9/24/2020 1 Compensation Management Instructor Associate Prof Dr Pham Thi Bich Ngoc National Economics University Course Objectives Upon successful completion of this course, students should be able[.]
Trang 1Compensation Management
Instructor: Associate Prof Dr Pham Thi Bich Ngoc National Economics University
Course Objectives
Upon successful completion of this course, students should be able
to
demonstrate comprehensive understanding of concepts and importance of compensation and compensation management in
an organization; the complexities of compensation systems, along with an in-depth appreciation of the key ingredients necessary to ensure their successful implementation in any organizational setting
demonstrate comprehension by constructing a compensation system encompassing: 1) internal consistency, 2) external competitiveness 3) employee contributions, 4) organizational benefit systems, and 5) administration issues
analyze, integrate, and apply the knowledge to solve compensation related problems in organizations
Course Materials Course book
Milkovich, G.T., and Newman, J.M., Gerhart, B (2014),
Compensation, 11 th ed., McGraw Hill Irwin, Inc.,
Boston.
Reference books:
Long, R J (2013), Strategic compensation in Canada, 5th
Edition, Nelson Education Limited., Canada
Limited, USA
LMS
Module materials, the assignments and various communications will be
delivered through the LMS site It is your responsibility to check it
Course schedule
Week 1 Unit 1: Introduction to Compensation management Week 2 Unit 2: Defining Internal Alignment
Week 3 Unit 3: Job-based structure and Job evaluation Week 4 Unit 4: Person-based structure
Week 5 Unit 5: Defining Competitiveness Week 6 Unit 6: Designing Pay Levels, Mix, and Pay Structures Week 7 Unit 7: Pay-for-Performance
Week 8 Unit 8: The Benefit Determination Process Week 9 Unit 9: Benefit Options
Week 10 Unit 10: Compensation of Special Groups
Trang 2Course Evaluation
Individual assignment/Midterm
Unit 1: Introduction to
Compensation Management
Instructor: Associate Prof Dr Pham Thi Bich Ngoc
National Economics University
Outline
1. Compensation and Compensation Management:
Definition, role, purposes
2. Forms of Pay
3. A Pay Model
4. Compensation Strategy
Compensation
Compensation is a systematic approach to
providing monetary value to employees in exchange for work performed
Compensation refers to all forms of financial
returns and tangible services and benefits employees receive as part of an employment relationship
Total reward/compensation refers to both
intrinsic and extrinsic reward that employees receive for performing their jobs
Trang 3Compensation
Society
perspective
Stockholders
Employees
Manager
Compensation
Society perspective: pay as a measure of justice Total
compensation package may also be seen as a reflection of equity
or justice in society
Stockholders: Stockholders are interested in how employees are paid (using stock to pay employees creates a sense of ownership that will improve performance, which will, in turn, increase stockholder wealth) Stockholders have a particular interest in executive pay→ higher organizational performance
Manager: compensation is a major expense; manager can also use
it to influence employee behaviors and to improve the organization’s performance
Employees: pay plays a vital role in a person’s economic and
social well-being Employees may see compensation as a return in
an exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done.
Effects of Pay on Employees’
Behaviors
Pay can influence employee
motivation and behavior in two ways:
pay can affect the motivational intensity,
direction, and persistence of current
employees
pay can also have an indirect, but
important, influence via a sorting effect
on the composition of the workforce
(different types of pay strategies may
cause different types of people to apply to
and stay in an organization)
Compensation system
Compensation system consists of integrated policies, processes, practices and administrative procedures for implementing the system
Trang 4Purpose of compensation
▪ Recruit and retain qualified employees.
▪ Increase or maintain morale/satisfaction.
▪ Reward and encourage peak performance.
▪ Reward people for the value they create
▪ Align reward practices with both business goals and employee values
▪ help in the process of motivating people and gaining their commitment and engagement;
▪ support the development of a performance culture;
▪ develop a positive employment relationship and psychological contract.
Forms of Pay
Forms of Pay
Cash compensation
Base wage
is the cash compensation
that an employer pays for
the work performed
tends to reflect the value of
the work or skills and
generally ignores
differences attributable to
individual employees
Salary vs wage
Forms of Pay
Merit Pay/Cost-of-Living Adjustments
Periodic adjustments to base wages may be made on the basis of changes in what other employers are
paying for the same work, changes in the overall cost
of living, or changes in experience or skill.
