Total Rewards and Compensation

Question 1

Total Rewards

Answer 1

monetary and nonmonetary rewards provided by companies to attract, motivate, and retain employee

Question 2

Elements of Total Rewards

Answer 2

● Tangible direct rewards: base pay, wages and salary, bonus and commission, profit sharing, stock awards
● Tangible indirect rewards: health care benefits, paid time off, education assistance, and financial planning

● Intangible rewards: supportive work environment, challenging work, autonomy, and supportive supervisor

Question 3

Continuum of Compensation Philosophies

Answer 3

● Entitlement
- Pay and raises based on length of service
- Across-the-board raises
- Pay scales increased annually

● Performance
- Pay and raises based on performance
- No raises for poor-performing employees
- Market-adjusted pay scales

Question 4

Motivation Theories and Compensation Philosophies

Answer 4

● Expectancy Theory - an employee’s motivation is based on the probability that their efforts will lead to an expected level of performance that is linked to a valued reward
➔ Expectancy: perceived likelihood that if the employee invests time in learning new product features, it will lead to better sales performance
➔ Instrumentality: Perceived likelihood that better sales performance will lead to higher commission pay
➔ Valence: Employee places a high value on receiving high commission pay

● Equity Theory – individuals judge fairness in compensation by comparing their inputs and outcomes against the inputs (skills, abilities, knowledge, loyalty, effort, and commitment) and outcomes (wages, salary, benefits, bonus, recognition, reputation) of others.

Question 5

Types of Compensation Fairness and Equity

Answer 5

● External Equity - If an employer’s rewards are not viewed as equitable compared with other firms, the employer is likely to experience higher turnover

● Internal Equity - Employees are compensated fairly within the organization with regard to their K S As

Question 6

Compensation Quartile Strategies

Answer 6

● First quartile
- Lag-the-market strategy: Company targets pay ranges so that 75% of other firms pay above and 25% pay below (employer is experiencing financial difficulties and when an abundance of workers is available)

● Second quartile
- Match-the-market strategy: Company targets pay ranges so that 50% of other firms pay above and 50% pay below (balance employer cost pressures and the need to attract and retain employees)

● Third quartile
- Lead-the-market strategy: Company targets pay ranges so that 25% of other firms pay above and 75% pay below (attract and retain sufficient workers with the required capabilities)

Question 7

Deciding which quartile position

Answer 7

available financial resources, competitiveness pressures, market availability of employees with different capabilities