Compensation in HRM Overview

Compensation in HRM

• Compensation encompasses both monetary and non-monetary aspects, including base salary, benefits (health insurance, retirement plans, bonuses), and more.
• A comprehensive compensation package is crucial for strategic HRM, as it significantly impacts the budget.
• Compensation packages consider recruitment rates, employee retention, and satisfaction.
• Local labor laws strongly influence offered compensation.

Types of Compensation

• Base Pay: Fixed salary for work performed, excluding benefits or bonuses.
• Commission: Additional pay for exceeding expectations, often tied to sales.
• Overtime Pay: Premium pay for additional hours worked beyond standard work hours.
• Skill-Based Pay: Increases in pay linked to acquired skills (horizontal, vertical, and depth).
• Market-Driven Compensation: A compensation philosophy aligning with prevailing market values for attracting talent, considering competition, supply & demand, and different strategies (leading, matching, lagging market compensation). Examples include companies like Google, Facebook, Apple, etc.
• Merit Pay: Salary increases based on individual performance, often becoming part of base salary (different from bonuses).
• Variable Pay: Pay linked to productivity or profitability, generally lump-sum payments.

Types of Benefits

• Indirect financial and non-financial payments like time off (vacation, sick leave, maternity leave), childcare assistance, health insurance, life insurance, unemployment insurance, retirement benefits, lunch, uniforms.

Factors Influencing Compensation

• Internal Factors: Organization's ability to afford compensation, business strategy, employee productivity.
• External Factors: Government regulations, collective bargaining, labor market conditions, inflation, cost of living.

Compensation Package Development

• Compensation plans should support organizational goals and strategic plans.
• Market Compensation Policy: Pays the current market rate.
• Market Plus Policy: Pays above the market rate.
• Market Minus Policy: Pays below the market rate.
• Other factors in determining compensation: employer's affordability, industry, employee/job value, current economic state (inflation, cost of living).

Compensation Components

• Financial Compensation: Direct (Base pay, commissions, overtime) and Indirect (Vacation, sick leave, pension, health/life insurance, child care).
• Non-Financial Compensation: Working conditions, decision-making involvement, job enrichment, training & development, work-time flexibility.

Goals of a Compensation Plan

• Attract qualified candidates.
• Maintain competitiveness to keep employees.
• Enhance employee morale, motivation, and satisfaction.

Using Compensation

• Recruit and retain qualified workers.
• Reward peak performance.
• Increase employee morale and satisfaction.
• Ensure internal and external equity.
• Reduce turnover, promote loyalty.
• Train and develop employee competencies.

Job Descriptions and Job Analysis

• Job descriptions outline job responsibilities, requirements, and other aspects.
• Job analysis uses methods like interviews, questionnaires, and observation.

Job Evaluation

• Job evaluation compares jobs to determine appropriate compensation levels.

Questions/Activities

• Negotiating Salary: How to negotiate effectively; understanding when to accept/reject an offer.
• Company Compensation: Analyzing a situation where a new employee's salary is significantly lower than a predecessor's, and how to manage emotions and navigate such situations. Considering the limitations of compensation and how to retain talent in a market that does not allow for the highest possible pay. Discusses strategies for talent acquisition and retention in a competitive market.
• Meaningful Work: Defining and understanding meaningful work in the context of job satisfaction.