Chapter 2: Compensation in Organizations

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the term used to describe the payment given by an employer to an employee during their period of employment?

Reward

Wage

Salary

Remuneration (correct)

What type of rewards include praise for completing a project or meeting performance objectives?

Extrinsic rewards

Monetary rewards

Intrinsic rewards (correct)

Nonmonetary rewards

What is the term used to describe the basic compensation that an employee receives, usually as a wage or salary?

Base pay (correct)

Variable pay

Direct compensation

Indirect compensation

What type of compensation program consists of employee benefits?

Indirect compensation Signup and view all the answers

What is the main reason employers must be competitive with compensation?

All of the above Signup and view all the answers

What is the general term used to describe both monetary and nonmonetary rewards?

Extrinsic rewards Signup and view all the answers

What is a potential drawback of a payment system that links pay to performance?

It may lead to unfair pay rates due to individual circumstances. Signup and view all the answers

What type of payment system has been growing in popularity in recent years?

Performance-related pay system Signup and view all the answers

What theory of motivation is related to the growth of performance-related pay?

Expectancy theory of motivation Signup and view all the answers

What is the basis for traditional performance-related pay systems?

Individual performance Signup and view all the answers

What type of performance-related pay system relates directly to performance levels against agreed, measurable standards?

Individual-based systems Signup and view all the answers

What is an example of a job where performance-related pay is common?

Salesperson Signup and view all the answers

What is a critical issue in procedural fairness as it applies to compensation?

How to establish pay ranges for jobs Signup and view all the answers

What refers to the perceived fairness of the amounts given for performance?

Distributive justice Signup and view all the answers

What happens if an outstanding employee receives the same raise as an employee with mediocre performance?

Greater inequity is perceived Signup and view all the answers

What is a consequence of supervisory favoritism or other non-job-related factors?

Greater inequity is perceived Signup and view all the answers

What type of pay system keeps information about pay grades and ranges secret?

Closed pay system Signup and view all the answers

What is one of the two critical issues in procedural fairness as it applies to compensation?

How appropriate and fair is the process used to assign jobs to pay grades? Signup and view all the answers

Why do organizations aim to pay market rates?

To attract and retain employees Signup and view all the answers

What do smaller employers often assume about pay rates?

That the pay set by other employers is an accurate reflection of a job’s worth Signup and view all the answers

What affects an employer’s pay policies in a unionized organization?

Collective bargaining contract Signup and view all the answers

What is necessary before developing a base pay system?

Accurate job descriptions and job specifications Signup and view all the answers

What type of systems use job descriptions and job specifications?

Task-based systems Signup and view all the answers

What are job descriptions used for in the development of a wage and salary system?

Job evaluation and pay surveys Signup and view all the answers

What happens if an organization does not provide compensation that is viewed as fair by its employees?

The organization may have higher turnover of employees Signup and view all the answers

What do organizations use to track external equity?

Pay surveys Signup and view all the answers

What is the consequence of an equitable compensation program?

Individuals are more likely to be attracted to and take jobs in organizations Signup and view all the answers

What do employees believe if they are compensated fairly?

They will share in the growth of the organization Signup and view all the answers

What must an organization have to ensure equity and compensation activities?

Policies, procedures, and administrative support systems that are viewed as job-related Signup and view all the answers

Why is it important for HR professionals and managers to develop compensation programs?

To ensure that individuals are more likely to be attracted to and take jobs in organizations where employees do not voice widespread concerns about equity Signup and view all the answers

Study Notes

Definition and Nature of Compensation

Compensation refers to any payment given by an employer to an employee during their period of employment.
Types of compensation: intrinsic (praise, psychological and social effects) and extrinsic (tangible, monetary, and non-monetary rewards).

Types of Compensation

Direct compensation: base pay and variable pay (monetary rewards).
Indirect compensation: employee benefits.

Base Pay

Basic compensation an employee receives, usually as a wage or salary.
Organizations want to "pay market" to ensure external equity.

Market Pricing

Smaller employers set pay rates at market price, the typical wage paid for a job in the immediate labor market.

Unions and Compensation

Unionized employees have their pay set according to the terms of a collective bargaining contract.
Non-union organizations have more flexibility in determining pay levels and policies.

Development of a Base Pay System

Based on task-based systems focusing on work done in specific jobs.
Requires accurate job descriptions and job specifications.
Job descriptions are used for job evaluation and pay surveys.

Links pay to individual, team, or organizational performance.
Can be based on sales, output, or performance against agreed standards.

Individual-Based Systems

Relates pay to individual performance levels against agreed standards.
Requires procedural fairness in determining base pay, allocating pay increases, and measuring performance.

Pay Openness and Equity

Pay openness refers to the degree of openness or secrecy regarding pay systems.
External equity concerns the fairness of compensation in relation to other organizations.
Organizations track external equity using pay surveys.

Importance of Equity and Compensation

Equitable compensation programs attract and retain qualified employees and reduce turnover.
Consequences of inequitable programs include higher turnover, recruitment difficulties, and lower productivity.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your understanding of compensation in the workplace, including its importance, types, and role in hiring and retaining employees. Learn how compensation affects employee performance and why it's crucial for employers to be competitive.