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EMPLOYEES BENEFITS& CONPENSATION

DETERMINANTS OF EMPLOYEES’ COMPENSATION

(FACTORS I NFLUENCI NG THEM)Habi bu Ayuba; B.Sc; PGDE; M.Sc; ACA i n vi ew.

08030527135

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OBJECTIVES OF THE PRESENTATION

At the end of the program, the participants should be able:

To have highlight on the employees’ total compensation package.To identify relevant determinants of compensation package of an employees.To examine internal factors influencing the employees’ compensation packages.To examine external factors influencing employees’ compensation package.To relate the impact of the employees’ compensation packages on the employees performance.

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Total employee compensation package

Employee’sCompensation

package

Extrinsic Pay Intrinsic Pay

Direct Pay Indirect Pay

Base Pay

Merit Pay

Incentive Paye.g Bonuses

Deferred Pay

Protection Program

salary

wages

Pay for Time not Worked

Service and Perquisite

Job Security Status Symbol Social Reward Task/Self Reward

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What determine employees’ compensation package

No matter how or which approach an organization it takes to design its workforce pay, there are needs to make SWOT analysis.The analysis can enable it to determine its strength and weakness, in one hand;And to determine the opportunities that are there abound in the external environment;And on the other hand, it should be noted that every opportunity usually come with its accompanying threat.Therefore, the factors that influence the strength and weakness (internal of organization) as well as the opportunities and threats (external of the organization) are thereby presented.

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Determinants of Employees’ compensation package

factors influencing payTotal

Employees’Compensation

package

Externalfactors

Internalfactors

Governmentlegislation

Companies’Corporate

culture

Companies’Corporatestrategy

GovernmentEconomic

policy

Trade unionBargaining

strength

Companies’AbilityTo pay

IndustrialPractices

Andcustom

Companies’Human

ResourcesStrategy

Andpractices

ComparabilityOf

Jobs/ Pay

Indicesof

productivity

Labor Market

competitiveness

Single planVersus

Multiple planJob evaluation

OrganizationalChange/TechnologicalChange

OrganizationalLife

Cycle

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Determinants … Cont….

Employees compensation is a living thing. It grows as every living things grow. Its growth and survival is dependent on its relevance. The relevance of an employees’ compensation is determined by environmental factors which can be internals or externals to the organization. Therefore, factors influencing employees’ compensation are:Internal factors: These are mainly issues that have arisen in the organization and can be or can not be controlled by a company.External factors: These are issues happening outside the organization and mostly can not be controlled by a company.

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Government Legislation(external factor)

It is a body and overall domestic and international law, rule and regulation governing the employee’s pay, for examples; sex discrimination Act (1987) and equal pay Act (1983) etcIt fixes minimum wage (salaried employees= #5500) .It can control demand and supply of labor.

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Government Business and Economic policies

(external factor)This is a government intervention in the economy in the name of monetary policies and fiscal policies.Monetary policy minimizes availability of liquid money thereby crippling the general consumer purchasing power which in the long run reduces companies’ sale revenue forcing them to adjust wages.Fiscal policy can target employees’ pay making it to be inadequate to enable one earn good living which can in turn encourage employees calling for wage adjustment.The economic policy can positively or negatively affect industries’ productivity and as such result to employees’ pay adjustment

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Trade Union Strength in Bargaining power (external factors)

It is a function of possessing a special skill, specialization and professionalism of the trade union members in one hand;And the demand versus supply of trade union members on the other hands.The high the supply of labor, the weaker the bargaining power of the trade union, vice versa.Scarcity and long training period of a particular type of labor makes it to command premium price.

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Industrial practice and custom(external factor)

It brings about existing differentials among different group of workers (skill, semi-skill, and un-skill).Pay practice evolves over a long period of time which make a given industry to have its own practice and gradually becoming a way of life and compensation.Although, it is influenced by the external factors such as changes in legislation and technology; but; it places significant influence over determining the compensation package in the industry.

