Topic 6: Compensation (Quiz)
Introducing Reward Management
Reward management is the process of providing incentives to employees for reaching or exceeding
organizational goals.
Total Reward
Total reward is the combination of benefits, compensation, and rewards that employees receive from their
organizations. This can include wages and bonuses as well as recognition, workplace flexibility and
career opportunities.
Individual
Base pay
Contingent pay
Bonuses
Incentives
Shares
Profit Sharing
Transactional
Pensions
Holidays
Healthcare
Other perks
Flexibility
Relational
Learning and development
Training
Career development
Communal
Leadership
Organizational values
Voice
Recognition
Achievement
Job design
Work-life balance.
The Elements of Payment
1. Basic rate: The irreducible minimum rate of pay is the basic rate of pay.
2. Plussage: Sometimes the basic has an addition to recognize an aspect of working conditions or
employee capability. whereby there is an addition to the basic as a start-up allowance, mask
money, dirt money, and so forth.
3. Benefits: Extras to the working conditions that have a cash value are categorized as benefits and
can be of great variety.
4. Premia: Where employees work at inconvenient times – or on shifts or permanently at night –
they receive a premium payment as compensation for the inconvenience. This is for
inconvenience rather than additional hours of work.
5. Overtime: Overtime refers to any hours worked by an employee that exceed their normally
scheduled working hours.
6. Incentive: Incentive pay is a type of wage or salary payment that is made to employees in
addition to their normal wages or salaries.
7. Bonus: A bonus is a payment or extra amount of money that is given to an employee above and
beyond their normal salary.
Setting Base Pay
External Market Comparisons
External market comparisons are important for setting competitive pay rates to attract and retain staff.
Employers may pay above or below the market rate, considering factors like talent acquisition and
retention strategies. Various sources, such as published journals, salary surveys, consultants, salary
comparison websites, and networking within industry circles, provide intelligence on market rates for
different job types.
Internal Labor Market Mechanisms
Internal labor markets within organizations, categorized as enterprise and craft markets, play a role in
managing effective performance. The enterprise market follows a hierarchical structure, with promotions
from within, while the craft market emphasizes qualifications and shared duties. Pay differentials within
internal labor markets focus on internal hierarchies rather than external comparisons, with the aim of
incentivizing performance and maintaining fairness.
Job Evaluation
Job evaluation is a systematic process used to determine the relative worth and hierarchy of jobs within an
organization based on factors like knowledge, responsibility, and experience. It helps establish pay grades
and ensures fairness and objectivity in compensation. Different methods, including analytical and whole
job schemes, are used, often with the assistance of computerized systems. In cases where job evaluation
reveals overpayment, approaches like buying out or red circling may be used to address the situation.
Collective Bargaining
Collective bargaining involves negotiations between trade unions or employee representatives and
employers to determine pay rates. It has declined in the UK, with decentralization to company or
establishment level and reduced coverage. Factors such as external market rates, internal pay
mechanisms, and job size are considered, but the presence of strong unions can influence outcomes and
potentially secure better pay deals for members.
The Importance of Equity
Employers must ensure perceived fairness in pay levels to prevent negative organizational impacts.
Equity theory emphasizes the importance of distributing rewards fairly based on employees' input. Clear
principles for determining pay include standardized approaches, minimizing subjective decisions,
fostering communication and employee involvement, and establishing transparent procedures.