Strategic Compensation

A Human Resource Management Approach

Joseph J. Martocchio

Designed by: Mansoor Ali Seelro BBA HRM

Strategic Compensation By: Joseph J. Martocchio

Total Compensation System

Extrinsic Compensation

Intrinsic Compensation
Job Characteristics Model: Skill variety Task identity Task significance Autonomy Feedback

Monetary Core Compensation

Nonmonetary Employee Benefits

Base Pay
Hourly wage (nonexempt) Annual salary (exempt)

Adjustments to Base Pay

COLA Seniority (or longevity) pay Merit pay Incentive pay Pay-for-knowledge pay Skill-based pay

Legally Required Employee Benefits

Social Security Act Workers compensation laws Family & Medical Leave Act

Discretionary Employee Benefits

Health insurance Disability insurance Life insurance Retirement plans Paid time-off Accommodation & enhancement

Designed by: Mansoor Ali Seelro BBA HRM

Strategic Compensation By: Joseph J. Martocchio

Approaches to Compensating Employees

Job-based Approaches

Person-focused Approaches

Seniority/Longevity Pay Upsides

For employer: Objective Easy to administer For employee: Objective Automatic Permanent/fixed periodic Risk-free Free from favoritism/bias

Merit Pay Upsides

For employer: Performance-based Pay-performance link Suitable for for-profit & for-competition orgs For employee: Permanent/fixed periodic

Incentive Pay

Pay-for-knowledge Pay Upsides

Skill-based Pay

Individual Incentive Plans Upsides

For employer: Financial flexibility Individualistic culture For employee: Equitable distribution Individualistic culture

Downsides
For employer: Traditional Time-consuming Cost-burdensome For employee: Subjective Chances of bias Somewhat risky

Downsides
For employer: Quality compromise For employee: Risky (conditional) Inflexibility

Downsides
For employer: Traditional Cost-burdensome Ignores performance Unsuitable for for-profit & for-competition orgs

Group Incentive Plans Upsides

For employer: Financial flexibility Less time-taking to develop No individual interests, rather group goals innovation

For employer: Enhanced performance Enhanced quality Staffing flexibility Absenteeism covered Increased employee commitment, motivation & satisfaction For employee: Job Security Skill variety Task identity Autonomy Feedback Job enrichment Job enlargement

Downsides
For employer: Greater training costs Clash with incentive pay

Downsides
For employer: Free-rider effect For employee: Risky (conditional)

Companywide Incentive Plans Upsides

For employer: Financial flexibility For employee: Share in companys fortunes

Downsides
For employee: Risky (conditional) No direct efforts-profits link failure to motivate

Designed by: Mansoor Ali Seelro BBA HRM

Strategic Compensation By: Joseph J. Martocchio

Three Goals of the Compensation Department

Internal Consistency

Market Competitiveness

Recognition of Employee Contributions

Job analysis Job evaluation

Strategic analysis Compensation surveys Integration Compensation policies

Constructing a pay structure Designing merit pay systems Designing sales incentive pay systems Designing person-focused pay systems