Scribd Logo
Upload

Welcome to Scribd!

  • 588 views

    Compensation-Chapter 2 Pay Model

    Uploaded by

    Jannatul Ferdous
    The pay model consists of three main components: objectives, policies, and techniques. The objectives include efficiency, fairness, and compliance. The policies focus on internal alignment, external competitiveness, employee contribution, and management. The techniques connect the policies to the objectives using tools like skills analysis, market surveys, and performance guidelines. Total compensation includes base pay, incentives, benefits, and allowances. It is important for organizations to consider all elements of total compensation and how their pay model supports achieving business objectives.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Compensation-Chapter 2 Pay Model

    Uploaded by

    Jannatul Ferdous
    588 views5 pages
    The pay model consists of three main components: objectives, policies, and techniques. The objectives include efficiency, fairness, and compliance. The policies focus on internal alignment, external competitiveness, employee contribution, and management. The techniques connect the policies to the objectives using tools like skills analysis, market surveys, and performance guidelines. Total compensation includes base pay, incentives, benefits, and allowances. It is important for organizations to consider all elements of total compensation and how their pay model supports achieving business objectives.

    Original Description:

    COMPENSATION : Milkovich and Newman

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The pay model consists of three main components: objectives, policies, and techniques. The objectives include efficiency, fairness, and compliance. The policies focus on internal alignment, external competitiveness, employee contribution, and management. The techniques connect the policies to the objectives using tools like skills analysis, market surveys, and performance guidelines. Total compensation includes base pay, incentives, benefits, and allowances. It is important for organizations to consider all elements of total compensation and how their pay model supports achieving business objectives.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    588 views5 pages

    Compensation-Chapter 2 Pay Model

    Uploaded by

    Jannatul Ferdous
    The pay model consists of three main components: objectives, policies, and techniques. The objectives include efficiency, fairness, and compliance. The policies focus on internal alignment, external competitiveness, employee contribution, and management. The techniques connect the policies to the objectives using tools like skills analysis, market surveys, and performance guidelines. Total compensation includes base pay, incentives, benefits, and allowances. It is important for organizations to consider all elements of total compensation and how their pay model supports achieving business objectives.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    COMPENSATION MANAGEMENT: CHAPTER 2 PAY MODEL (year question)

    QS1: How would you define pay model? What purposes do the objectives of pay model
    serve? (2019)
    The Pay Model of Compensation and benefits helps managers to structurally design and understand the
    compensation system for their employees. The Pay Model of Compensation was developed by G.T.
    Milkovich and J.M. Nemwan in 2002. They define compensation as forms of financial gain and tangible
    services and benefits that employees receive as part of their employment.

    The compensation model that an organisation uses should match the company objectives. This can help
    determine which plan is the most beneficial in the long term. This means that elements from different
    compensation models are sometimes combined. The remuneration plan also has to be on par with that
    of the competition or be better. And it’s important to comply with laws and regulations.

    QS2: Briefly discuss the three basic building blocks of pay model. (2019)
    The model consists of three main components/ building blocks

    1. Objective of the remuneration model,


    2. The policy that is the foundation for the structure, and
    3. The techniques that link the policy to the objectives.
    1. Pay Model of Compensation Objectives (Identify and explain some key compensation
    objectives that firms consider while designing pay-model-2013)
    Compensation systems, according to the Pay Model of Compensation, are developed to achieve
    organisational objectives. As shown in the image, these include efficiency, honesty, and observance of
    the rules.
    Efficiency
    Effective remuneration systems contribute to efficiency in the form of improved performance, better
    quality, satisfied customers, or lower costs.
    Fairness
    Fairness refers to designing and introducing a reward system that rewards performance and meets the
    needs of the employees. Fairness is the foundation for healthy work relationships, which means it’s
    important that employees are treated fairly and get a salary that matches the work they do.
    Conformity
    Compensation models have to conform to the requirements of various central and national salary
    legislation and regulations. Conforming with regulations is an integral part of any organisation that
    wants to act in accordance with the law. When laws change, the compensation system has to be
    changed as well.

    2. Compensation System Policies


    According to the Pay Model of Compensation, the compensation system has to relate to internal
    consistency, competitive performance, and the contribution of employees. These are the four pillars on
    which the policy of a compensation structure is based.
    1. Alignment
    Internal alignment refers to aligning the salaries for similar types of jobs, as well as the rewarding of
    different kinds of work. Positions are assessed on their relative contribution to the organisation’s
    objectives. If the compensation structure is seen as fair by the employees, it will help motivate
    employees to improve themselves and accept training.
    2. External Competitiveness
    Competitiveness is about the remuneration plan being competitive enough compared to what
    competitors are offering. The plan has to offer sufficient benefits for the potential employee to get them
    interested and keep them. The salaries can’t be too high either, as that would negatively impact
    competitiveness of the products and services.
    3. Contributions
    Employee contribution is about how important the performance of the employees is regarding the
    remuneration model. Strong employee contribution means that incentives and rewards are based on
    what the employees add.
    4. Management
    The final component of the four policy methods of the Pay Model Compensation is administration;
    managing the compensation structure. Efficiency is the goal here as well. The system has to work well
    enough to achieve the objectives, and it also needs to be adaptable to react to new requirements. New
    requirements can be the result of new regulations or new salary objectives for the organisation.

