CHAPTER 9 BUS201

Direct Compensation

Employee wages, salaries, incentives, bonuses, and commissions

Indirect Compensation

Benefits supplied by employers 

Nonfinancial Compensation

Recognition programs, rewarding jobs, supportive work environment, and flexible work hours

Strategic Compensation

Aligning compensation with the organization’s mission, strategy, and business objectives

Strategic Compensation Planning

Purposefully designing compensation to support organizational goals

HR’s Strategic Compensation Role

Linking compensation to organizational objectives, motivating employees, and supporting pay

Strategic Compensation Policy

A compensation policy designed to reward performance, remain competitive, maintain equity, attract employees, control costs, and reduce turnover

Hourly Work

Compensation paid based on the number of hours worked

Piecework

Compensation paid according to the number of units produced

Salaried Employees

Employees paid based on weekly, biweekly, or monthly pay periods

Internal Factors Affecting Pay Mix

Organizational compensation strategy, job worth, employee worth, and ability to pay

External Factors Affecting Pay Mix

Labour market conditions, area wage rates, cost of living, collective bargaining, and legal requirements

Job Evaluation

A systematic process used to determine the relative worth of jobs within an organization

Internal Equity

Fairness in pay relationships among jobs within the same organization

Job Ranking System

The simplest and oldest job evaluation method where jobs are ranked according to relative worth

Job Ranking System Disadvantages

Not precise and only practical for a small number of jobs

Job Classification System

A method that groups jobs into predetermined wage grades based on responsibility, skills, knowledge, and ability

Wage Grades

Levels within a job classification system that require increasing responsibility and skills

Point System

A quantitative job evaluation method where jobs are assigned points based on compensable factors

Point Manual

A handbook describing compensable factors and point values used in the point system

Compensation Structure

The framework organizations use to determine wage rates and salary relationships

Wage and Salary Survey

A survey comparing wages paid by other organizations in the same labour market

Goal of Strategic Compensation

To support organizational strategy while motivating and retaining employees

Purpose of Job Evaluation Systems

To establish internal equity and determine fair pay relationships between jobs

Competency-Based Pay

Based on employee skills, knowledge, or variety of skills possessed

Skill-Based Pay

Another term for competency-based, employees are rewarded for skill development

Knowledge-Based Pay

Compensation based on increased job knowledge and expertise

Goal of Strategic Compensation

To support organizational strategy while motivating and retaining employees

Purpose of Job Evaluation Systems

To establish internal equity and determine fair pay relationships between jobs

Pay-for-Performance System

A compensation approach where employee pay is linked to performance results