Understanding Employee Compensation

• Compensation gives monetary value equivalent to work performed by an employee.
• Compensation includes financial and non-financial rewards.

Base Pay

• Base pay the basic pay for actual work rendered in the form of salary or wage.
• Salary is the fixed amount of pay usually given twice a month.
• Wage is hourly or daily pay for work rendered on a particular day.
• Salary/wage add-ons include overtime, shift differentials, and premiums.

Basic Types of Compensation

• Variable pay is linked to accomplishments in performance, such as bonuses and incentives.
• Benefits are indirect rewards that may be government-mandated or company-initiated.
• Direct compensation is an actual monetary value that entitles an employee.
• Indirect compensation is non-monetary, such as benefits packages.
• Inputs refer to what one puts into a job.
• Outputs refer to what one gets from a job.

Components of Compensation System

• Job analysis
• Job description
• Job evaluation
• Pay structures
• Salary surveys
• Policies and regulations

Internal Alignment

• Aligning pay with the contributions of employees in achieving organizational objectives.

External Competitiveness

• Aligning pay with competitors and calculate the risk of being competitive.

Employee Contributions

• Considering contribution to performance as a factor for pay, putting high premium on employee contribution.

Management of Pay Systems

• Putting a system to give compensation, consider timeliness of pay.

Individual Factors

• Performance
• Seniority
• Experience
• Potential
• Personal characteristics

Job Factors Based on Duties, Responsibilities, and Nature of Job

• Skills needed
• Effort exerted
• Responsibility
• Accountability
• Work condition

Organizational Factors

• Nature of industry
• Company philosophy
• Pay policies
• Profitability
• Union or non-union
• Size

Market Considerations

• Product market: Selling goods and services at a quantity and price that will bring return of investment.
• Labor market: the amount an organization must pay to compete against other organizations that hire similar employees.
• Job analysis is the process of getting detailed information about jobs.
• Job analysis has been called the building block of everything that the HRM department does.
• A job description lists the tasks, duties, and responsibilities (TDRs) of a job.
• A job specification lists the knowledge, skills, abilities, and characteristics (KSAOs) needed for a job.
• Job design defines how work will be performed and the tasks required.
• Job redesign changes the tasks or the way work is performed in an existing job.
• Pay level: Average pay, including wages, salaries, and bonuses, for jobs in an organization.
• Job structure: The relative pay of jobs in an organization.

Policies Affecting Compensation

• Internal Alignment: Aligning pay with employee contributions to achieve organizational objectives.
• External Competitiveness: Matching pay with competitors while calculating risk.
• Employee Contributions: High premium on employee contribution.
• Management of Pay Systems: Creating a system for compensation that considers timeliness.

Purpose of Job Analysis (JA)

• Job analysis lays the foundation for HRM systems.
• Selection: Selection systems developed to assess key KSAs, ensuring job-relatedness.
• Training: Gaps in KSAs represent training needs.
• Performance Appraisal: Job analysis establishes performance standards.
• Compensation: Relative worth of jobs measured via job evaluation.

Steps to Job Analysis Process

• Preparation for the job
• Analysis
• Collection of JA information
• Uses of JA

Approaches to Job Analysis

• Job oriented: Focused on specific tasks, job outcome, and productivity.
• Worker oriented: Focused on worker behaviors, skills, abilities, and traits.

Techniques for Conducting Job Analysis

• Interviews: Meetings with the person currently performing the job.
• Questionnaires: Unstructured (open-ended) and structured (checklist).
• Position Analysis Questionnaire (PAQ)
• Direct Observation: Immersion.
• Systematic Activity Logs: Detailed written record of activities.
• Critical Incidents: Identifying specific actions or behavior that lead to desirable consequences.

Tip Box: Basic Questions to Ask When Conducting JA

• What does the worker do?
• What are the major and minor duties?
• What are the main tasks or subtasks?
• How is the job being done?
• Why is the job being done?

Parts of a Job Description

• Heading: Identification and references of a job, including the job title.
• Job Statement/Job Summary: A brief statement of duties and responsibilities.
• Statement of Duties and Responsibilities: A logically arranged list of duties.
• Job Specifications: Educational background, experience, training, and physical skills.
• Efforts (mental, physical)
• Responsibilities (accountabilities, obligations)
• Working conditions (environmental conditions and hazards)
• Reporting Relationships

Job Evaluation (JE)

• Job evaluation is a systematic process for defining the relative worth or size of jobs to establish internal relativities.
• Factor Comparison: A method for job evaluation that begins with selecting factors, usually five, that are constant for all jobs.
• Point Rating System: Selection of job factors, construction of degrees for each factor, and assignment of points to each degree.