this is very informative note

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Copyright © 2017 Pearson
Education, Ltd. 11-1
Employee Compensation

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11–2
1. Employee compensation and its component
2. Corporate policies, competitive strategy, and compensation
3. Equity
4. Competency-based pay
5. Incentive
6. Benefits
LEARNING OUTCOMES

3. © 2008 Prentice Hall, Inc. All
rights reserved.
11–3
EMPLOYEE COMPENSATION
• Employee Compensations: All forms of pay or rewards
going to employees and arising from their employment.
• It has two main components
1. Direct financial payments: Pay in the form of wages,
salaries, incentives, commissions, and bonuses.
2. Indirect financial payments: Pay in the form of financial
benefits such as insurance.

4. © 2008 Prentice Hall, Inc. All
rights reserved.
11–4
EMPLOYEE COMPENSATION (CONT’D)
1. Direct financial payments: There are two ways to make
this payment to employees
i. Time- based pay (daily wages, salaries paid by week,
month)
ii. Performance- based pay (sales commission)

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Copyright © 2017 Pearson
Education, Ltd.
1-5
• Aligned Reward Strategy - is creating a
compensation package that produces the
employee behaviors the firm needs to
achieve its competitive strategy.
Aligning Total Rewards with Strategy

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Copyright © 2017 Pearson
Education, Ltd.
11-6
Equity and its Impact on Pay Rates
Type of Equity
1. External
2. Internal
3. Individual
4. Procedural

7. © 2008 Prentice Hall, Inc. All
rights reserved.
11–7
EQUITY AND ITS IMPACT ON PAY RATES (CONT’D)
1. External Equity refers to how a job’s pay rate in one company
compares to the job’s pay rate in other companies.
2. Internal Equity refers to how fair the job’s pay rate is, when compared
to other jobs within the same company.
3. Individual Equity refers to how fairness of an individual’s pay as
compared with what his or her co-workers are earning for the same or
very similar jobs within the company, based on each individual
performance.
4. Procedural Equity refers to the “perceived fairness of the process and
procedures used to make decisions regarding the allocation of pay.”

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COMPETENCY-BASED PAY
• Competencies
• Demonstrable characteristics of a person, including
knowledge, skills, and behaviors, that enable
performance
• What is Competency-Based Pay?
• Paying for the employee’s range, depth, and types of
skills and knowledge, rather than for the job title he or
she holds

9. 12–9
INCENTIVES
• Financial rewards paid to workers whose production
exceeds a predetermined standard.
- Recognition Awards
- Merit Pay
- Commission Plan for Sales People
- Profit-sharing plans

10. 13–10
BENEFITS
• Indirect financial and non financial payments
employees receive for continuing their
employment with the company.

11. 13–11
CLASSIFICATION
• Types of Employee Benefits
1. Supplemental Pay
2. Insurance Benefits
3. Retirement Benefits
4. Employee Services
5. Family-Friendly Benefits
6. Flexible Benefits Programs

12. 13–12
CLASSIFICATION (CONT’D)
• Supplemental Pay
- Pay for time not worked.
- Vacations and Holidays, Sick Leave, Parental Leave
• Insurance Benefits
- Accidental death and dismemberment, Disability insurance, Mental
health benefits
• Retirement Benefits
- Pension, Gratuity, Medicare Program

13. 13–13
CLASSIFICATION (CONT’D)
• Employee Services
- Personal legal and financial services, Mental health counseling, Life
event planning
• Family-Friendly Benefits
- Benefits such as child care and fitness facilities that make it easier
for employees to balance their work and family responsibilities.
• Flexible Benefits
- Flextime schedules, Job sharing, Telecommuting