4.1 Student Total Rewards PDF
4.1 Student Total Rewards PDF
INDIRECT COMPENSATION
- Benefits and services offered to employees.
- Not directly related to performance
- It is becoming the largest part of total
compensation
- Includes health insurance, paid vacation, gym
membership
Organizational Purposes for Compensation
Total Compensation
Relational Rewards
Benefits
Learning
Opportunities
Recognition
Cash Compensation & Status
Life, Allowances
Long-term Health, and Employment Challenging
Incentives Disability Security Work
Base Merit/Cost
Insurance Work/Life
of Living Short-term Programs
Incentives
Which ones are Monetary?
Which ones are Non-Monetary
Total Rewards
Total Rewards for Work
Total Rewards
( Total Compensation)
Total Compensation
Relational Rewards
(Indirect)
Benefits
(Indirect) Learning
Opportunities
Cash Compensation Recognition
(Direct) & Status
Long-term Life, Allowances
Incentives Health, and Employment Challenging
Security Work
Base Merit/Cost (Variable) Disability
Insurance Work/Life
(Fixed) of Living Short-term Programs
Incentives
(Variable)
(Variable)
Factors affecting compensation
Labour
Market
1. External Factors: Conditions
Economic Government
Conditions Control
External
Factors
Industry Wage
Globalization:
Level
Cost of Living
4.1.2
Factors affecting compensation
Job’s Worth
2. Internal Factors:
Company’s
Business
Internal Ability to Pay
Strategy Factors
Productivity
4.1.2
Basic Considerations in Determining Compensation
1. Legal Considerations in Compensation
• i.e. minimum wages, Qatar Labor Law
INDIRECT COMPENSATION
- Benefits and services offered to employees.
- Not directly related to performance
- It is becoming the largest part of total
compensation
- Includes health insurance, paid vacation, gym
membership
First there is….
1. Fixed pay
• Compensation independent of performance level
(based on the job itself) and includes :
• Base pay (salary / wages)
• Use Job evaluation to determine pay
Steps involved in creating a pay structure
4.1.4
Stage 1: Job Evaluation
• Key Jobs (Benchmark Jobs)
• Job that is critical to the firm’s operations or commonly
found in other organizations – easier to compare jobs to
other jobs outside of the company
• Non Key Jobs
• Job that is unique to an organization and not easily
compared to other companies
4.1.4
Job Evaluation Methods
A. Classification/Grading Method
B. Point Method
4.1.4
A. Classification/Grading Method
• Widely used, simple job evaluation method
• Categorize jobs into groups
• These jobs in groups give the same value to the company
• This method groups jobs into classes or grades using the job descriptions or compensable factors
• Classes contain similar jobs
• Grades contain jobs that are equally difficult (challenging) but otherwise are different
jobs
Job Grade
Job Classification or Grading
Directions: Match job description to grades as described below:
Standard Description
I Work is simple and highly repetitive, done under close supervision, requiring minimal training and little responsibility
or initiative
Example: janitor, file clerk
II Work is simple and highly repetitive, done under close supervision, requiring some training or skill. Employee is
expected to assume responsibility or exhibit initiative on occasion.
Example: machine cleaner, administrative assistant
III Work is simple with little variation, done under general supervision. Training or skill required. Employee has
minimum responsibilities and must take some initiative to perform satisfactorily.
Example: parts expediter, machine oiler, admin assistant II
IV Work is moderately complex, with some variation, done under general supervision. High level of skill required.
