not-worked
Services
A historical perspective on compensation: Road toward strategic compensation
Scientific management practices: control labor cost Time and motion studies: Analyzed the time it took employees to complete their jobs Welfare practices: motivate employees to minimize employee desire for union representation
Strategic Vs Tactical Decisions
Strategic decisions - Guide the activities of companies in the market Tactical decisions support the fulfillment of strategic decisions Strategic management - Entails judgments that direct a company toward achieving specific goals Strategic planning - Supports business objectives
Competitive Strategy
The planned use of company resources
2+ years time span
Choices
Lowest cost strategy Differentiation strategy
Competitive Strategy Choices
Lowest Cost: Focus on being lowest cost producer/ seller of goods or services Differentiation: Focus on offering unique goods or services
Lowest-Cost Strategy
Effective when Jobs
Include predictable behaviors
Have a short-term focus Require autonomous activity Focus on quantity of output
Differentiation Strategy
Effective when Jobs:
Require highly creative behaviors Have a long-term focus Demand cooperation & independence Involve risk-taking
Compensation professionals goals
How Hr professionals fit into the corporate hierarchy
Line employees
Directly involved in producing companies goods or delivering their services
Staff employees
Support the line functions
HR practices, how compensation fit into the HR departments
Recruitment
Career development
Labor- management relations Employment termination Insuring legal compliance
Selection
Performance appraisal
Training
Employment Termination
Two Types:
Involuntary
Severance pay: amounts to several months pay
Terminated Laid - off
Voluntary Quit Retired
Pension programs Early retirement programs
The Compensation Departments Main Goals
Internal consistency Market competitiveness Recognizing individual efforts
Internal Consistency
Achieved when the value of each job is clearly defined among all jobs within a company Represents:
Job structure Hierarchy
Achieved using:
Job analysis- process of gathering documenting and analyzing information in order to describe jobs Job evaluation- recognize differences in relative worth among a set of jobs
Market Competitiveness
Compensation policies that fit with business objectives Vital in attracting and retaining employees Are based on:
Strategic analyses-analysis of companys external market (competitors) Compensation surveys collect and analyze competitors content and internal factors (financial conditions, marketing, HR)
Individual Contributions
Pay Structures: Pay is determined by employees credentials, job knowledge, and job performance Pay Grades: Based on compensable factors and value Pay Ranges: Builds on grades, uses midpoints, minimums, and maximums
Stakeholders of the compensation systems
Compensation professionals are responsible for:
Employees Line managers Executives Unions Government
