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COMPEN$ATION

COMPEN$ATION. Compensation can be defined as all of the rewards earned by employees in return for their labor. Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals

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COMPEN$ATION

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  1. COMPEN$ATION

  2. Compensation can be defined as all of the rewards earned by employees in return for their labor. • Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals • Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services • Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions

  3. Compensation may be used to: • recruit and retain qualified employees. • increase or maintain morale/satisfaction. • reward and encourage peak performance. • achieve internal and external equity. • reduce turnover and encourage company loyalty. • modify (through negotiations) practices of unions

  4. The components of a compensation system include: • Job Descriptions, Job Analysis, Job Evaluation • Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. • Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. • Policies and Regulations

  5. Different types of compensation include: • Base Pay • Overtime Pay • Bonuses, Profit Sharing, Merit Pay • Stock Options • Travel/Meal/Housing Allowance • Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

  6. Base Pay Examples: • Hourly Wages – an employee paid by the hour. • Commissions – a fee for services rendered based on a percentage of an amount received or collected. • Piece Rate – the employee is paid for each unit of production at a fixed rate. • Salary – the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

  7. Regulations Affecting Compensation • Fair Labor Standards Act (FLSA) • Equal Pay Act • Lilly Ledbetter Fair Pay Act • State & Local Laws

  8. Elements of the FLSA • Exempt/non-exempt status • Minimum wages • Overtime provisions • Hours Worked

  9. Exempt/Non-Exempt Status Some jobs are classified as exempt by definition. For example, "outside sales" employees are exempt ("inside sales" employees are nonexempt). For most employees, however, whether they are exempt or nonexempt depends on • how much they are paid • how they are paid • what kind of work they do.

  10. Exempt/Non-Exempt Status Salary level test: With few exceptions, to be exempt an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also (c) perform exempt job duties. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). Most employees must meet all three "tests" to be exempt.

  11. Exempt/Non-Exempt Status Salary basis test: Generally, an employee is paid on a salary basis if s/he has a "guaranteed minimum" amount of money s/he can count on receiving for any work week in which s/he performs "any" work. Some "rules of thumb" indicating that an employee is paid on a salary basis include whether an employee's base pay is computed from an annual figure divided by the number of paydays in a year, or whether an employee's actual pay is lower in work periods when s/he works fewer than the normal number of hours.

  12. Exempt/Non-Exempt Status The duties tests: An employee who meets the salary level tests and also the salary basis tests is exempt only if s/he also performs exempt job duties. These FLSA exemptions are limited to employees who perform relatively high-level work. There are three typical categories of exempt job duties, called "executive," "professional," and "administrative."

  13. Designing Good Compensation Plans • Embrace a total compensation philosophy which reminds employees that their compensation includes a lot more than just base pay. • Define and communicate your compensation philosophy. A focused compensation philosophy answers these fundamental questions: • What do you want to pay for? • How do you want to pay for it? • What is your competitive posture? • How will you split up the pie?

  14. Designing Good Compensation Plans • Tailor the plan to your firm’s culture and values. Matching organizational values to performance requires a new approach to compensation. • Link compensation to achieving the firm’s vision, mission and strategy. This involves identifying the firm’s top strategic objectives, defining what they mean in terms of organizational behavior and designing your compensation plan in a way that rewards and recognizes those behaviors. • Define and describe core values and evaluate how well owners live them.

  15. Designing Good Compensation Plans • Know what creates value in your firm. Create and hold people accountable to competency maps that outline needed skills and behaviors. • Focus on criteria that improve both top line and bottom line. • Reward skills and behaviors that drive results.You can only create permanent behavior change by first changing the culture and the environment, then using compensation to reinforce those changes. • Measure and reward individual, team, departmental and firm-wide objectives.

  16. Equity • Workplace equity refers to the perception that all employees in an organization are being treated fairly • External pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar jobs in other organizations • Internal pay equity exists when employees in an organization perceive that they are being rewarded fairly according to the relative value of their jobs within an organization

  17. Building a Market-Based Pay Structure • Gathering the background information needed for project success. • Determining your sources of external market data and getting the data ready. • Conducting the market data analysis. • Developing the pay structures. • Calculating the costs of the pay structures. • Implementing and evaluating the new pay structures

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