Compensation: A Component of
Human Resource Systems
Learning Objectives
Basic Compensation concepts and the context of
compensation practice
A historical perspective on compensation-from an
administrative to a strategic function
The Difference between strategic and tactical
compensation
Compensation professionals’ goals within a human
resource department
Relation of compensation professional to various
stakeholders
What is Compensation?
Intrinsic compensation
» Reflects employees’ psychological mind sets that
result from performing their jobs.
» Through effective job design
Extrinsic compensation
» Rewards given you by others
» Includes both monetary and non-monetary (e.g.,
benefits) rewards.
» Through compensation systems
Intrinsic Compensation
Represents employees’ critical states that
result from performing their job.
According to job theory employees experience
enhanced psychological state when their job
rate high on five core job dimensions.
Core Job Characteristics of
Intrinsic Compensation
Skill variety:-different tasks, different skills, abilities and
talents.
Task identity:-complete the entire job
Task significance:-impact of job
Autonomy:- Independence and discretion to perform the job
Feedback:- information by employer about the job outcome
and performance.
The Influence of Core Job Characteristics on Intrinsic
Compensation and Subsequent Benefits to Employers
Discretionary Benefits
» Protection Programs
– Income protection programs
– Health protection programs
» Pay for time-not-worked
– Holidays
– Vacation
– Sick leave
– Personal leave
– Jury duty
– Funeral leave
– Military leave
– Cleanup, preparation, travel time
Discretionary Benefits
» Job structure
» Hierarchy
Achieved using:
» Job analysis
» Job evaluation
Market Competitiveness
Compensation policies that fit with business
objectives
Vital in attracting and retaining employees
Are based on:
» Strategic analyses
» Compensation surveys
Individual Contributions
Pay Structures: Pay is determined by
employee’s credentials, job knowledge, and
job performance
Pay Grades: Based on compensable
factors and value
Pay Ranges: Builds on grades, uses
midpoints, minimums, and maximums
Stakeholders of the Compensation
System