Transcript Basics of Managing Compensation

Chapter 10
Managing
Compensation
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall
10-1
What Is Compensation?
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Total Compensation
Sum total of quantifiable rewards
 Received for an employee’s labor
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Pay Mix—proportion of each of:
Base compensation
 Pay incentives
 Indirect compensation (benefits)
 Perquisites— “perks”
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10-2
Compensation System Design
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Fixed vs. Variable Pay
Performance vs. Membership
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10-3
Job versus Individual Pay
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Job-Based Pay is best when:
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Jobs and technology are stable
Training is required to learn a given job
Turnover is relatively low
Individual-Based Pay is best when:
Company and environment are dynamic
Workforce is relatively educated
Workforce is able & willing to learn different
jobs
 Participation and teamwork are encouraged
 Opportunities to learn new skills are
available.
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Compensation Tools: Job-Based Plans
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Advantages:
Rational, objective, systematic
 Relatively easy to administer
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Drawbacks:
Do not account for nature of business
 Job descriptions often too general
 Wage and salary data not definitive
 Job-based plans tend to be bureaucratic,
mechanistic and inflexible
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Compensation Tools: Skill-Based Plans
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Skill mastery increases pay
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Three types of skills:
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Depth skills—specialized area
Breadth Skills—jobs/tasks in firm
Vertical skills—self-management
Workforce is more flexible
Higher training costs
Skills can become “rusty”
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The Legal Environment and Pay Systems
Governance
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The Fair Labor Standards Act (1938)
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Exempt/Non-exempt employees
Minimum wage and Overtime
The Equal Pay Act (EPA, 1963)
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Exemptions: seniority, job performance,
or other factors (e.g. shift differential)
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“Comparable worth”—not the same as
Equal Pay Act considerations
Reliability of comparable worth
determinations can be highly suspect
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