12/11/2009
COMPENSATION MANAGEMENT
CHAPTER 1 (Study unit 1)
THE PAY MODEL
1
Chapter Topics
• Compensation: Definition
• Forms of Pay
• A Pay Model
• Book Plan
• Your Turn: Glamorous Internships, or House Elves?
2 2
1
, 12/11/2009
Learning Objectives
After studying Chapter 1, students should be able to:
• Explain how perceptions of compensation differ among society, stockholders,
managers and employees.
• Discuss the difference between cash compensation (direct compensation) and
benefits (indirect compensation) and define each of the direct and indirect forms of
compensation.
• Explain how the employment relationship combines both transactional and relational
returns to form an implicit contract between employers and employees.
• Identify and describe the three main components of a pay model.
• Understand how the pay model integrates objectives, policies, and techniques into a
compensation system.
• Distinguish empirical research from surveys and opinions.
3
Key Questions and Issues
• How differing perspectives affect our views of compensation
• Definition of compensation
– The meaning of compensation most appropriate from an employee's
view: return, reward, or entitlement
• Examining “network of returns” a college offers an instructor
• Four policy issues in the pay model
– Objectives of the pay model
• Forms of pay received from work
4 4
2
, 12/11/2009
Contrasting Perspectives of Compensation
Society’s Stockholders’
Views Views
Employees’ Managers’
Views Views
5
Compensation: Definition
• Society
– Pay as a measure of justice
– Benefits as a reflection of justice in society
– Job losses (or gains) attributed to differences in compensation
– Belief that pay increases lead to price increases
• Stockholders
– Using stock to pay employees creates a sense of ownership
– Linking executive pay to company performance supposedly increases
stockholders' returns
• Managers
– A major expense
– Used to influence employee behaviors and to improve the organization's
performance
6
3
, 12/11/2009
Compensation: Definition (cont.)
• Employees
– Major source of financial security
– Return in an exchange between employer and themselves
– Entitlement
E il f being
for b i an employee
l off the
h company
– Reward for a job well done
• Global Views – Vive la différence
– China: Traditional meaning of compensation providing necessities of life
replaced with dai yu
– Japan: Traditional word kyuyo replaced with hou-syu; very recently the
phrase used is teate
These contrasting ideas about compensation – multiple views (i.e. societal,
employee, etc) and multiple meanings (i.e. returns, reward, etc) add richness to
the topic.
7
What Is Compensation/Pay?
Compensation refers to all forms
of financial returns and tangible
services and benefits employees
receive as part of an
employment relationship
8
4
COMPENSATION MANAGEMENT
CHAPTER 1 (Study unit 1)
THE PAY MODEL
1
Chapter Topics
• Compensation: Definition
• Forms of Pay
• A Pay Model
• Book Plan
• Your Turn: Glamorous Internships, or House Elves?
2 2
1
, 12/11/2009
Learning Objectives
After studying Chapter 1, students should be able to:
• Explain how perceptions of compensation differ among society, stockholders,
managers and employees.
• Discuss the difference between cash compensation (direct compensation) and
benefits (indirect compensation) and define each of the direct and indirect forms of
compensation.
• Explain how the employment relationship combines both transactional and relational
returns to form an implicit contract between employers and employees.
• Identify and describe the three main components of a pay model.
• Understand how the pay model integrates objectives, policies, and techniques into a
compensation system.
• Distinguish empirical research from surveys and opinions.
3
Key Questions and Issues
• How differing perspectives affect our views of compensation
• Definition of compensation
– The meaning of compensation most appropriate from an employee's
view: return, reward, or entitlement
• Examining “network of returns” a college offers an instructor
• Four policy issues in the pay model
– Objectives of the pay model
• Forms of pay received from work
4 4
2
, 12/11/2009
Contrasting Perspectives of Compensation
Society’s Stockholders’
Views Views
Employees’ Managers’
Views Views
5
Compensation: Definition
• Society
– Pay as a measure of justice
– Benefits as a reflection of justice in society
– Job losses (or gains) attributed to differences in compensation
– Belief that pay increases lead to price increases
• Stockholders
– Using stock to pay employees creates a sense of ownership
– Linking executive pay to company performance supposedly increases
stockholders' returns
• Managers
– A major expense
– Used to influence employee behaviors and to improve the organization's
performance
6
3
, 12/11/2009
Compensation: Definition (cont.)
• Employees
– Major source of financial security
– Return in an exchange between employer and themselves
– Entitlement
E il f being
for b i an employee
l off the
h company
– Reward for a job well done
• Global Views – Vive la différence
– China: Traditional meaning of compensation providing necessities of life
replaced with dai yu
– Japan: Traditional word kyuyo replaced with hou-syu; very recently the
phrase used is teate
These contrasting ideas about compensation – multiple views (i.e. societal,
employee, etc) and multiple meanings (i.e. returns, reward, etc) add richness to
the topic.
7
What Is Compensation/Pay?
Compensation refers to all forms
of financial returns and tangible
services and benefits employees
receive as part of an
employment relationship
8
4
