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Compensation and Benefits

Figure 11.1 Components of the

Compensation System

External Equity

 Salary surveys

 Within Industry – products and services  Geographical  Occupational – experience and skills

 Pay level policy

 Match, lead, lag the market

Internal Equity

 Job evaluation

 Job ranking  Job classification or grading  Point method  Compensable factors – dimensions of the job that will be the basis for paying employees  e.g. skills, knowledge, abilities, working conditions  Hay a widely used system based on “know-how, problem-solving, and accountability”

Variable Pay

 Goal: Reward Employees Who:

 Understand the goals of the organization

 Know their role in accomplishing these goals

 Accept that their rewards are related to their contribution to the goal attainment of the organization

Motivation – Expectancy Theory

 Expectancy – Individual perception that

effort will result in desired performance.

 Instrumentality – Perceptions of the

probability that performance will result in

rewards.

 Valence – The subjective value or

desirability of the award.

Examples employees not having these

understandings (being “misaligned”)

 What is being signaled to co-workers when well- intentioned but ineffective employees are given merit increases similar to more effective employees?

 What does it say when executives are given large bonuses after the organization has had a below- average year, and only small increases are given to other workers?

 What is being signaled if bonuses are paid even when the organization did not earn the profits necessary?