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Introduction to
Human Resource
Management
Class 14
Class Overview
Often, organizations that possess strong
compensation and benefits plans attract
great long-term employees who are
dedicated to the organization’s success and
longevity. This class, we will discuss the
basics of compensation and benefits.
Compensation
“Compensation is the total amount of the
monetary and non-monetary pay provided to
an employee by an employer in return for
work performed as required.”
Video - Understanding
Compensation
Please click on the image above for a video regarding compensation.
Types of Compensation Systems
• Internal versus external
equity
• Fixed versus variable pay
• Job versus individual pay
Internal versus External Equity
• Internal Equity - Balance between job
position / profile and compensation.
– Factors of consideration - level of status, job
classification, job rank, etc.
• External Equity - Compensation
determined based upon competition pay /
fair market value.
Pictures - Internal versus External
Equity
Fixed versus Variable Pay
• Fixed Pay - “Fixed pay is generally decided
on the basis of what the person is worth — it
depends on his or her capability.”
• Variable Pay - “Based on the market value of
the person, companies enhance that
payment through a variable pay component
that is linked both to the performance of the
company and the individual.”
Strength and Weaknesses of
Fixed Pay and Variable Pay
• Discourages productivity
– “A fixed payment system may not encourage
employees to work as hard and can result in
overcompensating poor performers and
under-compensating top performers.”
• Creates competition between employees
– “A potential advantage of offering fixed wages
instead of variable pay is that a variable pay
system can create unhealthy competition
between employees.”
Job versus Individual Pay
• Job / Team Pay - Payment is dependent
upon the success of a team in meeting a
deliverable, advancement, level of
satisfaction, etc.
• Individual Pay - Payment is received
based upon one’s individual performance.
Additional Types of Pay Systems
• Elitism versus Egalitarianism
• Below Market versus Above Market
Compensation
• Monetary versus Nonmonetary Rewards
• Open versus Secret Pay
• Centralization versus Decentralization of
Pay
Employee Benefits
“Employee benefits protect employees from
risks that could jeopardize their health and
financial security.”
Types of Benefits
• Legally Required Benefits
– Social Security
– Workers Compensation
– Unemployment Insurance
– Unpaid Leave
• Health Insurance
• Retirement
• Insurance
• Paid Time Off
• Employee Services
Legally Required Benefits
• Social Security
• Workers Compensation
• Unemployment Insurance
• Unpaid Leave
Legally Required Benefits
Health Insurance
“Health insurance is a type of insurance coverage
that covers the cost of an insured individual's
medical and surgical expenses. Depending on the
type of health insurance coverage, either the
insured pays costs out-of-pocket and is then
reimbursed, or the insurer makes payments
directly to the provider.”
Retirement
“The action or fact of leaving one's job and
ceasing to work.”
Important Retirement Facts
• People are staying in the workforce for longer periods of time.– Raising retirement rate.
• Many people do not properly save for retirement and are not prepared to retire.– Often, individuals do not begin planning for their
retirement until their 40s.
• With the lifespan of individuals increasing significantly, sufficient funds need to be set aside for expenses.
Shocking Retirement FactsClick on the images for more information.
Paid Time Off
Paid time off is the option that many
organizations offer to employees, which
allows the employee to take time away from
the workplace while still receiving
compensation.
Paid Time Off - Think Again…
Americans are notorious for working excessively.
In fact, according to one study, the American
workforce is now taking the fewest vacations that
they have in four decades.
For more information, click
on the image to the left.
Additional Examples of Employee
Coverage Benefits
• Sick time
• Injury
• Unemployment
• Old age
• Death
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