Chapter 9 Compensation and Benefits
Types of Organizational Rewards • Cash – Cash rewards are rewards provided to employees in the form of cash. • Non-Cash – Non-cash rewards are rewards afforded to employees in any form other than cash
Performance Incentive Plan • A good performance incentive plan can motivate an employee to perform well-beyond what is expected of him. • Seven basic steps to follow when designing an incentive plan • Identifying goals and pay philosophy. • Doing research • Working backward • Designing a plan • Using financial analysis • Reviewing for improvement • Mastering communication.
Non-Cash Rewards and Recognition • Common Forms of Non-Cash Rewards • Employee of the Month - A company should not devote its time to singling out the poor performers. While it is important to identify the poor performers in order to come up with plans to improve their performance, recognizing good employees will go a long way. • Tenure or Years of Service Awards - A number of companies recognize the importance and value of tenure and therefore reward employees with an anniversary gift. Gifts usually get better the longer the tenure. • Time off - Providing employees some time off is another reward system that is becoming increasingly popular. It has even been singled-out as the most-valuable form of non-cash reward since most employees want a rest from work to spend more time with their families
Other forms of non-cash rewards • rewards for good suggestions to improve company processes • formal supervisory recognition • education programs (such as tuition reimbursements) • discount on products and services • free food and meals • letters and plaques, clothing • group or team activities, • free benefits (such as discount coupons or company-wide discounts to major establishments) • safety awards • customer nominations (usually done through surveys with customers) • employee recognition of other employees • establishment of focus groups.
Compensation Management • Compensation management is an important aspect in any good business. Good employees are difficult to come by and may be even more difficult to maintain. Hence, companies must keep their employees happy and this can be done by means of good compensation management.
Compensation Management • Key reward components • Pay - Pay is the basic aspect of compensation management. Basically, pay includes an employee’s base pay and any additional compensation either as bonus awards, stock options, or stock grants. • Benefits - While pay and benefits remain as the core of compensation management, an HR manager who only looks at these two aspects may be short-changing the company. Employee benefit plans have evolved over the years to become flexible and thus become a more useful reward system. • Career - Careers are representative of the future value when staying within an organization. It provides employees a sense of growth and it is common for employees to give up high salaries and good benefits for the sake of career advancement.
Job Evaluation and Pay Structure • What is job evaluation? Job evaluation is defined as “a systematic process for defining the relative worth or size of jobs within an organization in order to establish internal relativities and provide the basis for designing an equitable grade and pay structure, grading jobs in the structure and managing relativities. Job evaluation can be analytical or non-analytical.” The basic purpose of a job evaluation is to identify the job so that a proper compensation scheme can be applied.
The Case for Job Evaluation • Job evaluation can create the criteria against which jobs are valued explicitly and present grounds for organizing the judgment process. • It is also important in providing employees with a fair and justifiable pay structure. • It serves as the framework to allow for consistent decisions concerning job grades and rates of pay. • It is an analytical scheme which serves as the basis for ensuring equal pay for an equal value of work. It is the only acceptable defense in equal pay cases. • Job evaluation, being a formal process, is more likely to be considered as fair and reliable compared to informal approaches. The extent to which it can be accepted can be greatly increased if the job evaluation process is transparent.
The Case Against Job Evaluation • Critics stress that the job evaluation process can be bureaucratic, inflexible, time-consuming and even inappropriate in present-day organizations. • Schemes such as job evaluations can crumble over time through use or misuse. • It can be manipulated by people to attain higher grade which is not backed by a reasonable increase in responsibility or task. • Job evaluators may evaluate jobs based on their personal preconceptions regarding relative worth. • The case against job evaluation focuses mostly on the way it is practiced instead of the concept itself. Similar to other management techniques, job evaluation can be misconceived and misused
International Compensation • The International Compensation Manager • The international compensational manager must be well aware of employment and taxation laws, customs, environment, and specific employment practices. • The manager must be familiar with current fluctuations and the possible effects inflation might have on compensation. • The manager must also know the right situation when to provide special allowances and what kind of allowances are necessary.
The Company’s Perspective on International Compensation • International compensation should be in line with the company’s strategy, structure, and business needs. • It must function to attract and retain employees in critical locations. • Employees must be transferred using cost-effective measures while still being fair to the employee
The Employee’s Perspective on International Compensation • International compensation policy should provide financial security, financial advancement, as well as housing and education of the employee’s children. • For the transfer of work locations, the employee or employees involved should be afforded with additional pay as transfer incentive.
Basic Components of International Compensation Policy • Base salary.Base salary is representative of the amount of cash compensation which is also the basis of other compensation elements. In an international compensation policy, it can either be paid in local or foreign currency. • Foreign service inducement/hardship premium. Employees assigned to foreign subsidiaries should receive a salary premium for the hardships brought about by the transfer of job designation. These are commonly given to parent country nationals (PCN). As for foreign service inducements, these are usually given as a percentage of salary. The usual rate is 5% to 40% of the base pay.
Basic Components of International Compensation Policy • Allowances.Allowances encourage employees to accept international assignments. Allowances for international compensation may come in many forms. The most common form comes from cost-of-living allowance, otherwise known as COLA. • COLA aims to compensate for the difference in cost-of-living expenditures between home country and new country of designation such as housing, utilities, income tax, etc. • Other forms of allowances include home leave allowances, education allowances, relocation allowances, and spouse assistance.
Employee Benefits • Over the last two decades, the field of employee benefits has experiences drastic changes. Companies now spend a huge chunk of its funds on improving its benefit plans. Undoubtedly, legislation also paved way for the improvement of the benefits that employees receive. • Legally required benefits include : • social security • Medicare • unemployment compensation insurance, • worker’s compensation insurance, and • temporary disability insurance.
Employee Benefits • Definition • The broadest definition of employee benefits “includes all benefits and services, other than wages for time worked, that are provided to employees in whole or in part by their employers.” • Growth of Employee Benefits • The considerable growth in employee benefits can be attributed to a number of factors including industrialization, the influence of organized labor, wage controls, cost advantages, tax advantages, inflation, and legislation. Hence, providing employee benefits now involves making complex decisions which paved way for employee benefit planning.
Planning for Employee Benefits • Planning for employee benefits should consider six issues namely: • the employer’s objective • types of benefits • funding for the benefits, • provisions for controlling costs • communicating the benefit plan • if administrative functions should be outsourced
Total Compensation Management • What is total compensation management? • Total compensation involves all awards and rewards that each employee receives such as merit raises, bonuses, on-the-spot rewards, tuition reimbursements, training perks and benefits, gift certificates or vouchers, stock programs, etc. • Characteristics of Total Compensation Management • A total compensation management program must have three characteristics. It must be fair, competitive, and result-oriented. The major benefit of adopting such a program includes its capacity to affect an organization’s bottom line
Total Compensation Management Strategies • Instead of rewarding employees for their hard work, total compensation management recognizes the required behavior to reach the organizational goals and ensures that the employee adopts these behaviors. The program establishes which employees get benefits and who gets more benefits for their identified accomplishments. • An effective total compensation management program tracks all elements involving performance, retention, and budget metrics to come up with the right compensation scheme for the right people and the right reasons. • An ideal total compensation program allows the managers to realize varying compensation scenarios and study compensation data for the purpose of effective budgeting and scheduling.