1. EMPLOYEE
COMPENSATION
AND BENEFITS
• Types of compensations
• Types of employee benefits

2. Nature of Compensation
• Objectives of effective compensation program:
a) Legal compliance with all appropriate laws and
regulations
b) Cost effectiveness for the organization
c) Internal, external and individual equity for employees
d) Performance enhancement for the organization
• Types of Rewards:
a) Extrinsic
– Tangible, monetary and non-monetary effects of
compensation
a) Intrinsic
– Intangible, psychological and social effects of compensation
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3. Components of a Compensation
Program
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4. Direct Compensation
The basic monetary compensation that an employee
The basic monetary compensation that an employee
Base Pay
Base Pay receives, usually as a wage or salary.
receives, usually as a wage or salary.
Wages
Wages Payments calculated on the amount of time worked.
Payments calculated on the amount of time worked.
Consistent payments made each period regardless
Consistent payments made each period regardless
Salary
Salary of the number of hours worked in the period.
of the number of hours worked in the period.
Variable
Variable Compensation linked to individual, team, or
Compensation linked to individual, team, or
Pay
Pay organizational performance.
organizational performance.
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5. Indirect Compensation
• Employer-provided benefits—like health
insurance—that are provide employees
for being a member of the organization.
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6. Compensation linked to
Variable Plan individual, group/team, and/or
organizational performance.
• The development of clear,
understandable plans that are
continually communicated.
• The use of realistic performance
measures.
• Keeping plans current and linked to
organizational objectives.
• Strong links among performance
results and payouts that truly
recognize performance differences.
• Clear identification of variable pay
incentives separately from base
pay.
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7. Types of Variable Pay Plans:
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8. Individual Incentives
• Conditions necessary for the use of individual
incentives plans:
a) identification of individual performances
b) independent work
c) individual competitiveness
d) individualism stressed in organizational culture
• Sales Compensation Plans:
a) Salary only
b) Straight Commission
c) Salary Plus Commission / Bonuses
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9. • Types of Individual Incentives:
a) Straight Piece-Rate Systems
 Wages are determined by multiplying the number of
pieces produced by the piece rate for one unit.
a) Differential Piece-Rate Systems
 Employees are paid one piece-rate for units produced up
to a standard output and a higher piece-rate wage for
units produced over the standard.
a) Bonus
 A one-time payment that does not become part of the
employee’s base pay.
a) Awards
 Cash or merchandise used as an incentive reward.
a) Recognition Awards
 Recognition of individuals for their performance or service
to customers in areas targeted by the firm.
a) Service Awards
 Rewards to employees for lengthy service with an
organization.
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10. Group/Team Based Variable Pay
• Primary approaches for distributing team rewards:
a) Same size reward for each team member
b) Different size rewards for each team member
• Why establish team pay plans:
a) enhances productivity
b) ties earnings to team performance
c) improves quality
d) aids recruiting & retention of employees
e) improves employees morale
Types of Group Incentives:
a) Work teams result
• May reward all members equally on the basis of group
output, costs savings / quality improvement
a) Gain sharing
• The sharing with employees of greater-than-expected
gains in profit &/ productivity
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11. Organizational Incentives
• Types of Organizational Incentives:
a) Profit Sharing
• A system to distribute a portion of the profits in the
organization to employees
• Primary objectives of profit-sharing plans:
1. improve productivity
2. recruit/retain employees
3. improve product/service quality
4. improve employee morale
• Drawbacks of Profit-Sharing Plan:
1. to disclose financial & profit information to
employees
2. profits may vary a great deal from year to year
3. payoffs far removed from employees’ effort
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12. b) Employee Stock Option
• It give employees the right to purchase a
fixed number of shares of company stock
at specified price for a limited period of
time
• If market price of the stock is above the
specified option price, employees can
purchase the stock and sell it for a profit.
• If the market price of the stock is below the
specified option price, the stock option is
“underwater” and is worthless to employees.
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13. Benefits
• An indirect compensation given to an
employee or group of employees as a part of
organizational membership.
• Strategic Perspectives on Benefits
– Benefits absorb social costs for health care and
retirement.
– Benefits influence employee decisions about
employers (e.g., recruitment and retirement).
– Benefits are increasingly seen as entitlements.
– Benefit costs average over 40% of total payroll
costs.
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15. Other Benefits
Credit Unions
Credit Unions
Purchase Discounts
Purchase Discounts
Family-Care Stock Investment
Stock Investment Relocation
Family-Care Relocation
Benefits
Benefits Expenses
Expenses
Benefits
Benefits
Family-Oriented
Family-Oriented Life, Disability,
Life, Disability,
Benefits
Benefits Legal Insurances
Legal Insurances
Social and
Social and Educational
Educational
Recreational
Recreational Assistance
Assistance
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16. Family Medical Leave Act (FMLA)
• Coverage
– Employers with 50 or more employees
– Employees who have worked at least 12 months
and 1,250 hours in the previous year.
• Requirements
– Employers must allow eligible employees to take up
to a total of 12 weeks of unpaid leave in a 12-month
period to attend to a family or serious medical
condition.
– Employees have the right to continued health
benefits and the right to return to their job.
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17. Benefits for Domestic Partners
• Domestic Partners or Spousal Equivalents
– Unmarried employees who are living with individuals
of the opposite sex
– Gay and lesbian employees who have partners
• Affidavit of Spousal Equivalence
– Each is the other’s only spousal equivalent.
– They are not blood relatives.
– They are living together and jointly share
responsibility for their common welfare and financial
obligations.
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18. Time-Off Benefits
• Holiday Pay • Paid Time-Off (PTO) Plans
– Eligibility – Combine all sick leave,
• Vacation Pay vacation time, and
– Eligibility and scheduling holidays into a total
number of hours or days
• Leaves of Absence
that employees can take
– Family Leave off with pay.
– Medical and Sick Leave
– Military Leave
– Election Leave
– Jury-duty Leave
– Funeral Leave
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