HRM 648- CHAPTER 1

THE PAY MODEL

What is Compensation?
• All forms of financial returns and tangible services and benefits employees receive as part of
an employment relationship

 MAJOR SOURCE OF FINANCIAL  MAJOR EXPENSES

SECURITY EMPLOYEE’S MANAGER’S  INFLUENCE EMPLOYEES
 RETURN IN EXCHANGE
 ENTITLEMENT OF BEING
VIEW VIEW BEHAVIOUR AND MOTIVATION
EMPLOYEES COMPENSATION
 REWARD FOR THE JOB DONE
PERSPECTIVE VIEW
 Create sense of ownership  Measure of Justice
 Linking executive pay to
SOCIETY  Benefits
company performance STAKEHOLDERS’ VIEW  Job losses or gain
VIEW  Lead to price increase

1
 FORMS OF
PAY
Relational Returns

Total Compensation

Recognition &
Status
Cash Benefits
Compensation Employment
Security

 Base  Income
 Merit/ Cost of protection
Challenging Work
Living  Work-Life
Learning
 Short-term Balance
Opportunities
Incentives  Allowances
 Long-term
Incentives

2
 Efficiency is improving
performance, increasing
quality, and controlling
costs

Compliance is Compensation Objectives Fairness (procedural

conforming to federal fairness) is the process
and state compensation used to make pay
laws and regulations decisions

Ethics means the

organization cares
about how
3 its results
are achieved
Chapter 3
Compensation Strategy:

• Internal Alignment Internal Alignment

Often called internal equity, refers to • Pay Structure
the pay relationships among different Refers to the array of pay rates for
jobs/skills/competencies within a different work or skills within a single
single organization organization. The number of levels, the
differentials in pay between the levels,
and the criteria used to determine those
differences describe the structure.

 Supports organization strategy.

 Supports work flow.
• Work flow is the process by which
good and services are  An internal pay structure can be defined
delivered to the by:
customer. 1. the number of levels of work,
 Motivates behavior. 2. the pay differentials between the levels,
• “line-of-sight”. and
• Structure must be fair to 3. the criteria or bases used to determine
employees. Differentials those levels and differentials.
 The pay differences among levels
are referred to as differentials
 Pay is determined by:
 Knowledge/ skills involved
 Working conditions Level 1
 Valued addition to the
company
 The same basic structure of Level 2 Level 2
percent 4differentials can be
paired with different pay level Level 3 Level 3 Level 3
policies
Content and Value

Content Value What Shapes Internal

Structures?

Work performed in a job and The worth of the work.

how it gets done
 EXTERNAL FACTOR
o ECONOMIC PRESSURES
Exchange Value o GOVERNMENT POLICIES, LAWS AND REGULATION
Use Value The wage agreed upon by the o STAKEHOLELDER
The value of goods/services an o CULTURES AND CUSTOMES
employer and employee.
employee produces in a job.

 ORGANIZATION FACTORS
o STRATEGY
o TECHNOLOGY
o HUMAN CAPITAL
o HR POLICIES
 A job-based structure relies on the work content – tasks, o EMPLOYEE ACCEPTANCE
behaviors, responsibilities. o COST IMPLICATIONS

 A person-based structure shifts the focus to the employee.  INTERNAL STRUCTURE

• The skills, knowledge, or competencies the employee o LEVEL
possesses and if they are used in the job. o DIFFERENCIALS
5 o CRITERIA
Strategic Choices in Designing Internal Structures

Tailored Loosely Coupled

 Adapted by  Requires constant
organizations with a innovation.
low-cost, customer-  Pay structures are more
focused strategy. loosely linked to the
 Has well-designed jobs organization to provide
with detailed steps or flexibility
tasks.
 Very small pay
differentials among Hierarchical
jobs  Values the differences in
work content, skills, and
contribution.
Egalitarian  Includes detailed
All employees are valued descriptions of work
equally. done at each level.

 Advantages:
• Fewer levels and smaller
differentials.
 Disadvantages:
Equal treatment can mean
more knowledgeable
employees feel underpaid