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Comparability of job worth and pay(external factor)

It is assumed that the employees’ pay working in the same industry is averagely similar.In the absence of maintaining the same pay system, it calls for the trade union struggle to enforce equal pay and even law of the land does that.The comparison does not stop in the same industry, even outsiders are used as a benchmark in determining compensation. Public sector is known to have always looked at private sector. Private sector too must be competitive to maintain relevant qualitative workforce.

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Productivity(external factor)

It is function of willingness of management to invest in the plant and machinery in one hand; and employees’ willingness to accept greater flexibility in the work practices.An attainment of efficiency and effectiveness in the input-output processes to meet customers needs/market demand.It is a translation of fewer inputs into more products that are profitable.The higher the productivity of a company the more its ability to pay good compensation packages, vice versa.

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Labor market condition(external factor)

It is an interplay that exists between the demand and the supply of labor in the market and prevailing economic and business condition in a country.Buoyancy of trade brings about high demand of resources (inputs) including the needs for more labor (more competition for scarce labor).An organization that wants recruit employees with rare skills have to get ready to pay premium price.

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Companies’ corporate culture(internal factor)

It is a sum total of organizational values, norms and expectation which differs among companies.Compensation package of an organization shows what is valued by the company and by extension affect how the job is and its salary structure.A company whose main business is engineering may pay premium price to engineers, vice versa.Some organizational culture gives room for nepotism and favoritism while for others is market driven.The market driven culture can not allow irrelevant and incompetent staff to be gaining premium pay for inefficiency/ineffectiveness.

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Companies’ corporate strategy(internal factor)

Compensation is an integral part of an organization’s strategic plan.If the strategy informed the organization to require a given specialist, it will be ready to pay for the premium price to recruit the employee (footballers).Some companies look for the employees’ long-term performance, as such they can decide to pay below industrial average but they do provide large benefits package

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Human Resources Activities/Strategy(internal factor)

A companies’ activities on recruitment and selection of employees, job analysis and evaluation, union-management relation determine employees’ pay.Job analysis enables an organization's to consider all compensation's factors before deciding on the actual pay when recruiting staff.The value an organization put on pay and job is influenced by factors such as location of an organization, reputation of an organization, friendly relationship of an applicant with management affects compensation packages demanded by an employee.

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Single versus Multiple plan on job evaluation

(internal factor)Job variation of a given depends on the job family.The work content of a job family can be captured on the single or multiple plan.In manufacturing job, a single plan of job content is possible but hardly to be made in a professional job. Because, it requires specialization and expertise.Some unique job characteristics of all the job families can be captured in a single job plan while some can not.To maintain equal pay , a comparable worth of the job should be determined when deciding on the pay structure/compensation package of an employees. Thus, a multiple plan of the job can influence decision on employees pay than the single plan.

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Organizational Change/Technological Change(internal factor)

An organization is exposed to many experiences in its life span which usually necessities the adoption of change to survive and grow.If an organization is relatively experiencing a stable change condition, the pay policy is made with ease, vice versa.A change in technology( from manual to computerized environment) requires hiring of experts who may be relatively limited in supply. It may pressurize probably the company to change its compensation package. Needs for rare special competences calls for the payments of premium price of employee.

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Organizational ability to pay(internal factor)

It is a function of organizational available financial recourses and working capital that can enable it to pay the determined wages and salary.A well profitable company with good cash flow pay as at when due the competitive compensation package, vice versa.A compensation package is dependent on how much of organizational revenue is set aside for labor cost and the amount that is required for investment in the new plant and machinery.Ability to pay is also a function of organizational and individual employee’s judgment and the external economic condition as well as economic necessity of parties at stake.

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Organizational life cycle(internal factor)

Compensation system ought to be congruent with the organizational stages of development.At introductory stage, some organization pay very poor base pay and benefits but later the welfare improves.A growing company in a growing/maturing industry tents to pay higher.Attractive compensation package is usually payable by the companies up to their maturity stage.A company at a declining stage may tend to hire cheap labor especially if it begin to show going concern problem.

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conclusionThe success of an organization’ compensation system is dependent on its ability to notice and observe both internal factors and external factors in the environment.

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Thanks for Listening and Attendance