Compensation #1 - Introducing Compensation

Overview of compensation management driven from Chapter 11 of Hen and Lucia.
- The session aims for efficient preparation for the course and exams.

Total Compensation: Defined as the total of all employee pay and benefits.
- This includes wages, benefits, and intrinsic compensation.
Importance of Compensation:
- It constitutes a significant portion of organizational costs, potentially up to 70% of total production costs.
- In the personal experience of the speaker, compensation represented 88% of the general fund budget during his tenure in HR.
- Affects various HR functions: recruitment, retention, training, development, and employee relations.

Compensation strategies are crucial, as flawed strategies can lead to severe organizational problems.
- Example: Wells Fargo incentivized account creation leading to unethical practices such as unauthorized accounts.

Discussion question: What constitutes an employee benefit?
- Significant Employee Benefits: Healthcare, disability insurance, life insurance, retirement packages, gym memberships, etc.

Monetary Compensation: Includes base pay and additional wage structures.
- Base Pay: Basic wages or salary. For example, $12/hour or $62,000/year.
- Add-ons or Salary Add-ons:
- Shift Differentials: Extra payment for less desirable shift hours (e.g., midnight shifts).
- Premium Pay: Additional pay for working weekends or holidays.
- Overtime Pay: Pay determined by the Fair Labor Standards Act (FLSA) or contracts.
Variable Pay / Incentive Pay: Performance-related compensation based on individual productivity or output.
- Example: Commissions for salesperson on accessory sales at a shoe store (e.g., 30% of sales).
- The influence of commission structures can lead to unethical behavior, as illustrated through the used car sales industry.

Benefits: Non-cash values provided to employees, including:
- Sickness and accident protection.
- Retirement pay.
- On-site food services.
- Long-term and short-term disability.

Intrinsic Compensation: Psychological, social, and emotional benefits derived from job satisfaction, responsibilities, or organizational missions.
- Example illustrating intrinsic value includes the speaker's reflection on personal experiences where job satisfaction existed despite challenging aspects of the role.

Attracting, motivating, retaining employees whilst encouraging development and rewarding desired behaviors.

Developed by Victor Vroom:
- Principle: For a reward to be motivating, it must be seen as attainable and valuable.
- Example discussions: Paying $10,000,000 for retrieving an object versus giving $0.27 for a simple task.

Developed by J. Stacy Adams:
- Employees are motivated when inputs (efforts) and outcomes (rewards) are perceived as equitable relative to others.
- Fairness in compensation leads to positive employee motivation and performance.
- Key distinctions: Equitable does not mean equal.