Compensation and Benefits

OBHR E-100

November 6, 2007

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Figure 11.1 Components of the Compensation System

Types of Equity

External Equity: Comparisons of similar jobs in different organizations

Internal Equity: Relationship among jobs within a single organization

Individual Equity: Comparisons among individuals in the same job within the same organization

External Equity

Salary surveysWithin Industry – products and servicesGeographical Occupational – experience and skills

Pay level policyMatch, lead, lag the market

Internal Equity

Job evaluationJob rankingJob classification or gradingPoint method

Compensable factors – dimensions of the job that will be the basis for paying employees

e.g. skills, knowledge, abilities, working conditions

Hay a widely used system based on “know-how, problem-solving, and accountability”

Individual Incentives

CommissionsBonusesSkill-Based PayMerit Pay

Variable Pay

Goal: Reward Employees Who:

Understand the goals of the organization

Know their role in accomplishing these goals

Accept that their rewards are related to their contribution to the goal attainment of the organization

Motivation – Expectancy Theory

Expectancy – Individual perception that effort will result in desired performance.

Instrumentality – Perceptions of the probability that performance will result in rewards.

Valence – The subjective value or desirability of the award.

Barriers to Pay-for-Performance Success

Nature of the Task

Performance Measurement

Amount of Payout

Examples employees not having these understandings (being “misaligned”)

What is being signaled to co-workers when well-intentioned but ineffective employees are given merit increases similar to more effective employees?

What does it say when executives are given large bonuses after the organization has had a below-average year, and only small increases are given to other workers?

What is being signaled if bonuses are paid even when the organization did not earn the profits necessary?

Benefits

Mandatory programsOptional programs

Mandatory Programs

Social Security

Unemployment Compensation

Workers’ Compensation

Social Security (www.ssa.gov)

Mandatory for most of working population Provides

Limited income in retirement Survivor benefits for

Spouses Unmarried children up to 18, 19 if in school Children any age if disabled before age 22 Parents over 62

Medicare – separate health insurance program for those over 65 (www.medicare.gov)

Issues with Social Security

Changing Demographics (www.ssa.gov)

Unemployment Compensation

Temporary income for out-of-work employees

Recipients must be looking for workIncome is at the rate of 50 to 80% of

normal payManaged by each state in accordance

with Federal guidelines

Workers’ Compensation

No fault disability insurance for workers injured or killed on the job

Employers pay premiums based on worker injury experience

Established in accordance with state laws so provisions vary

Is the only recourse for workplace injuries for employees

Optional Benefit Programs

HealthLifeDisabilityRetirementPaid Time OffOthers

Issues in Health Care Design and Cost Containment

Deductible Coinsurance Coordinating Benefits Preferred Provider Organization (PPO) Health Maintenance Organization (HMO) Health Savings Accounts – High Deductible

Plans

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Figure 13.3 Percent Change in Health Spending Compared to Other Indicators

Source: The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2004 Annual Survey (Menlo Park, CA: Henry J. Kaiser Family Foundation, 2004).

Types of Retirement Plans

Defined ContributionBenefits are a function of contributions plus

investment gains or losses401(k) or thrift plansTax-deferred contributions

Defined BenefitBenefits based on a formula that includes

length of service and average earnings

Paid Time Off

Compensation for Time Not WorkedHolidaysVacationSick LeavePersonal days

Other Leaves (paid and unpaid)

Other optional benefit programs

Tuition assistanceWork / life

Child careElder careEmployee assistance program

Discounts

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Table 13.4 Most Popular Family Workplace Initiatives

Source: Adapted from Society for Human Resource Management, “2001 Benefits Survey,” April 2000. (Available at: http://www.shrm.org/surverys/results/default.asp?page=01benefits.asp)

Professional Development

World at Work Formerly the American Compensation

Association Intensive Certification Programs for

Compensation Professionals – Training & Testing

Publicationswww.worldatwork.org