The Compensation Model Flashcards
What are the building blocks of a pay model? (3)
(1) compensation objectives
(2) policies that form the foundation of the compensation system
(3) techniques that make up the compensation system
What are the compensation objectives? (3)
(1) efficiency
(2) fairness
(3) compliance
What is efficiency?
(1) achieving the company’s objectives
(2) controlling labour cost
How to achieve the organisation’s objectives? (3)
(1) improving performance
(2) increasing quality
(3) delighting customers and stockholders
What is fairness? (2)
(1) fundamental objective of pay system
(2) recognising both employee contributions and employee needs
What is an example of recognising employee contributions?
Higher pay for better performance.
What are examples of recognising employee needs?
(1) fair wage
(2) fair procedures
What is compliance?
To comply with the country’s labour laws and regulations.
How to comply with the country’s labour laws and regulations?
If laws change, pay systems may need to change too.
A good pay system is one that is ____.
Compliant
What happens in a bad pay system? (compliance)
People are not compliant to achieve their own personal gains.
What are the policies?
(1) internal alignment
(2) external competitiveness
(3) employee contributions
(4) management of the pay system
What is the purpose of having policies?
To achieve objectives.
What is internal alignment?
It refers to pay relationships among different jobs or skills in the company.
In internal alignment, how are the employees paid differently?
According to their relative contributions to the company’s objectives.
What is external competitiveness? In other words, _____.
It refers to compensation relationships external to the organisation. Comparison with competitors.
In external competitiveness, what are the different types of pay that competitors use?
(1) pay leaders
(2) market or going rate
(3) pay followers
What is a pay leader?
Pay higher wages and salaries than competing firms.
What is market or going rate?
Average pay that most employers provide for the same job in an industry.
What is a pay follower?
Pay below the market rate while other benefits are included.
Why do some competitors choose to be a pay follower? (2)
(1) poor financial conditions
(2) belief that they simply do not require highly capable employees
What is the policy on employee contributions?
Relation emphasis placed on employee performance.
Asides from performance, how else may employees be paid based on the employee contributions policy?
Based on their seniority/years with the company.
What is the policy on the management of the pay system?
Ensuring that the right people get the right pay for achieving the right objectives in the right way.
It is important to have a ____ management.
competent
Why should there be a competent management? (2)
(1) everyone will be aligned with the same message
(2) everyone will believe that the pay system is ethical and fair
What is the purpose of techniques?
To tie the four basic policies to the pay objectives.
What are the techniques used for internal alignment? (3)
(1) job analysis
(2) job description
(3) job evaluation
What are the techniques used for external competitiveness?
Salary surveys
What are the techniques used for employee contributions? (2)
(1) performance-based pay increases
(2) seniority-based pay increases
What are the techniques used for management of the pay system? (2)
(1) controlling costs
(2) communication to employees
What is a strategic perspective towards total compensation?
Focuses on those compensation choices that help the organisation gain and sustain competitive advantage.
How can the pay systems support the compensation business strategy?
By aligning with it.
What are the different compensation business strategies?
(1) innovator
(2) cost cutter
(3) customer-focused
What should happen when compensation business strategies change?
The pay systems should change too.
Under cost cutter strategy, why focus on competitor’s labour costs?
To ensure that their own labour costs are lower than their competitor’s for a larger profit.
Under cost cutter strategy, how can businesses emphasize on productivity?
Having a strong emphasis on performance based pay- the more productive, the higher the pay. Hence, people will be motivated to work to get a higher pay.
What is the strategic guideline for objectives? (2)
How should compensation
(1) support the business strategy
(2) be adaptive to the cultural and regulatory pressures in a global environment
What is the strategic guideline for internal alignment?
How differently should the different types and levels of skills and work be paid within the organisation?
What is the strategic guideline for external alignment? (2)
(1) How should total compensation be positioned against competitors?
(2) What forms of compensation should be used?
What is the strategic guideline for employee contributions? (2)
Should pay increases be based on individual and/or team performance, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, and/or on each business unit’s performance?
What is the strategic guideline for management? (2)
(1) How open and transparent should the pay decisions be to all employees?
(2) Who should be involved in designing and managing the system?