Employee is responsible for equipment or safety; regularly exhibits initiative
Example: machine operator I, tool and die apprentice
V Work is complex, varied, done under general supervision. Advanced skill level required. Employee is responsible for
equipment and safety; shows high degree of initiative
Example: machine operator II, tool and die specialist
PROS AND CONS OF THE CLASSIFICATION/GRADING METHOD
Pros
• Less subjective then the ranking Method
• Simple to understand and use
• Employees accept this method
Cons
• Requirements of jobs not considered
• Still maybe subjective
• May oversimplify difference between different jobs
4.1.4
Job Evaluation Methods
A. Classification/Grading Method
B. Point Method
4.1.4
11-27
B. Point Method Overview
4.1.4
11-28
B. Point Method
• Assigns points to each factor of each job (determines the level or degree
found in the job):
• Responsibility
• Skill
• Effort
• Working Conditions
• Most common type of job evaluation used for evaluating compensation
4.1.4
• Many standardized point plans available
Point Method of Job Evaluation
• Rate:
• Jobs are rated for each compensable factor
• The rater assigns each factor a certain number of points (the level of
degree)
• Determine:
• Give more points when that factor is more important to the job or the
job requires a high level of that factor
• Total:
• Then total all the factors to arrive at an overall evaluation of the job
4.1.4
Point System Matrix: Job Evaluation
Critical Factors Levels or Degrees Factor Points
1. Responsibility (weight 40%) 400
Subfactors:
a. Safety of others 20 80 140 200
b. Equipment & materials 8 24 56 80
c. Assisting trainees 8 24 56 80
d. Product/service quality 4 16 28 40
• Emphasizes external information solely and base pay on what others in the
industry are paying. Covers as many key jobs as possible. Non-key jobs may
require a different process.
• Combination of external and internal job evaluation and market data. Derive
pay line using a statistical procedure.
• Use the internal worth of the jobs and add pay ranges. Allows employer to
have a pay range for min, mid and max pay options – depending on the job.
Keep in mind…Employers have a choice
• Pay is a powerful tool for both meeting organizational goals and to motivate
employees
• Pay structure should be seen as fair (equity) but not cost more than the benefit it
brings
• So decide:
• Pay based solely on the internal worth of the job or the employee
• Pay according to the market, the competitors
• Pay above market, more than competitors
Pay for Knowledge:
1. Skill-Based pay
Skill-based pay (manufacturing
employees)
• Pay structures that set pay according
to the employees’ level of skill or
knowledge and what they are capable
of doing
• Empowers employees to build their
knowledge
• Very innovative approach
Pay for Knowledge:
2. Competency-Based pay
• Competencies: An individual’s knowledge, skills
and behaviors that are important to successful
individual or corporate performance
• The competencies are related to the job and results
in superior job performance
• Mainly used for managers
Pay for Knowledge:
3. Pay for Managerial and Professional Jobs
May Include: • Short-term incentives
• Salary (market pricing) • Long-term incentives
• Benefits • Customized rewards
Compensating Professional Employees
i.e. engineers, scientists, accountants, lawyers
• Some compensable factors are not easily measured: i.e.:
creativity, problem solving
• Difficult to measure economic impact to organization
• Market pricing approach commonly used – which means pay is
usually based on what the market is paying and not the
internal worth of the job
Men should get paid more then
women.
Do you agree or disagree with this statement?
What about the additional responsibilities men have in Qatar – shouldn’t they make more money?
Pay Equity
• Pay Equity is equal pay for work of equal value.
Equal Pay for Equal Work addresses situations
in which men and women do the same work.
INDIRECT COMPENSATION
- Benefits and services offered to employees.
- Not directly related to performance
- It is becoming the largest part of total
compensation
- Includes health insurance, paid vacation, gym
membership
Then there is also…
2. Pay for Performance (Variable pay)
Variable pay is any plan that links pay to productivity
or profitability and may be in addition to base pay. It’s
an incentive to perform. It includes:
4.1.6
What is Pay for Performance?
Also known as Variable Pay
and Incentive Pay
Recognize employee
organizational contributions with
pay.
