week nine - rewarding and compensating HR Flashcards
what are the financial compensation components
- base compensation: fixed pay an employee receives regularly
- pay incentives: variable pay programmes aimed at rewarding
- benefits/indirect compensation: rewards aimed at providing security and better quality of life for employees
define job evaluation
assessment of the relative value or contribution of different jobs (not the individual employees) to an organisation, this is the basis for calculating base compensation (fixed pay)
what are the six steps of job evaluation
1) job analysis
2) write job descriptions
3) determine job specifications (specifications an employee must have to perform the job successfully)
4) rate worth of all jobs using a predetermined system (most common procedure: point-factor system)
5) create a job hierarchy
6) classify jobs by grade levels
total compensation system design
topic 9, slide 8-13
what are considered as financial compensation
- fixed pay
- variable pay
what are considered as non-financial compensation
- performance and career management
- quality of work environment
- work and personal life balance
an effective compensation system should:
- help the company achieve its strategic goals
- be moulded to the unique characteristics of the company
- consider the nine key features of (financial) compensation system design
- consider the role of non-financial rewards to increase employee engagement
- importance of employee involvement in the compensation system, especially regarding variable pay, indirect pay (benefits) and use of non-financial compensation
what are the nine key features of (financial compensation system design)
1) internal vs external vs individual equity
2) fixed vs variable pay
3) membership vs performance
4) job-based vs individual-based pay
5) egalitarian vs elitist pay systems
6) above vs below market pay
7) monetary vs nonmonetary rewards
8) open vs secret pay
9) centralised vs decentralised pay decisions
what is internal vs external vs individual equity
- internal equity: fairness within a company (firm employees are compared)
- external equity: fairness between different companies (different employers’ pay for the same labour compared)
- individual equity: fairness of individual pay decisions
what is fixed vs variable pay
- job evaluation is the most common source of fixed-pay decisions
- performance appraisal is the most common source of variable pay decisions
- layers: individual, team, business unit/plant, whole organisation
- types: merit pay, piece rate, bonuses, awards, gainsharing, profit sharing, stock plans
types of pay-for-performance plans (fixed vs variable pay)
- piece-rate system: employees are paid per unit produced or sold
- merit pay: increase in base pay, based on periodic performance appraisal
- bonus programmes (lump-sum payments): financial incentive given on a one time basis
- awards: one time rewards given in a tangible prize
- gainsharing: plantwide or business unit pay-for-performance plan in which a portion of the unit’s cost savings (efficiency increase) is returned to workers, usually as a financial bonus
- profit sharing: corporate pay-for-performance plan that allocates a portion of declared profits to employees
- employee stock ownership plans: corporate plan that rewards employees with company stock
what is membership vs performance
- membership-based pay systems: emphasis on seniority (years of service), salary progression tied to moving up
- performance-based pay systems: emphasis on performance in the current job, salary progression tied to contributions
what is job-based pay vs individual-based pay
- job-based pay: employees are paid on the basis of current jobs, best when:
1) jobs and technology are stable
2) specific training is required
3) turnover is low - individual-based pay: workers are paid for jobs they could do or talent/skills they have, best when:
1) company is dynamic
2) workforce is relatively educated
3) teamwork is encouraged
4) opportunities to learn new skills are available
what is egalitarian vs elitist pay systems
- egalitarian pay system: most employees are part of the same pay system, which facilitates internal mobility, more common in competitive environments
- elitist pay system: different compensation systems are established for employees or groups at different organisational levels, prevalent in older firms with limited competition
what is above market vs below market pay
- above-market pay: emphasis on employee turnover and maximizing motivation.
- below-market pay: emphasis on controlling labour costs