Chona Mercado

Learning Objectives
Differentiate between “wages” and “salaries”
Objectives of compensation
Describe the factors of compensation estimates
Identify and correctly describe the compensation
structure
Issues in wage determination and administration
Incentive compensation
Definition of Concept
Wages Salary
- The payment, usually - Is usually paid for
of money for labor or services requiring
services
special training or
- The money usually abilities, in fixed
paid on hourly, daily or
amount, and for a
piece rate basis for
chiefly physical work longer period of
time, especially by
month
Definition of Concept
Wage and salary
administration

- is simply creation of a system

of orderly payments that is
equitable to both the
employee and the employer
and motivates employees to
exert an acceptable effort in
the performance of their job
Purpose of remuneration
Obtaining sufficient trained personnel
Retaining the recruited personnel
To keep expenditure at a reasonable level
Incentives to allow personnel to aspire to
promotion and to accept promotion
Encouraging personnel to be more productive
Ensuring that work is purposeful
Ensuring equality of remuneration
Giving effect to policy decision
 Should we pay all
employees doing the If not, on what basis
How should one employee should distinctions be
same work at the same
be paid relative to another made? Seniority, merit,
level the same?
when they both hold the or some other basis?
same job in the
organization?
Variants of people-based pay:
Skill-Based Knowledge-
Pay Based Pay

People-Based
Pay

Credential- Competency-
Based Pay Based Pay

Feedback
Pay
 Skill-Based Pay Knowledge-based Credential-based Feedback Pay Competency-
Pay Pay Based Pay

Skill-based pay Knowledge-based Credential-based Feedback pay is An employee is

sets pay levels on pay rewards pay rests on the fact based on: paid for the
the basis of: employees for that an individual Aligning pay with following
acquiring additional must have: strategic business
How many skills knowledge
objectives range, depth and
Applies to both the
employees have, or current and new job
A diploma or license, Establishing a direct types of skills and
How many jobs they Stretches the skill- or connection between knowledge he/she is
can do based model to  Pass one or more the jobholder and capable of using in the
professionals, managers, examinations from his/her part in job rather than for the
Expected positive and some technical a third-party accomplishing goals position they hold.
outcomes include: personnel professional or
regulatory This design must The "new pay"
Increased quality A study compared agency conform to four approach to
Higher productivity two manufacturing principles: compensation
A more flexible plants
One used the job- Credential-based Flows directly from attempts to address
workforce strategic business organizational needs to
centered pay design; the pay is more cut-and-
Improved morale other a knowledge-based dried than skill- goals motivate employees
Decreased design based or Directly links and support
absenteeism and After 10 months, the knowledge-based employees' actions to organizational
turnover pay-for-knowledge pay these goals strategies.
facility had higher Provides sufficient
quality, lower opportunity for
absenteeism, fewer rewards to hold
accidents employees' attention
The traditional plant Is timely
had higher productivity
Factors in Compensation
Estimate
Value added Factor Hierarchy of Jobs
Ability-to-Pay Factor Non-Wage Benefit
Government Wage factor
Policy Seniority factor
Union Pressure Hazard factor
Cost of living Factor Scarcity Factor
Issues in wage determination
Attracting Quality Workers
Retaining Quality Workers
Giving Skill Based Pay
Value of seniority
Rate Differentiation
Criteria for wage variation
Pay Progression period
Highly Paid Operative’s Promotion
to Supervisory Position
Types of Incentive Pays

Productivity Pay Distant Assignment

Cost Saving Incentive Pay
Incentive Social sacrifice
Innovation Incentive compensation
Pay Scarce Skill Incentive
Overtime Rates Pay
Hazard Pay Commissions
Bonus
Issues in Compensation
Administration
Managers must make policy decisions that
involve the extent to which:
Compensation will be secret
Compensation will be secure
Pay is compressed
Pay Secrecy or Openness
 There are degrees of pay secretiveness and openness
 In many organizations, pay ranges and individual pay are open to
the public and fellow employees (open system)
 With the secret system, pay is known only to the employee, her/his
superior, and HRM/payroll
 In some organizations, employees cannot discuss pay matters and,
specifically, their own pay
 Opening up a system has costs and benefits
 To reduce the manipulative aura surrounding pay, a company
must share pay information with employees
 As firms post job openings, information on pay becomes a critical
decision
 When deciding on secrecy or openness:
 Determine what employees want to know about pay
 Decide if the information will harm or help the firm
 Weigh performance, interdependence, and causal relationships
Pay Security
 Current compensation can motivate performance
 So can the belief that there will be future compensation
security

 Plans for providing this security include:

 A guaranteed annual wage
 Supplementary unemployment benefits
 Cost of living allowances (COLAs)
 Severance pay
 Seniority rules
 Employment contracts
 Pay Compression
 Occurs when employees perceive too  Solutions for pay compression
narrow a difference between their include:
pay and that of colleagues  Reexamining how many entry-level
 There is a narrowing gap between people are needed
senior and junior employees and  Reassessing recruitment
between supervisors and subordinates
 Emphasizing performance instead
 Differentials of 10 percent or less are
of salary-grade assignment
not unusual
 Basing all salaries on longevity
 Junior employees are sometimes
 Giving first-line supervisors and
brought in at salaries greater than
those of their superiors other managers the authority to
recommend equity adjustments
 The resulting low morale can lead to
 Limiting the number of new hires
decreasing productivity, higher
absenteeism, and turnover with excessive salaries
 To identify pay compression, compare
salaries and incumbents' years of
experience with the company``