EMPLOYEES’ COMPENSATION

1. EMPLOYEES’ COMPENSATION Chapter 7 Prepared by : Ly Sokcheu Updated : 1st September, 2012

2. Chapter Objectives After studying this chapter, you should be able to: • Define the compensation • Identify the objectives of compensation • Describe the various forms of compensation. • Explain the compensation process • Identify the determinants of financial and nonfinancial compensation. • Explain how compensation is determined and the types of compensation. • Understand the compensation responsibilities • Identify the types of employee incentives • Explain the employees benefits

3. I. Definitions of Compensation • Consists of wages paid directly for time worked, as well as more indirect benefits that employees receive as part of their employment relationship with an organization. • Is the type of all payment used by managers to pay and reward employees direct in return of their time worked with an organization. • Is total of all rewards provided employees in return for services

4. II. Objectives of Compensation • Is to create a system of rewards that is equitable to the employer and employee alike. • To be equitable: • compensation should focus on internally equitable pay for each employee relative to other employees in organization & externally equitable pay relative to other employees doing the similar work of other organizations. • To be legal: • Compensation should be consistent with government regulations such as Labor Law, Equal Pay Act…

5. II. Objectives of Compensation (Cont.) • To be adequate • compensation should focus on adequate pay to employees in order to attract them to joint & stay with the organization. • To be motivating • Compensation should provide sufficient incentives to employees in order to motivate them to perform jobs efficiently.

6. III. Compensation Process Compensation ¬karTUTat;sMNg¦ • Refers to every types of reward that individual receive in return for their labor. Financial¬hirBaØvtßú ¦ Non-Financial ¬minEmnhirBaØvtßú ¦ Direct Indirect Job Job Environment • Wages¬R)ak;em:ag¦ • salaries¬R)ak;Ex¦ • Commission¬kMéreCIgsar¦ • Bonuses¬R)ak;bMNac;¦ • ………….. • Insurance¬karFanara:b;rg¦ • Social Benefits¬plRbeyaCn_sgÁm¦ • Paid Absences¬bg;R)ak;Gvtþman¦ • ……………. • Interest¬cMNab;GarmµN_¦ • Responsibility¬karTTYlxusRtUv¦ • Recognition¬ekr_þeQµaH ¦ • ……………. • Coworker¬GñkeFVIkarCamYy¦ • Flextime¬PaBbt;Ebn ¦ • Cafeteria¬maneBlkaehV ¦ • ……………

7. IV. Compensation Responsibilities • HRD, Manager is responsible for: • Developing compensation policies, structures • Conducting job evaluation and pay survey • Managers are responsible for: • Matching performance and rewards • Recommending pay rates, pay increases based on guideline from HRD.

8. V. Salary and Wage ¬R)ak;ExnigR)ak;QñÜl¦ • Salary • Is a part of compensation that used by managers to pay their employees in the exchange of their services with a company on monthly basis. • Wage • Is a part of compensation that used by managers to pay their employees in the exchange of their services with an organization on hourly, unit basis.

9. V. Salary and Wage (Cont.) Development of a pay system ¬karGPivDÆn_énRbB½n§R)ak;ExnigR)ak;QñÜl¦ • Development of a pay system requires the three basic of pay level decisions: • The wage level decision • The wage structure decision • Individual wage decision

10. The wage level decision ¬karseRmccitþelIkRmiténR)ak;QñÜl¦ • The wage level decision is made by top managers at all levels of organization in compensation. • The decision in this level is involved the wage or salary for sufficiency of employees. • How does company pay for their employees?

11. The wage level decision (Cont.) Establishing the wage & salary level: • This decision is a policy made by top managers in order to pay their employees, according to market rates such as above, the same, and below the market. • The objectives of this policy are: • Involve the enough of labor supply • Attract employees to joint & stay with a long time in organization. • Avoid costly turnover.

12. The wage level decision (Cont.) • Factors influence pay level decision: • The decision on wages and salary are affected by policy and satisfaction of employers. • Generally, managers use high pay strategy because they want to get good employees stay with organization, reduce employees turnover. • Generally, managers use low pay strategy because they want to reduce costs & maximize profits. • Sometime, wages and salary are affected by other factors such as size of business, unionization and, productivity.

13. The wage level decision (Cont.) • Pay survey ¬karsÞg;emIlR)ak;ExnigR)ak;QñÜl¦ • The decision on wages and salary, managers conduct a survey for collecting data on existing compensation rates and benefits from other organizations in the same industry. • There are 3 types of survey: • Survey from government or private agencies. • Survey from business professional. • Survey from private companies or NGO.

