3. What are the elements of
compensation?
ďŽ Base pay
ďŽ Incentives
ďŽ Fringe benefits
4. What are different forms of payment?
ďŽ Cash
ďŽ Benefits
â Payment for time not worked
â Non-pecuniary benefits (gym
memberships, child care)
ďŽ Intrinsic
5. Exchange Theory
ďŽ Pay is an exchange for efforts
ďŽ Implicit Social Contract
â beliefs about mutual obligations
ďŽ Implicit Psychological Contract
ďŽ Temporal Quality
â amount of time in job & career
6. Equity Theory
Pay, benefits,
opportunities, etc.
the same
more or less
OUTCOME OUTCOME
INPUTS
<=> INPUTS
?
effort, ability,
experience etc.
A person evaluates fairness by comparing their ratio with others.
IRWIN
Ša Times Mirror Higher Education Group, Inc., company, 1997
7. Equity Theory
Workers compare their compensation
with others
If unequal workers attempt to restore
equity
8. Workers Restore Equity by:
ďŽ Reducing input
ďŽ Attempting to get raise
ďŽ Quitting
ďŽ Psychological Adjustment
10. Internal Equity
ďŽ Comparison of Jobs
ďŽ Jobs worth to the Employer
â Similarities and differences in
work content
â Relative contribution to
organization objectives
ďŽ Accomplished through job
evaluation
11. External Equity
ďŽ Value of the job to
the labor market
ďŽ Assessed through
wage surveys
12. Individual Equity
ďŽ Relative pay between
individuals doing the
same job
ďŽ Influences motivation
13. Organizational Justice
ďŽPerceived fairness of the pay
system
âOutcomes
âProcess Issues
âInteractions
ďŽInfluences Commitment,
Organization Citizenship
14. Strategic Perspectives
ďŽ The strategy balances 4 types of equity
ďŽ Best Practice
ďŽ Contingency:
â organizations will have pay systems that fit
with their business strategy
â organizations that have âfitâ will outperform
those without âfitâ
ďŽ Strategic Decisions include:
â pay level, pay structure, individual rewards,
team rewards, pay administration
15. Best Practice v. Strategy Debate
ďŽ Best practice - there are a set of
compensation practices that are good
for all firms.
ďŽ Strategy - the set of compensation
practices that are good for firms will
vary based upon the firmâs goals.
16. Best Practice Examples*
ďŽ High wages
ďŽ Guarantee of Employment Security
ďŽ Use incentives; share gains
ďŽ Employee Ownership
ďŽ Participation & Empowerment
ďŽ Teams
ďŽ Smaller pay differences
*Source: Pfeffer, Competitive
Advantage Through People ,
17. Summary
ďŽ There are four key elements to equity
ďŽ The strategic contingency view is that some
firms may weight those elements differently
depending on firm objectives
ďŽ The best practice view is that there are good
practices that all firms should engage in no
matter what their strategy.
18. Summary (continued)
ďŽ Equity forms the basis for
compensation management
ďŽ Strategy guides the organization in the
balancing of equity components
ďŽ The test is whether the compensation
system reinforces sustained competitive
advantage