Compensation and Benefits

Employee Compensation

It is all forms of pay or rewards going to employees and arising from their employment.

Direct Financial Payments

Pay in the form of wages, salaries, incentives, commissions, and bonuses.

Indirect Financial Payments

Pay in the form of financial benefits such as insurance.

Pay for Performance

Company pays based on how they perform the job.

Aligned Reward Strategy

Creating a compensation package that produces the employee behaviors the organization needs to achieve its competitive strategy.

Equity Theory of Motivation

People are motivated when they feel their input (efforts and skills) is fairly rewarded.

Types of Equity

It includes the following: (1) External, (2) Internal, (3) Individual, and (4) Procedural.

External Equity

Comparing pay across companies (e.g., an accountant at Company A earns less than one at Company B for the same job).

Internal Equity

Comparing pay within the same company across different jobs (e.g., a sales manager compares their salary to a production manager's).

Individual Equity

Comparing pay with coworkers doing the same job (e.g., two customer service reps, but one earns more despite similar performance).

Procedural Equity

Fairness of the methods used to determine pay (e.g., employees feel pay decisions are fair if there’s a clear, consistent evaluation system).

Job Evaluation

It is a formal and systematic comparison of jobs to determine the worth of one job relative to another.

Market-Competitive Pay Plan

Pay is fair internally (job’s value) and externally (market rates).

Compensable Factor

Key elements like skills, effort, responsibility, and working conditions; and helps determine job value and pay.

Benchmark Job

Standard job used to set the pay scale.

Ranking Method

It is a simplest method of job evaluation that involves ranking each job relative to all other jobs, usually based on difficulty or value.

Job Classification/Job Grading

It categorizes jobs into classes or grades.

Classes

Similar jobs.

Grades

Jobs with similar difficulty, not necessarily the same.

Grade Definition

Written outline of job requirements (responsibility and knowledge); and used to group similar jobs into grades.

Pay (or Wage) Grade

Jobs of similar difficulty grouped into a single grade.

Pay (or Rate) Range

Different steps/levels of pay within a pay grade; and often based on experience or service.

Comparable Worth

Women can claim pay equality for different but equally valuable jobs and promotes gender pay fairness.

Benefits

Indirect financial/nonfinancial perks for employees.

Supplemental Pay Benefits

Pay for time not worked: holidays, sick leave, unemployment insurance.

Severance Pay

Compensation after termination and shows goodwill, preventing legal issues.

Worker’s Compensation

Provides income and medical aid for work-related accidents or deaths.

Case Management

Cost-saving strategy for handling workers' compensation claims.

Pension Plans

Retirement income programs for employees.

Employers

Fund workers' compensation benefits.

Flextime

Employees work flexible hours around a required core time.

Compressed Workweek

Fewer but longer workdays per week.

Job Sharing

Two people share one full-time job.

Work Sharing

Group of employees temporarily reduces their work hours to avoid layoffs during tough times.

Direct Base Pay

Fixed salary or hourly wage.

Pay Progression

Increase in pay based on age, tenure, or performance.

Performance/Variable Pay

Tied to achievements or behavior.

Payment by Results

Based on output (piecework, commission, bonuses).

Performance-Related Pay

Bonuses for meeting individual or team performance targets.

Organization Performance Pay

Based on overall business profitability.

Indirect Pay/Benefits

Non-cash rewards (e.g., health insurance, company car).