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CHAPTER 11 Managing compensation & benefits. Chapter outcomes. Explain the link between pay, motivation and performance Define job evaluation and discuss four popular methods of performing it Develop a time-based pay system using pay grades and steps - PowerPoint PPT Presentation
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For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
CHAPTER 11 Managing
compensation & benefits
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Chapter outcomes• Explain the link between pay, motivation and performance• Define job evaluation and discuss four popular methods of
performing it• Develop a time-based pay system using pay grades and steps• Discuss three types of individual incentives• Discuss why gainsharing, profitsharing and employee stock
ownership plans (ESOPs) have grown as organisational incentive plans
• Understand executive compensation methods• Understand the growth of employee benefits and their
organisational objectives
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Definitions• Compensation/total rewards
• Wage and salary administration
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Compen-sation of employees
Extrinsic rewards(Financial)
Monetary rewards(Direct payments)
Hourly wage
Salary
Bonuses
Commissions
Pay incentives
Skills-based/competency-based
Benefits(Indirect payments)
Insurance
Retirement
Paid holidays
Paid public holidays
Food services
Medical
Recreation
Intrinsic rewards(Non-financial)
Recognition
Promotion opportunities
Working conditions
Interesting work
Training opportunities
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Compensation objectives
• • • •
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Objectives of a compensation system1. _______________
2. _______________
3. _______________
4. _______________
Wage survey to determine the “going rate” in the labour market
Job evaluation system that employees perceive as “equitable”
Reward good performance
Documentation of HR records
Government legislation
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Motivation and performance model
Feedback to employee
Employee sets new goals and expectations based on prior experiences
Emplo-yee
Emplo-yee
performs job
Re-wards
are given
Employee sets expectations
and goals
Performance is evaluated
Employee considers equity of performance
rewards
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Job evaluation (JE)• Definition:
• Result is a pay system with pay rates for each job depending on the status of the job according to the hierarchy
• Does NOT review the employees in the job but the worth of the position
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Job evaluation (JE) (continued)• JE methods:
– – – – – – – –
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Job evaluation (JE) (continued)
• Job evaluation committee• Outside assistance
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Pay systems
• _______ based systems
• _______ based systems
• __________ based systems
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Guidelines for incentive plans
• Bold incentives• Emphasis on team performance• Quick feedback• Above-average base• Simple formula
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Incentive plans• Problems with incentive plans• Different types:
– Cash profit-sharing– – Business incentives– – Team/group incentives– –
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Executive compensation
• 4 forms of pay:– (1) – (2) – (3)– (4)
• Golden parachutes• Stock options
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Benefits• Types of benefits• Benefits required by law:
– Unemployment insurance– Compensation for injuries and diseases
• Voluntary benefits• Paid time off• Insurance• Employee services
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Total benefit planning
• Flexible benefit plans– – –
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Advantages of flexible plans
• • • • Attract and retain employees• • Avoid duplicate coverage
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Summary• Organisations use both extrinsic and intrinsic rewards to
compensate employees for their time and effort. Pay systems are designed to attract, retain and motivate employees while complying with government legislation.
• Job evaluation is used to evaluate jobs systematically and to assign them to pay grades. The HR specialist strives to maintain a pay system that employees view as equitable, both internally and externally. Standard methods of evaluation include ranking, classification, point and factor comparison. Each offers different advantages.
• Pay systems are usually designed to compensate people for the amount of work they produce (piecework), the skills they learn and use or the time they spend on the job (hourly and salaried). Most employees in South Africa are paid through time-based systems.
• Individual employee, team-based and organisationwide systems, such as profit-sharing and gainsharing, are replacing automatic pay increases to relate pay to performance.
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Summary• Executive compensation has become a complex area of HR
functions. Top executives often receive compensation in as many as four areas, including salary, bonuses, long-term incentives and benefits.
• Employee benefits are not just a fringe cost to employers; they represent a substantial percentage of the total payroll. Benefits are usually awarded to all workers or on a seniority basis.
• Certain benefits are required by law, including unemployment insurance and compensation for injuries and diseases.
• Retirement income is provided through private/government pension plans and personal savings. Employers believe that they directly or indirectly provide all these sources - which constitute the single most expensive benefit area.
For use with Human Resource Management in South Africa 4eby Grobler, Wärnich et al
ISBN: 1408019515 © 2010 Cengage Learning
Summary• Health insurance programmes provided by employers have expanded to
include life/disability insurance, as well as the traditional medical and hospitalisation coverage.
• Paid time off from work represents a major benefit cost. • Flexible benefit plans are of great interest to employers because they
help contain benefit costs and provide employees with more individualised benefit programmes.
• Changing employee demographics have caused employers to offer childcare programmes to help employees meet their family needs.
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