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Compensation
is the set of rewards that organizations provide to
individuals in return for their willingness to perform
various jobs and tasks within the organization.
Internal equity
in compensation refers to comparisons that
employees make to other employees within the
same organization.
External equity
in compensation refers to comparisons employees
make to others performing similar jobs in different
organizations.
Internal
equity
Expense
control
External
equity
Compensatio
n
Reward and
motivate
Legal
compliance
Wages
generally refer to hourly compensation paid to
operating employees; the basis for wages is time.
Salary
is income that is paid an individual not on the
basis of time, but on the basis of performance.
Anticipation of
setting pay level
Determination
of market pay
Pay below
market rate
Pay market
rate
Pay above
market rate
Disadvantages
Advantages
Additional compensation
costs
Sense of entitlement
Pay
above
market
rate
Pay at
market
rate
Pay
below
market
rate
Lower-quality employees
Low morale/job satisfaction
Higher turnover; especially
among high performers
Pay
Surveys and
Pay surveys
are surveys of compensation paid to
Compensation
employees by other employers in a particular
geographic area, an industry, or an
occupational group.
assist firms in avoiding problems of external
equity when attempting to set compensation
strategy for themselves.
Job ranking
method
Regressionbased system
Classification
system
Job
Evaluation
Factor
comparison
method
Point system
Job
Evaluation
and
Job
Factor comparison method
assesses jobs on a factor-by-factor basis, using
Worth
a factor comparison scale as a benchmark.
Regression-based system
uses a statistical technique called multiple
regression to develop an equation that
establishes the relationship between different
dimensions of the job and compensation.
Wage
and
Salary
Managing
compensation
allows the organization to control compensation
Administration
costs and to maintain a compensation structure
Pay compression
occurs when individuals of substantially different levels of