CH07 Compensation System(人力资源管理-南京大学,赵署明)

Review Questions1. 2. 3. 4. What is the Purpose of Performance Appraisal? What are the Performance Appraisal Processes and Methods? What is 36o-degree Feedback? What are the Criteria for performance Appraisal of International Employees?

Lecture Seven Compensation System

IssuesWhat is compensation? What are the major elements of salary and benefits? What should be the main objectives for a multinational firm with regard to its compensation policies? Why is it important for multinational firms to understand the compensation practices of other countries?

Prof. Shuming Zhao

I. Compensation System Compensation is the total of all rewardsprovided to employees in return for their services. Compensation can both be tangible and intangible. Tangible compensation: direct and indirect Intangible: The satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which job is performed.

Prof. Shuming Zhao

1. Tangible Compensation

Direct Compensation: Pay and Incentives Pay: The basic compensation an employeereceives, usually as a wage or salary.

Incentives: Compensation that rewardsan employee for efforts beyond normal performance expectation.

Prof. Shuming Zhao

Tangible Compensation

Indirect Compensation: BenefitWith indirect compensation, employees receive the tangible value of the rewards without receiving the actual cash. A benefit is an direct reward, such as social security, health insurance, vacation pay, or retirement pensions, given to an employee or group of employees as a part of organizational membership.Prof. Shuming Zhao

2. Intangible Compensation

Intangible compensation consists of thesatisfaction received from performing meaningful job-related tasks. People have different reasons forworking and the most appropriate compensation package depends in large measure on those reasons. When individuals are being stretched financially to provide food, shelter, and clothing for their family, money may well be the most important reward. However, some people work many hours each day, receive relatively little pay, and yet love their work because it is interesting or provides an environment that satisfies other needs.Prof. Shuming Zhao

Intangible Compensation

Intangible compensation involves the psychological and/or physical environment in which the person works, such as appropriate status symbols, comfortable working conditions, workplace flexibility, flextime, job sharing, congenial co-workers, praise for competing a special project, etc.

Prof. Shuming Zhao

Equity Theory and FairnessEquity theory suggests that people evaluate the fairness of their situations by comparing them with those of other people. According to the theory, a person (p) compares her own ratio of perceived outcomes O to perceived inputs I to the ratio of a comparison other (o). Just as the following formula shows:Op Ip , , or Oo Io ?Prof. Shuming Zhao

If p’s ration ( I ) is smaller t

han the comparison other’s ration (O I ), under-reward inequity results. If p’s ratio is larger, over-reward inequity results, although evidence suggests that this type of inequity is less likely to occur and less likely to be sustained because p may rationalize the situation by reevaluating her outcomes less favorably or inputs more favorably.po o

Op

Prof. Shuming Zhao

Pay Structure Concepts and ConsequencesPay Structure Decision Area Administrative Tool Focus of Employee Pay Comparisons Consequences of Equity Perceptions External employee movement; labor costs; employee attitudes Internal employee movement; cooperation among employees; employee attitudeProf. Shuming Zhao

Pay Level

Market Pay Surveys

External Equity

Job Structure

Job Evaluation

Internal Equity

Developing Pay Level: Market Pressures

Product-Market Competition

Labor-Market Competition

Prof. Shuming Zhao

Developing Pay Level: Employees As A ResourcesBecause organizations have to compete in the labor market, they should consider their employees not just as a cost but as a resource in which the organization has invested and from which it expects valuable returns. Although controlling costs has a direct effect on an organization’s ability to compete in the product market, the organization’s competitive position can be compromised if costs are kept low at the expense of employee productivity and quality.Prof. Shuming Zhao

Deciding What to PayThe advantage of paying above the market average is the ability to attract and retain the top talent available, which can translate into a highly effective and productive work force. The disadvantage, however, is the added cost.

Prof. Shuming Zhao

The Dilemma of High Pay

Attracting and retaining talent

Adding costs

Prof. Shuming Zhao

Developing A Pay StructureMarket Survey Data Pay Policy Line Pay Grades

Prof. Shuming Zhao

Conflicts Between Market Pay Surveys And Job Evaluation

Market Pay Surveys

Job Evaluation

Prof. Shuming Zhao

The Importance of Process: ParticipationEmployee participation in compensation decision making can take many forms. For example, employees may serve on task forces charged with recommending and designing a pay program. They may also be asked to help communicate and explain its rationale. To date, for what are perhaps obvious reasons, employee participation in pay level decisions remains fairly rare.

Prof. Shuming Zhao

Current Challenges: Problems with Job-based Pay StructuresThey may encourage bureaucracy. The structure’s hierarchical nature reinforce a top-down decision making and information flow as well as status differentials. The bureaucracy required to generate and update job descriptions and job evaluations can become a barrier to change time and cost. The job-based pay structure may not reward desired behaviors, particularly in a rapidly changing environment where the knowledge, skills, and abilities needed yesterday may not be helpful today and tomorrow.Pr

of. Shuming Zhao

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