HRM3705
NOTES
,Study Unit 1: Strategic Compensation: A Component of Human Resource Systems
Compensation refers to all forms of financial returns and tangible resources and benefits employees
receive as part of an employment relationship. They are either:
Intrinsic—intrinsic compensation represents employees’ critical psychological states that
result from performing their jobs.
Extrinsic—extrinsic compensation includes both monetary and nonmonetary rewards.
Compensation is the single most important cost in many organisations. Personnel costs can be as
high as 60% of total costs in certain types of manufacturing environments and even higher in some
service organisations. However, this means that the effectiveness with which compensation is
allocated can make a significant difference in gaining or losing a competitive edge/ advantage.
The compensation system
1|P age
,Five Core Job Dimensions
Skill variety—the degree to which the job requires the person to perform different tasks
Task identity—the degree to which a job enables a person to complete an entire job from
start to finish
Task significance—the degree to which the job has an impact on the lives or work of other
people
Autonomy entails the amount of freedom, independence, and discretion the employee enjoys
in determining how to perform the job.
Feedback—the degree to which the job or employer provides the employee with clear and
direct information about job outcomes and performance p
Elements of Core Compensation
Base pay
Hourly pay
Annual salary
Base pay adjustments COLAs
Skill-based pay
Merit pay
Incentive pay
Pay-for-knowledge
Seniority pay
There has been an evolution in remuneration. Overall developments in remuneration have resulted in
a significant change in the way that employees are rewarded. Traditionally, employees were rewarded
by hours worked or the number of years they had served an organisation. Salary administration was
extremely bureaucratic, organisations were hierarchical and specialised, and remuneration played no
part in an organisation’s strategic objectives.
Core Compensation
COLAs—COLAs represent periodic base pay increases that are founded on changes in
prices as indexed by the consumer price index (CPI).
Seniority Pay—seniority pay systems reward employees with periodic additions to base pay
according to employees’ length of service in performing their jobs
Merit Pay—merit pay programs assume that employees’ compensation over time should be
determined, at least in part, by differences in job performance.
Incentive Pay—incentive pay (or variable pay) rewards employees for partially or completely
attaining a predetermined work objective.
Pay-for-Knowledge Plans—pay-for-knowledge plans reward managerial, service, or
professional workers for successfully learning specific curricula
2|P age
, Skill-based Pay—skill-based pay is used mostly for employees who perform physical work
and increases these workers’ pay as they master new skills.
Four Compensable Factors
An employee’s skill level
An employee’s effort
An employee’s level of responsibility
The severity of the working conditions
Discretionary Benefits
Three Broad Categories:
Protection programs—provide family benefits, promote health, and guard against income loss
caused by such catastrophic factors such as unemployment, disability, or serious illness
Paid time-off—provides employees with pay for time when they are not working are not
working
Services—provides such enhancements as tuition reimbursement and day care assistance to
employees and their families
Legally-Required Benefits
Legislation Designed to:
Promote worker safety and health
Maintain family income Assist families in crisis
Provide assistance in case of -Disability or Unemployment, for example Unemployment
Insurance Fund (UIF)
Strategic Activities
Strategic decisions:
- guide the activities of companies in the market
- are concerned with the entire environment in which the company operates, the resources and
the people who form the company and the interface between the two and it supports the
business objectives
Strategic management—entails judgments that direct a company toward achieving specific
goals
Strategic planning—supports business objectives
Tactical decisions: – affect the day-to-day implementation of steps required to reach the goals of a
strategy, such as recruitment –it supports the fulfilment of strategic decisions
3|P age
NOTES
,Study Unit 1: Strategic Compensation: A Component of Human Resource Systems
Compensation refers to all forms of financial returns and tangible resources and benefits employees
receive as part of an employment relationship. They are either:
Intrinsic—intrinsic compensation represents employees’ critical psychological states that
result from performing their jobs.
Extrinsic—extrinsic compensation includes both monetary and nonmonetary rewards.
Compensation is the single most important cost in many organisations. Personnel costs can be as
high as 60% of total costs in certain types of manufacturing environments and even higher in some
service organisations. However, this means that the effectiveness with which compensation is
allocated can make a significant difference in gaining or losing a competitive edge/ advantage.
The compensation system
1|P age
,Five Core Job Dimensions
Skill variety—the degree to which the job requires the person to perform different tasks
Task identity—the degree to which a job enables a person to complete an entire job from
start to finish
Task significance—the degree to which the job has an impact on the lives or work of other
people
Autonomy entails the amount of freedom, independence, and discretion the employee enjoys
in determining how to perform the job.
Feedback—the degree to which the job or employer provides the employee with clear and
direct information about job outcomes and performance p
Elements of Core Compensation
Base pay
Hourly pay
Annual salary
Base pay adjustments COLAs
Skill-based pay
Merit pay
Incentive pay
Pay-for-knowledge
Seniority pay
There has been an evolution in remuneration. Overall developments in remuneration have resulted in
a significant change in the way that employees are rewarded. Traditionally, employees were rewarded
by hours worked or the number of years they had served an organisation. Salary administration was
extremely bureaucratic, organisations were hierarchical and specialised, and remuneration played no
part in an organisation’s strategic objectives.
Core Compensation
COLAs—COLAs represent periodic base pay increases that are founded on changes in
prices as indexed by the consumer price index (CPI).
Seniority Pay—seniority pay systems reward employees with periodic additions to base pay
according to employees’ length of service in performing their jobs
Merit Pay—merit pay programs assume that employees’ compensation over time should be
determined, at least in part, by differences in job performance.
Incentive Pay—incentive pay (or variable pay) rewards employees for partially or completely
attaining a predetermined work objective.
Pay-for-Knowledge Plans—pay-for-knowledge plans reward managerial, service, or
professional workers for successfully learning specific curricula
2|P age
, Skill-based Pay—skill-based pay is used mostly for employees who perform physical work
and increases these workers’ pay as they master new skills.
Four Compensable Factors
An employee’s skill level
An employee’s effort
An employee’s level of responsibility
The severity of the working conditions
Discretionary Benefits
Three Broad Categories:
Protection programs—provide family benefits, promote health, and guard against income loss
caused by such catastrophic factors such as unemployment, disability, or serious illness
Paid time-off—provides employees with pay for time when they are not working are not
working
Services—provides such enhancements as tuition reimbursement and day care assistance to
employees and their families
Legally-Required Benefits
Legislation Designed to:
Promote worker safety and health
Maintain family income Assist families in crisis
Provide assistance in case of -Disability or Unemployment, for example Unemployment
Insurance Fund (UIF)
Strategic Activities
Strategic decisions:
- guide the activities of companies in the market
- are concerned with the entire environment in which the company operates, the resources and
the people who form the company and the interface between the two and it supports the
business objectives
Strategic management—entails judgments that direct a company toward achieving specific
goals
Strategic planning—supports business objectives
Tactical decisions: – affect the day-to-day implementation of steps required to reach the goals of a
strategy, such as recruitment –it supports the fulfilment of strategic decisions
3|P age
