Compensation and Benefits Chapter 9 and 10 Flashcards
What is the difference between direct compensation and indirect compensation?
Direct compensation: It’s a clearly quantifiable form of payment and is employee’s primary motivator. Money paid to employees in exchange for their time including base pay, performance pay, overtime pay.
Indirect compensation: Non-monetary benefits or perks offered as part of the compensation package to support employee well-being, job satisfaction, and retention. It includes legally required benefits, voluntary benefits at the discretion of the employer and employee(like health insurance, retirement savings plans, and flexible working arrangements), employee services(wellness programs, childcare services), and time off(vacation days sick leave, parental leave).
What is absolute pay vs relative pay?
Absolute pay is the monetary figure one makes.
Relative pay is the pay one receives compared to others
What happens when compensation is perceived as inappropriate?
It’s worth noting that compensation can be perceived as inappropriate either for absolute or relative pay.
Perforamnce, motivation, and job satisfaction can decline dramatically.
Turnover may occur.
What are the two primary objectives of compensation
Internal equity: Ensuring employees are compensated based on the relative worth of their job to the organization. This often involves establishing job evaluation systems. Internal equity reduces potential grievances and disputes, and fosters trust and motivation among employees.
E.g. a point-factor system for job evaluation assigns points to roles based on their responsibilities skills, and working conditions, creating equity.
External equity: Ensuring employee pay aligns with market rate or industry standards for similar roles. This prevents talent loss to competitors and encourages talent to join them.
E.g. orgnaizations can use salary surveys or rely on data from compensation consultancy firms to adjust their pay scale based on geographic or industry benchmarks.
What are the five secondary objectives of compensation?
- Acquiring personnel: Especially helpful in industries with talent shortages. Organizations use total rewards(direct and indirect compensation) to differentiate themselves in the job market.
- Retain Employees: Lack of perceived equity whether internal or external often leads to turnover. Offering performance based pay and career development opportunities retains high performing employees.
- Reward Behaviour: Incentives and performance-based rewards align employee actions with organizational goals. Some firms adopt variable pay models like bonuses to reward employees for exceeding goals.
- Control Costs: Compensation systems must maintain financial health. For instance, contingent workers may be needed for seasonal demand. Implementing productivity-linked incentive plans instead of fixed bonuses is another example.
- Legal Compliance: Employers must adhere to laws relating to minimum wage, overitme regulations, as well as pay equity and non-discrimination requirements.
What are the 4 phases of determining direct compensation? and what are the 3 components of each phase.
- Establishing the compensation philosophy: The organization’s approach to determining pay levels in alignment with its strategic goals and market positioning. There are 3 strategies: leading, matching, and lagging… in relation to other companies salary offerings.
- Reviewing the job analysis: This phase involves a detailed examination of each job’s roles, responsibilities and required qualifications. The first step is job description which involves making a document detailing the tasks, duties, and responsibilities of a job. The purpose is to help employees understand their roles and serves as a reference for compensation decisions. The second step is job specification which involves listing the qualifiactions, skills, and experience for the job. The purpose is to guide recruitment and help determine appropriate pay levels based on job complexity. The third step is to establish performance standards which defines the expected outcomes and metrics for evaluating job performance. The purpose is to link compensation to performance by setting measurable goals.
- Pricing jobs: Involves assigning value to jobs based on internal and external factors. The first way is through job evaluation, which determines a job’s relative worth in an organization. There is poitn factor method which assigns points to job attributes like skills, responsibilities, and working conditions. And there is the job ranking method where jobs are ranked based off perceived importance to the organization. The second option is market pricing, which involves aligning pay with prevailing market rates by analyzing salary surveys. The third method is skill-based pay which involves tying compensation to an employee’s skills or certifications rather than job title.
- Matching employees to pay. Establishes the pay level for each job, comining job evaluation rankings, survey wage rates, and other considerations.
What is job ranking?
Job ranking is the simplest job evaluation method. Jobs are subjectively ranked by importance to the organization, and higher ranked jobs are paid better.
What does market based pricing do?
Determines how much an organization should pay based off how much a competitor pays. They can be a market leader, match the market, or lag behind the market.
What is the first phase of determining direct compensation, and the three strategies that stem from it.
Establishing the compensation philosophy: The organization’s approach to determining pay levels in alignment with its strategic goals and market positioning. There are 3 strategies: leading, matching, and lagging… in relation to other companies salary offerings.
What is a job description?
It involves making a document detailing the tasks, duties, and responsibilities of a job. The purpose is to help employees understadn their roles and serves as a reference for compensation decisions.
What is job specification?
It involves listing the qualifiactions, skills, and experience for the job. The purpose is to guide recruitment and help determine appropriate pay levels based on job complexity.
What does establishing performance standards do?
It defines the expected outcomes and metrics for evaluating job performance. The purpose is to link compensation to performance by setting measurable goals.
What are the 5 challenges affecting compensation?
- Prevailing wage rates: Organizations must align pay with industry norms to attract and retain talent while staying competitive.
- Union power: Unions influence wages and benefits through collective bargaining, often leading to higher pay for unionized employees.
- Productivity: Compensation must reflect employee output to ensure cost-efficiency and avoid operpayment.
- Government constraints: Legal requirements like minimum wage laws and pay equity standards shape compensation policies.
- Wage and Salary Policies: Internal policies guide fair and consistent pay practices to align with organizaional goals.
What is variable pay?
Links pay to performance or productivity for part of or all income. There can be individual incentive plans, team or group incentive plans, or profit sharing and ownership plans.
What are the benefits and issue with incentive systems?
Benefits: performance is regularly reinfored, reinforcement is quick and frequent, desired behaviours are likely to continue, wages are paid in proportion with performance.
Problems: administration can be complex, may result in inequities, employees may not achieve standards due to uncontrollable forces, union resistance, employees may over focus on the aspect they are compensated for at the expense of their other roles and responsibilities.
