Lecture 7
Compensation and benefits
Compensation:
- All forms of pay or rewards that are going to employees that arise from the
employment of these employees
- Employee compensation – pay or rewards going to employee
- Two components:
o Direct financial – salaries
o Indirect payment – insurance
Tradition or old pay/ reward systems
- Investigated 1989
- Job centred
- Pay by time at work – hourly, weekly, monthly
- Linked to tenure not performance – i.e., amount of time you’ve been in the job, not
by how well you are performing
- Hierarchy – significant level differences
- Not integrated with business strategy
- Emphasises basic pay (not variable pay)
- Resist market rate pressures – not affected by market conditions
- Approach used within manufacturing in the UK
- Slowly disappearing
Reward or pay management/ system
- Includes a combination of financial and non-financial elements used by an
organisation to compensate employees for their time, effort, commitment at work
- Total reward- encompasses traditional pay, incentives and benefits – used in public
and private sector
- Non-monetary such as recognition
Total reward concept:
- Developed through HR initiatives by giving employees a voice
- Linked to 2 phenomena
1. War for talent (attract and retain best talent)
2. Communicate the total value of employment offer to employees (both intrinsic
and extrinsic rewards)
- Five components of total reward in the USA are:
o Basic pay
o Benefits
o Work life balance
o Performance and recognition
o Development and career opportunities
, New pay or strategic compensation
- American origins – popularised by Schuster and Zingheim 1992
- Remuneration needed to be linked to business strategy and corporate objectives
- Person based (not task based)
o Based more on performance (the better they perform the better the salary
they will get)
o Greater recognition of contribution not status
o Underpins the employee-organisation partnership
- Innovative reward systems are required for the changing workplace (Wilson, 1995)
New pay- critiques:
- Implies transfer of risk from employers to workers
- Executive remuneration rising rapidly ad usually shielded from insecurity (Conyon,
1995)
- Employers and shareholders capable of spreading risk while workers highly
dependent on remuneration.
Old pay and new pay system:
Lawler 2000 – (cited in Reed and Smith, 2017: 241)
How important is pay for employers?
- Motivate the staff
- Keep staff engaged
- Attract the best talent and employees and retain
- To drive change within the company – create new behaviours by giving them and
incentive therefore create promotions
- Build reputation
How important is pay for employees?
- To be able to buy things – purchasing power
- Achievement
- Reassuring the employees that their contribution is being acknowledge
- Established fairness – feeling pay they are receiving is fair for what they are doing
Compensation and benefits
Compensation:
- All forms of pay or rewards that are going to employees that arise from the
employment of these employees
- Employee compensation – pay or rewards going to employee
- Two components:
o Direct financial – salaries
o Indirect payment – insurance
Tradition or old pay/ reward systems
- Investigated 1989
- Job centred
- Pay by time at work – hourly, weekly, monthly
- Linked to tenure not performance – i.e., amount of time you’ve been in the job, not
by how well you are performing
- Hierarchy – significant level differences
- Not integrated with business strategy
- Emphasises basic pay (not variable pay)
- Resist market rate pressures – not affected by market conditions
- Approach used within manufacturing in the UK
- Slowly disappearing
Reward or pay management/ system
- Includes a combination of financial and non-financial elements used by an
organisation to compensate employees for their time, effort, commitment at work
- Total reward- encompasses traditional pay, incentives and benefits – used in public
and private sector
- Non-monetary such as recognition
Total reward concept:
- Developed through HR initiatives by giving employees a voice
- Linked to 2 phenomena
1. War for talent (attract and retain best talent)
2. Communicate the total value of employment offer to employees (both intrinsic
and extrinsic rewards)
- Five components of total reward in the USA are:
o Basic pay
o Benefits
o Work life balance
o Performance and recognition
o Development and career opportunities
, New pay or strategic compensation
- American origins – popularised by Schuster and Zingheim 1992
- Remuneration needed to be linked to business strategy and corporate objectives
- Person based (not task based)
o Based more on performance (the better they perform the better the salary
they will get)
o Greater recognition of contribution not status
o Underpins the employee-organisation partnership
- Innovative reward systems are required for the changing workplace (Wilson, 1995)
New pay- critiques:
- Implies transfer of risk from employers to workers
- Executive remuneration rising rapidly ad usually shielded from insecurity (Conyon,
1995)
- Employers and shareholders capable of spreading risk while workers highly
dependent on remuneration.
Old pay and new pay system:
Lawler 2000 – (cited in Reed and Smith, 2017: 241)
How important is pay for employers?
- Motivate the staff
- Keep staff engaged
- Attract the best talent and employees and retain
- To drive change within the company – create new behaviours by giving them and
incentive therefore create promotions
- Build reputation
How important is pay for employees?
- To be able to buy things – purchasing power
- Achievement
- Reassuring the employees that their contribution is being acknowledge
- Established fairness – feeling pay they are receiving is fair for what they are doing
