Chapter 8

What Is Employee
Compensation?

Employee compensation refers to all
forms of pay or rewards going to
employees arising from employment
Direct financial payments: Wages,
salaries, incentives, commissions and
bonuses
Indirect payments: Benefits like
employer-paid insurance and vacations
 What Determines Rate of Pay?

Legal factors
Union considerations
Compensation Policies
Equity
 Legal Considerations, cont.

Example USA:
1963 Equal Pay Act
Fair Labor Standards Act Amendment
Equal work equal pay regardless of gender

1964 Civil Rights Act

Makes discrimination because of race, color,
religion, sex or national origin illegal
Applies to hiring, compensation, terms,
conditions or privileges of employment
 Other Discrimination Laws

Age Discrimination in Employment Act
Americans with Disabilities Act
Family and Medical Leave Act
 Union Influence

Law gave employees the right to organize,
to bargain collectively and to engage in
concerted activities for the purpose of
collective bargaining or other mutual
aid/protection
Unions influence wage rates and other pay-
related issues including time off with pay,
income security, cost-of-living adjustments
and various other benefits like healthcare
 Compensation Policies

Varies among different companies and
industries
Can include basis for salary increases, foreign
pay differentials and overtime pay
 Acknowledging Equitys Impact

The need for external and internal
equity is a key factor in determining
pay rates
Each employee should view his or her
pay as equitable given other
employees pay in the organization
 How Employers Establish Pay
Rates?

1. Conduct a salary survey of what other
employers pay for comparable jobs
2. Employee committee determines the worth
of each job in your organization through
job evaluation
3. Group similarly paid jobs into pay grades
4. Price each pay grade by using wage curves
5. Develop rate ranges
 Research and Salary Surveys

Salary (or compensation) surveys
are formal or informal surveys of what
other employers pay for similar jobs
that are used as benchmarks
Data is accumulated through a variety
of sources

 Purpose of Job Evaluation

Job evaluation is a formal and
systematic comparison of jobs to
determine relative worth of one to
another
Compares content,
effort, responsibility
and skills
Increases equity
Grouping via Pay Grades

Pay grade comprises
jobs of approximately
equal difficulty or
importance as
determined by job
evaluation
 Pricing Managerial and
Professional Jobs

Professional wage rates are based on:

Job complexity
Employers ability to pay
Managers human capital
 Elements of Managerial Pay

Base salary
Short-term incentives
Deferred long-term incentives
Executive benefits and perks
 Incentive Plans

Incentive plans pay for performance
Individual incentive programs are based on an
individuals performance, i.e. piecework plan for
laborers, stock options for executives, or
commission for salespeople
Variable pay plans are based on group
productivity
 Non-Tangible and Recognition-
Based Awards
Employee recognition
Gift certificates

Training programs
Work/life benefits
Special events Variable pay
Cash rewards Group travel
Merchandise Individual travel
incentives
Sweepstakes
Email/print
Online award programs
communications
 Other Incentives

Merit pay, or a merit raise, is any
salary increase awarded to an
employee based on his or her individual
performance
Profit-sharing plans share the
companys annual profits with
employees meeting the requirements
 Other Incentives, cont.

Employee stock ownership plans
(ESOP) are company-wide plans in
which the corporation contributes
shares of its own stock or cash to be
used to purchase stock to a trust
established to purchase shares for
employees
Broad-based stock options
 Other Incentives, cont.

Scanlon/Gainsharing plans aims to
encourage improved employee
production by sharing resulting financial
gains with employees
Earnings-at-Risk plans put some
portion of the employees earnings at
risk
 Employee Benefits

Benefits are indirect monetary and
nonmonetary payments an employee
receives for continuing to work for the
company, i.e. health insurance
Pay for time not worked or supplemental pay
benefits includes holidays, vacation days, jury
duty, bereavement leave, sick leave, military
leave, etc.
Unemployment insurance
Severance pay

Insurance benefits

Workers
compensation
Hospitalizatio
n, medical
and disability
insurance
 Retirement
benefits

Social security
Pension plans
401(k) plans
Cash balance pension
plans

Employee Assistance Programs
(EAPs)
Can address issues like substance abuse, elder
care, domestic violence and legal aid
Can address programs like offering full or partial
college tuition reimbursement

Family-friendly
benefits
Workplace
flexibility
Flexible benefits
plans