    3. Pay Model of Compensation techniques


    The third component of the Pay Model of Compensation are the techniques. These techniques connect
    policy to objectives.
    In order to comply with internal alignment, as the model shows, the techniques are skills and work
    analysis. In order to meet the competition policy, surveys can be held and market definitions can be
    created. The employee contribution is assessed based on performance guidelines. When managing
    these remuneration plans, communication and change are important factors.
    QS3: Identify and explain the components of total compensation. (2019)
    Or, how does the pay model help organize one’s thinking about compensation? (2011)

    Cash Compensation - Base Pay


    Wages or Salary - cash compensation an employee receives for the work performed.
     Base pay tends to reflect the valve of work or skills and generally ignores differences attributed
    to individual employees
     Distinction usually made between wage and salary.

    Cash Compensation - Merit Increases and Cost of Living Adjustment


     Almost all Canadians compares use merit pay increases.
     Merit Increases: given as increments to the base pay in recognition of past work behavior.
     Assessment of past behavior is made. w or w/o formal performance evaluation.

    Cost of living adjustments


     gives the same percentage increase to everyone regardless of performance level to maintain pay
    levels relative to increase in the cost of living.
     Less prevalent than in the past.

    Cash Compensation - Incentives


     Incentives or Variable Pay - the pay increases directly to performance
     Do not increase base pay and so much be re earned each period
     Size of incentive is known beforehand generally
     Relies on an objective measure of performance, whereas merit increases typically relies on
    subjective rating of one’s performance.
     Merit -> influence performance, incentive -> influence behavior
     The distinction is a matter of timing (b/t merit vs incentives)
     Incentives can be tied to the individual, team, business unit or combo
     Because incentives are a one – time payment, they do not a permanent effect on labor costs.
    When performance declines pay automatically declines too.

    Long term Investment


     Incentives may be ST or LT
     LT usually in form of stock
     Idea behind stock ownership is that employees w a financial stake in the organisation will focus
    on LT financial objectives.

    Benefits - Insurance and Pension
     Some insurance programs are required by law
     Different countries have different mandatory benefits
     Help protect employees from the financial risk of daily life
     Often companies can provide these more cheaply than employees can obtain for themselves.
     Cost of providing benefits is rising -> regarded as important form of compensation.

    Benefits - Work / Life Programs
    Include: time away from work, access to services to meet specific needs, flexible work arrangements.

    Benefits - Allowances
     Allowances: often grow out of whatever is in short supply
     Total Earnings Opportunities: Present Value of a Stream of Earnings
     Compensation decision have temporal effect
     A present value perspective shifts the choice from company today’s initial offers to
    consideration of future bonuses, merit ↑and promise some employers their relatively low
    starting offers will be overcome by larger few pay increases – Few candidates apply -> some
    analysis.

    QS4: What are the four policy issues in the pay model? (2012)

    Four Policy Choices


    Every Employer must address the strategic policy decisions
    1. Internal alignment
    2. External competitiveness
    3. Employee contribution
    4. Management of pay system

    1. Internal Alignment
     Internal Alignment - refers to pay comparisons between jobs or skill levels inside a single
    organization.
     Jobs and people’s skills are compared in terms of their relative contribution to the organization’s
    objectives.
     Determining the appropriate cliff in pay for people performing different work is a key challenge
    facing Managers
     Internal alignment policies affect all three compensation objectives
     Employee’s decision to stay in the organisation
     To become more flexible by investing in additional training
     Seek greater responsibility
     Fairness determined by employees comparisons of their pay to the pay of others in the
    organisation
     Compliance is affected by the basis used to make internal comparisons.

    2. External Competitiveness (What do you mean by the External Competitiveness of compensation?


    Why is it important? -2013)
     External Competitiveness - refers to compensation relationships external to the organisation
     External competitiveness decisions ( how much & what form ) have a fold effect an objective
    1. They ensure that the pay is sufficient to attract and retain employees
    2. They control labour costs so that the organisation remains competitive in the global economy.

    3. Employee Contributions
     Refers to the relative emphasis placed on performance
    1. Degree of emphasis placed on performance is important because affects employees attitudes
    and work behaviours
    2. Employers to pay for performance more emphasis on merit incentives
     Recognition of contribution affects fairness but employees have to understand the basis for
    judging performance to conclude that their pay is fair

    4. Management of Pay Systems


     Proper mgmt. of pay systems ensures that the right people get the right pay for achieving the
    right objectives in the right way.
     More strategic thinking managing pay as part of the business.

    Pay Techniques
     Techniques tie to the 4 basic policies to the pay objectives
     Uncounted variations in pay techniques exist

    QS5: Pay Techniques tie to the 4 basic policies to the pay objectives-Explain (2012)

    Ans: Pay Model of Compensation techniques-page 2

    You might also like