14. The wage level decision (Cont.) • Pay survey • Methods of pay survey • Personal interviews: Asking other organization’s employees that involved with their payment. • Mailed questionnaires:Sending the list of questions related with payment to other organizations complete. • Telephone:To clarify information with mailed questionnaires in order to obtain information about pay quickly.

15. The wage structure decision ¬karseRmccitþelIrcnasm½<nénR)ak;QñÜl¦ • The decision on wages and salary structure is involved identifying to each performance in organization. • This decision, generally happened by • Management edict • Collective bargaining between managers and union. • Job evaluation

16. The wage structure decision (Cont.) • Management edict: Managers discuss with HRD and Accounting officers in order to find out market rates, various pay structure. • Collective bargaining: Is the process whereby employers and employee representative jointly negotiate a contract that specifies wages, hours, vacation and other conditions of employment. • Job evaluation: Is the systematic determination the value of individual jobs in relation to other jobs in the organization, and avoid inequality of wages.

17. The wage structure decision (Cont.) • In order to implement job evaluation effectively, it requires: • Obtaining the cooperation between managers and employees. • Choosing job evaluators: Consists of 5 or more people work as job evaluation committee. • Obtaining job descriptions: Job evaluation committee should have access to write job descriptions. • Choosing a job evaluation system Job ranking • Paired comparison MBO (Actual performance compares with goals)

18. Individual wage decision ¬karseRmccitþelIR)ak;QñÜlbuKÁl¦ • This decision concerns with relative payment to employees who perform similar jobs in company. • Factors influence individual wage pay are: • Performance: • Employee who works more gets more pay. • Employee will feel un-satisfaction when they work more but get less.

19. Individual wage decision (Cont.) Work experience & evaluation: • High salary is provided depend on employee’s work experience and education such as BBA, MBA experience. • Seniority or length of service: • Faith fullness with a company even if his or her performance can not justify pay. • Potential: • Which employee demonstrate he or she has potential to become supervisor or upper level of management get high pay.

20. Employee Incentives ¬karelIkTwkcitþnieyaCit¦ Definition • Incentives are the compensation that rewards employee's efforts beyond normal performance expectations. • Types of incentives¬RbePTénkarelIkTwkcitþ¦ Individual incentives: • Differences piece rate system: Pay lower piece rate wage if employee works less than standard output and higher piece rate wage if they produce over standard output.

21. Types of incentives (Cont.) Individual incentives (Cont.) • Commission: Percentage on unit of sales • Straight commission: No salary but commission of unit sold. • Salary-plus-Commission • Bonuses • Special incentive program • Group incentive systems: • Based on group rather individual performance: Profit and reduce production cost.

22. Types of incentives (Cont.) Organizational incentives • Pay all employees based on performance of entire organization. • Profit sharing plans: • - Equally all employees • - Base on salary • - Individual performance • - Seniority • Stock ownership employee which employee works well in company, he or she can buy share of stock with low price.

23. Employee Benefits ¬R)ak;bMNac;epSg²rbs;nieyaCit¦ Benefits • are indirect compensation in a form of something rather than money. • Most organizations recognize that they have responsibility to their employees to provide insurance and other programs for their health, safety, security, and general welfare. • Types of benefits ¬RbePTénR)ak;bMNac;epSg²¦ • Security benefits • Worker’s compensation • Unemployment compensation • Health care benefits

24. Types of benefits (Cont.) • Retirement-related benefits • Retirement policies¬eKalneya)aycUlnivtþn_¦ • Pension plans ¬EpnkarR)ak;esaFn¦ • Financial or other insurance benefits • Financial benefits • Other insurance benefits • Life insurance • Disability insurance • Educational benefits • Time-off benefits ¬R)ak;bNac;éneBlevlaQb;sRmak¦ • Holiday pay • Paid vacations

25. VI. The objectives of compensation • function should be: • Secure • Pay should be enough to help an employee feel secure and aid him or her in satisfying basic needs. • Incentive-providing • Pay should motivate effective and productive work. • Acceptable to the employee • The employee should understand the pay system and feel it is a reasonable system for the enterprise and himself or herself.

26. Secure • Pay should be enough to help an employee feel secure and aid him or her in satisfying basic needs. • Incentive-providing • Pay should motivate effective and productive work. • Acceptable to the employee • The employee should understand the pay system and feel it is a reasonable system for the enterprise and himself or herself.