Week 7 - Compensation and Diversity Flashcards
Why is compensation important?
• Employers: can influence staff, major cost, dynamic labour market where compensation is continually changing, align e'ees to strategy
• Employees:
standard of living,
status,
competitive labour market.
Define Pay structure
the relative pay of different jobs (job structure) and
how much they are paid (pay level):
Define Job structures
the relative pay of jobs in an organisation.
Define pay level
the average pay of different jobs in an organisation.
Equity theory suggests that people evaluate the fairness of their situations by comparing them with those of other people. How do they evaluate these?
Perceived outcomes versus perceived inputs are the basis for comparison between an individual and others.
• A higher ratio = over reward inequity. Lower = under reward inequity
Employee perceptions are affected by:
• Employee perception of remuneration compared to managements.
• The types of comparisons employers make.
• The way management communicate benefits.
What are the consequences of inequity
Consequences of inequity:
• Reduce inputs (not work as hard)
• Increase outcomes – work harder, subvert the system through theft etc
• React against the system – seek work elsewhere
What are the 2 admin tools used to manage employee compensation?
Market pay survey:
Looks at pay level (same job in other org gets paid)
External - benchmarks using key jobs
Job evaluation:
Looks at job structure
Internal - (what other jobs get paid)
Based on non analytical (arbitrary) or analytical (analysis) of jobs worth.
Product market competition is a key determinate of pay levels. Discuss aspects
- Labour cost as a component of product cost
- More constrictive if labour costs make up a bigger portion of costs or if product demand is greatly affected by price (elastic), supply of labour inelastic, employee skills are rare.
- Labour costs comprised of the average cost per employee (direct & indirect costs) plus the number of employees.
Labour market competition is a key determinate of pay levels. Discuss aspects
- The market price of labour.
* Failure to compete affects attracting and retaining required labour.
Pay decisions are rarely obvious to those within the org. Explain the value of communication in compensation managment.
- Mitigate bad news re pay
- Employees ‘comparison standards’ can influence employee satisfaction.
- Employees have increasing access to pay information, effective communication manage this.
- Leaner flatter org structures emphasise participation more and mean the motivational factor played by compensation decisions is greater.
Discuss reasons for the controlversey of exec pay
Controversy
In the context of the GFC, disproportionate compensation, however:
• Reality is a small amount of overall labour cost.
• Disproportionate influence on org
• Their effect on the org may justify despite a poor performance causing perceptions of inequity.
Australia
• Growing gap between exec & staff remuneration
• With downsizing/eco rationalism, created trust gap.
In australia pay is set out through enterprise bargaining & various legislation, FWA 2009 being the main one. Discuss it’s role.
Fair work Aust established 2009.
• Adjusting federal min wages & modernising awards.
• Main role in enterprise bargaining & agreement making
• Dispute resolution & industrial action
Pay for performance is typically used to energise, direct or control employee behaviour. Discuss theories that explain the dynamics involved
Reinforcement theory - a response will recur if followed by a reward
Expectancy theory: rewards are valued when they are attractive, related to performance and the person believes they have control over this performance.
Agency theory - focuses on the divergent interests and goals of the organisation’s stakeholders and the ways in which employee compensation can be used to align these interests and goals. (Recommends performance based schemes or behavour based schemes)
Identify some perfromance reward programmes
MIPOG
Merit pay - annual pay increases are usually linked to performance appraisal ratings
• Adv: not always persons fault, confined to personal achievement
• Disadvantages – in practice not a great difference between high and low performers, entitlement mentality, discourages teamwork
Incentive pay – Performance based on physical output, must be earned & re-earned
• Advantages – Can greatly increase productivity
• Disadvantages – potential admin problems, encourages mercenary behaviour, discourage teamwork,
Profit sharing – A group compensation plan in which payments are based on a measure of organisation performance (profits),
• Advantages – encourages e’ees to take on the owners goals & perspective, rewards in line with the good & bad times so costs are managed.
• Disadvantages – inequities between orgs undermines link between effort & reward, may demotivate if they miss out due to factors not in their control.
Ownership - opportunity to buy the company’s stock at a previously fixed price or with tax assistance.
• Advantages – encourages e’ees to take an owners perspective,
• Disadvantages – benefit not realised till e’ees leave, may not encourage really high performers
Gainsharing - group compensation based on group or plant performance.
• Advantages – based on group performance, rewards are paid quickly,
• Disadvantages – competition between individuals may be replaced by competition between groups,
what factors must be considered in matching pay programmes to strategy?
- Effect on the level of work motivation.
- Effect on individual & group competitive behaviour
- Concern for plant / org goals.