Types of Pay for Performance Plans
These incentives have to be earned and re-earned
The more trees planted or dresses stitched, the more money they get
4.1.6
A. Pay for Individual
Performance
Example:
Shoemaker gets 30 Riyals per hour and must make 3 pairs of
shoes in 3 hours
disadvantages:
• Easy to understand raise standards
• Appears equitable randomly
• Directly tied to • Difficult to adjust or
performance change hourly rates
• Resistance to revising
the standard
• Quality may be
compromised
4.1.6
A. Pay for Individual Performance
Performance Bonuses
Reward performance but…
• Not rolled into base pay
• May be a one-time reward
• May be used to achieve a very specific goal or target
• May be linked to targets such as sales or production numbers
• Always tied to performance that makes a difference to the organization’s
overall performance
• Employee must re-earn bonus during each period
4.1.6
A. Pay for Individual Performance
4.1.6
A6. Incentives for Salespeople
1. Salary plan
• fixed salary
2. Commission plan
• pay in direct proportion to sales
generated
3. Combination plan
• base salary plus commission
4.1.6
A6. Incentives for Salespeople: Salary Plan
disadvantages:
and account servicing recognized/rewarded
• sales people know • salary usually based
their income in on seniority,
advance demotivating for high
• easy to reassign sales performing sales
people people
• enhances long term
perspective
4.1.6
A6. Incentives for Salespeople: Commission Plan
disadvantages:
advantages:
attracts high customer
performing sales relationship
people • variances in income
• sales costs among sales people
proportion to sales • sales people may
level neglect other duties
• easy to
understand/compute
4.1.6
A6. Incentives for Salespeople: Combination Plan
disadvantages:
minimum complex to
• allows calculate
compensation
for
administrative
work
4.1.6
B.1 Pay for Performance
Organization-Wide Incentive Plans
B1 Profit-sharing plans
• Payments are based on a measure of organization performance (profits)
• Employees share in the company’s profits
• A certain % of profits distributed to employees
• Employees think like owners!
• Easy to understand but employees have more of an indirect control of
the success of the company profits, so not as motivational as other
simple and direct pay for performance strategies.
4.1.6
B.2 Pay for Performance
Organization-Wide Incentive Plans
B2. Employee share purchase/stock ownership plan
• Employees receive or have the option to buy stocks in the company
• Encourages employees to focus on the success of the organization as a whole
• Sense of commitment from employees – they are part owner in the company, but
shares can go down in value and are not controlled by the employees
4.1.6
C. Common Recognition Rewards
4.1.6,
4.1.9
Total Compensation
DIRECT COMPENSATION
- Fixed Pay (Salary/Wages) based on critical job
factors
- Variable Pay (Pay for Performance) this is
linked to productivity or performance
INDIRECT COMPENSATION
- Benefits and services offered to employees.
- Not directly related to performance
- It is becoming the largest part of total
compensation
- Includes health insurance, paid vacation, gym
membership
Indirect Compensation Objectives
Why Companies Do it:
4.1.9
Goal: Attract, Retain and Motivate
Overview of Employee Benefits
4.1.8
A. Voluntary Benefits
Employer Sponsored Benefits
3. Short Term Disability/ Sick
1. Group Insurance 2. Health Care and Medical
Leave
Accidental
Death/Dismemberment (AD&D)
– accidental death or loss of limb
• Counselling
• Employee Assistance Program
• Social and recreational opportunities: company-sponsored athletic
events, and celebrations
Voluntary Employer-Sponsored Benefits
6. Employee Services: C. Executive Perquisites (Perks)
loans
salary
concierge guarantees
service (golden
parachutes)
company cars,
financial
chauffeured
counselling
limousines
outplacement relocation
assistance benefits
B. Involuntary Benefits:
Government Sponsored Benefits
1. Working hours, breaks, overtime
2. Day of rest
3. Requirement to post
4. Holidays (paid leave)
5. Vacation (annual leave)
6. Other leaves (sick leave, Haj leave,
maternity/parental leave, bereavement leave)
7. End of service contract (layoffs, lieu of notice)
4.1.8
Current Trends in Compensation
• Maternity Leave
• Company Leased Accommodation
• Recreation, ATM cards and Concierge
• Corporate Credit Card
• Cellular Phone / Laptop
• Loans
• Wedding day / birthday gift
• Employee referral
4.1.10
Lab Activity