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C O M PENSATION
SEVENT H EDITION
M IL K O VIC H
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NE W M A N
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Chapter
1
The Pay Model
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Learning Objectives
After studying Chapter 1, students should be able to:
1.
2.
3.
4.
5.
6.
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Contrasting Perspectives of
Compensation
Society
Views
Stockholders
Views
Employees
Views
Managers
Views
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Total Returns
Relational Returns
Total Compensation
Benefits
Recognition
& Status
Employment
Security
Challenging
Work
Cash Compensation
Income
Protection
Long-term
Incentives
Base
Merit/Cost
of Living
Learning
Opportunities
Allowances
Work/Life
Focus
Short-term
Incentives
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Forms of Pay
! Cash Compensation:
Base
! Cash Compensation:
! Benefits: Income
Protection
! Benefits: Work/Life
Focus
! Benefits: Allowances
Incentives
! Long-Term Incentives
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STRATEGIC
POLICIES
Work
Descriptions
Analysis
ALIGNMENT
COMPETITIVENESS
STRATEGIC
OBJECTIVES
TECHNIQUES
Market
Surveys
Definitions
CONTRIBUTORS
Seniority
Based
Evaluation/
Certification
Policy
Lines
Performance
Based
INTERNAL
STRUCTURE
PAY
STRUCTURE
Merit
Guidelines
INCENTIVE
PROGRAMS
EFFICIENCY
Performance
Quality
Customers
Stockholders
Costs
FAIRNESS
COMPLIANCE
ADMINISTRATION
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THE
THE PAY
PAY MODEL
MODEL
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Medtronic
AES
Support objectives and increased
Our guiding principles are to act with
complexity of business
integrity, treat people fairly, have fun,
and be involved in projects that provide
Minimize increases in fixed costs
social benefits. This means we will
Emphasize performance through
! Help AES attract self-motivated,
variable pay and stock
dependable people who want to keep
Competitiveness aligned with
learning new things
financial performance: 50th percentile
performance paid at 50th percentile of ! Hire people who really like the place and
believe in the AES system
market
! Pay what others are paid both inside and
outside AES, but willing to take less to
join AES
! Use teams of employees and managers to
manage the compensation system
! Make all employees stockholders
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causation?
!Are there alternative explanations?
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Summary
! The model presented in this chapter provides a structure
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Review Questions
How do differing perspectives affect our views
of compensation?
2. What is your definition of compensation?
Which meaning of compensation seems most
appropriate from an employees view, return,
reward, or entitlement?
3. How does the pay model help organize ones
thinking about compensation?
4. What can a pay system do for an organization?
For an employee?
1.
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