Merit increases are given as increments to base pay and are based on performance
In contrast to merit pay, cost-of-living adjustments
give the same increases to everyone, regardless of performance Finally, companies may also use merit bonuses As with merit increases, merit bonuses are based on a performance rating but, unlike merit increases, are paid in the form of a lump sum rather than becoming (a permanent) part of the base salary
Trang 5Forms of Pay
Incentives
Incentives also tie pay increases to
performance
incentives do not increase the base
wage and so must be re-earned each
pay period
the potential size of the incentive
payment will generally be known
beforehand
relies on an objective measure of
performance (e.g., sales)
incentives explicitly try to influence
future behavior
Merit adjustments
merit pay programs evaluate past performance of an individual and then decide on the size of the increase
a merit increase program typically relies on a subjective rating of performance
merit recognizes (rewards) past behavior, which is hoped to influence future behavior
Forms of Pay
Incentives
Incentives can be tied to the performance of an individual employee, a team of employees,
a total business unit, or some combination of individual, team, and unit
Incentives may be short- or long-term
Long-term incentives: are intended to focus employee efforts on multi-year results (e.g stock ownership or Stock options
incentives are frequently referred
to as variable pay.
Forms of Pay
Benefits
Income Protection:
employers must pay into a fund that provides income
replacement for workers who become disabled or unemployed;
Medical insurance, retirement programs, life insurance, and
savings plans are common benefits They help protect
employees from the financial risks inherent in daily life
Work/Life Balance:
Programs that help employees better integrate their work and
life responsibilities include time away from work (vacations,
jury duty), access to services to meet specific needs (drug
counseling, financial planning, referrals for child and elder
care), and flexible work arrangements (telecommuting,
nontraditional schedules, nonpaid time off)
Allowances:
housing (dormitories and apartments) and transportation
Forms of Pay
Relational Returns from Work
recognition and status,
opportunities to learn
personal satisfaction from successfully facing new challenges, teaming with great co-workers
Trang 6Pay Model
Policies
INTERNAL
ALIGNMENT
COMPETITIVENESS
CONTRIBUTIONS
MANAGEMENT
Techniques Work Analysis →Descriptions
→Evaluation / Certification
INTERNAL STRUCTURE
Market Definitions → Surveys→
Policy Lines
PAY STRUCTURE
Seniority Based → Incentives→ Merit Guidelines
PAY FOR PERFORMANCE
Cost→ Communication→
Change
EVALUATION
Objectives
EFFICIENCY
• Performance
• Quality
• Customer and Stockholder
• Cost
FAIRNESS COMPLIANCE
ETHICS
Compensation objectives
Efficiency
Fairness
Compliance
Ethics
Four Policy Choices
Internal alignment
refers to comparisons among jobs or skill levels
inside a single organization Jobs and people’s skills
are compared in terms of their relative
contributions to the organization’s business
objectives
determining what is an appropriate difference in
pay for people performing different work is one of
the key challenges facing managers
Four Policy Choices
External competitiveness
much and what forms—have a twofold effect on objectives:
(1) to ensure that the pay is sufficient to attract and retain employees—if employees do not perceive their pay
as competitive in comparison to what other organizations are offering for similar work, they may be more likely to leave—and
(2) to control labor costs so that the organization’s prices
of products or services can remain competitive in a global economy
Trang 7Four Policy Choices
Employee Contributions
(or nature of pay mix) is an important policy
decision
create an advantage over competitors
Four Policy Choices
Management
Management means ensuring that the right people get the right pay for achieving the right objectives in the
right way
answering the question: what is the impact of this policy, this technique, this decision? what difference does it make? Does the decision help the organization achieve its objectives
It goes beyond simply managing pay as an expense to better understanding and analyzing the impact of pay decisions on people’s behaviors and organizations’
success
How open and transparent should the pay decisions be
to all employees?
Who should be involved in designing and managing the system?
Pay Techniques
Techniques tie the four basic
policies to the pay objectives
Various techniques exist
The Totality of Decisions
Trang 8Three Compensation Strategies
Different Strategies within the Same Industry
Google, Microsoft, and SAS all compete for software engineers and marketing skills
Microsoft: strong emphasis on stock-related compensation; Its benefits continue to lead the market
SAS Institute: takes a very different approach
Different Strategies within
the Same Company
Different business units within the same corporation will
have very different competitive conditions, adopt
different business strategies, and thus fit different
compensation strategies.
Compensation strategy: Strategic choices
Trang 9Compensation strategy: Compensation
SOURCE OF COMPETITIVE ADVANTAGE:
THREE TESTS
Three tests determine whether a pay strategy is a
source of advantage: (1) Is it aligned? (2) Does it
differentiate? (3) Does it add value?
Align: Alignment of the pay strategy includes three
aspects:
(1) align with the business strategy, (2) align
externally with the economic and sociopolitical
conditions, and (3) align internally within the
overall HR system
Differentiate:
Add Value: what are returns that a company get
from incentives, benefits, and even base pay