Ch 08 employee compensation


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Ch 08 employee compensation

  1. 1. EMPLOYEECOMPENSATIONAND BENEFITS • Types of compensations • Types of employee benefits
  2. 2. Nature of Compensation• Objectives of effective compensation program: a) Legal compliance with all appropriate laws and regulations b) Cost effectiveness for the organization c) Internal, external and individual equity for employees d) Performance enhancement for the organization• Types of Rewards: a) Extrinsic – Tangible, monetary and non-monetary effects of compensation a) Intrinsic – Intangible, psychological and social effects of compensation 2
  3. 3. Components of a CompensationProgram 3
  4. 4. Direct Compensation The basic monetary compensation that an employee The basic monetary compensation that an employeeBase PayBase Pay receives, usually as a wage or salary. receives, usually as a wage or salary. Wages Wages Payments calculated on the amount of time worked. Payments calculated on the amount of time worked. Consistent payments made each period regardless Consistent payments made each period regardless Salary Salary of the number of hours worked in the period. of the number of hours worked in the period. Variable Variable Compensation linked to individual, team, or Compensation linked to individual, team, or Pay Pay organizational performance. organizational performance. 4
  5. 5. Indirect Compensation• Employer-provided benefits—like health insurance—that are provide employees for being a member of the organization. 5
  6. 6. Compensation linked toVariable Plan individual, group/team, and/or organizational performance. • The development of clear, understandable plans that are continually communicated. • The use of realistic performance measures. • Keeping plans current and linked to organizational objectives. • Strong links among performance results and payouts that truly recognize performance differences. • Clear identification of variable pay incentives separately from base pay. 6
  7. 7. Types of Variable Pay Plans: 7
  8. 8. Individual Incentives• Conditions necessary for the use of individual incentives plans: a) identification of individual performances b) independent work c) individual competitiveness d) individualism stressed in organizational culture• Sales Compensation Plans: a) Salary only b) Straight Commission c) Salary Plus Commission / Bonuses 8
  9. 9. • Types of Individual Incentives: a) Straight Piece-Rate Systems  Wages are determined by multiplying the number of pieces produced by the piece rate for one unit. a) Differential Piece-Rate Systems  Employees are paid one piece-rate for units produced up to a standard output and a higher piece-rate wage for units produced over the standard. a) Bonus  A one-time payment that does not become part of the employee’s base pay. a) Awards  Cash or merchandise used as an incentive reward. a) Recognition Awards  Recognition of individuals for their performance or service to customers in areas targeted by the firm. a) Service Awards  Rewards to employees for lengthy service with an organization. 9
  10. 10. Group/Team Based Variable Pay• Primary approaches for distributing team rewards: a) Same size reward for each team member b) Different size rewards for each team member• Why establish team pay plans: a) enhances productivity b) ties earnings to team performance c) improves quality d) aids recruiting & retention of employees e) improves employees moraleTypes of Group Incentives:a) Work teams result • May reward all members equally on the basis of group output, costs savings / quality improvementa) Gain sharing • The sharing with employees of greater-than-expected gains in profit &/ productivity 10
  11. 11. Organizational Incentives• Types of Organizational Incentives:a) Profit Sharing • A system to distribute a portion of the profits in the organization to employees • Primary objectives of profit-sharing plans: 1. improve productivity 2. recruit/retain employees 3. improve product/service quality 4. improve employee morale • Drawbacks of Profit-Sharing Plan: 1. to disclose financial & profit information to employees 2. profits may vary a great deal from year to year 3. payoffs far removed from employees’ effort 11
  12. 12. b) Employee Stock Option • It give employees the right to purchase a fixed number of shares of company stock at specified price for a limited period of time • If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit. • If the market price of the stock is below the specified option price, the stock option is “underwater” and is worthless to employees. 12
  13. 13. Benefits• An indirect compensation given to an employee or group of employees as a part of organizational membership.• Strategic Perspectives on Benefits – Benefits absorb social costs for health care and retirement. – Benefits influence employee decisions about employers (e.g., recruitment and retirement). – Benefits are increasingly seen as entitlements. – Benefit costs average over 40% of total payroll costs. 13
  14. 14. 14
  15. 15. Other Benefits Credit Unions Credit Unions Purchase Discounts Purchase Discounts Family-Care Stock Investment Stock Investment Relocation Family-Care Relocation Benefits Benefits Expenses Expenses Benefits Benefits Family-Oriented Family-Oriented Life, Disability, Life, Disability, Benefits Benefits Legal Insurances Legal Insurances Social and Social and Educational Educational Recreational Recreational Assistance Assistance 15
  16. 16. Family Medical Leave Act (FMLA)• Coverage – Employers with 50 or more employees – Employees who have worked at least 12 months and 1,250 hours in the previous year.• Requirements – Employers must allow eligible employees to take up to a total of 12 weeks of unpaid leave in a 12-month period to attend to a family or serious medical condition. – Employees have the right to continued health benefits and the right to return to their job. 16
  17. 17. Benefits for Domestic Partners• Domestic Partners or Spousal Equivalents – Unmarried employees who are living with individuals of the opposite sex – Gay and lesbian employees who have partners• Affidavit of Spousal Equivalence – Each is the other’s only spousal equivalent. – They are not blood relatives. – They are living together and jointly share responsibility for their common welfare and financial obligations. 17
  18. 18. Time-Off Benefits• Holiday Pay • Paid Time-Off (PTO) Plans – Eligibility – Combine all sick leave,• Vacation Pay vacation time, and – Eligibility and scheduling holidays into a total number of hours or days• Leaves of Absence that employees can take – Family Leave off with pay. – Medical and Sick Leave – Military Leave – Election Leave – Jury-duty Leave – Funeral Leave 18