Compensation

Also known as

Total Returns for Work Or Total Rewards

Total Returns for Work
 Framework for Analyzing Employment
Relationships
HIGH PAY – LOW COMMITMENT HIGH PAY – HIGH COMMITMENT

Hired Guns Cult - like

(Stockbrokers) (Microsoft)
TRANSACTIONAL

LOW PAY – LOW COMMITMENT LOW PAY – HIGH COMMITMENT

Workers as Commodity Family

Low

(Employers of Migrant (Starbucks)

Farm Workers)

Low RELATIONAL High

 Framework for Analyzing Employment Relationships
In the grid, organizations that pay low cash compensation and offer low relational
returns are in the “workers as commodity” category

Organizations that offer both high compensation and high relational returns may be
characterized as “cultlike”. Microsoft, Medtronic, and Toyota are examples.

Commitment to the organization shows in the words and actions of employees:

“being at the centre of technology, having an impact on the work, working with smart
people, the sheer volume of opportunities, shipping winning products, beating
competition”

Some organizations offer a family relationship: high relational and low transactional
returns. Starbucks is an example; one writer calls it the “touchy-feely coffee company”

There are the “hired guns”—all-transactional, “show me-the-cash” relationships

 Exhibit 1.5: THE PAY MODEL

POLICIES TECHNIQUES OBJECTIVES

Work Descriptions Evaluation/ INTERNAL

ALIGNMENT
analysis certification STRUCTURE
EFFICIENCY
• Performance
• Quality
Market Surveys Policy PAY
COMPETITIVENESS definitions lines STRUCTURE • Customers
• Stockholders
• Costs
Seniority Performance Merit INCENTIVE
CONTRIBUTORS based based guidelines PROGRAMS FAIRNESS

COMPLIANCE
MANAGEMENT Costs Communication Change EVALUATION
Compensation Objectives

Efficiency

Fairness

Compliance
 Compensation Objectives
Efficiency Efficiency can be stated more specifically

(1) Improving performance, increasing quality, delighting customers and stockholders

(2) Controlling labour costs

Fairness is a fundamental objective of pay system

Fairness It refers to the process used to make pay decisions
Fair treatment for all employees by recognizing both:
Employee contributions (e.g., higher pay for greater performance, experience, or training)
Employee needs (e.g., a fair wage as well as fair procedures)

Fairness is a fundamental objective of pay system

Compliance It refers to the process used to make pay decisions

conforming to national and state compensation laws and regulations.

If they change, pay systems may need to be adjusted to ensure continued compliance.
 Compensation Objectives
They guide the design of the pay system.

If an objective is to increase customer satisfaction:

Incentive programs and merit pay (techniques) is used to pay for performance

Objective may be to develop new products, to innovate:

Job design, training, and team building may be used to reach this objective.
External competitiveness & internal alignment system is used.

If the objective is to attract and retain the best and the brightest, yet skilled
employees are leaving to take higher-paying jobs with other employers, the system
may not be performing effectively. Although there may be many nonpay reasons for
turnover, objectives provide standards for evaluating the effectiveness of a pay
system.
 Strategy

• A fundamental business decision that an

organization has made in order to achieve its
strategic objectives e.g., what business to be
in, how to gain competitive advantage

• The greater the alignment, or fit, between

the organizational strategy and the
compensation system, the more effective the
organization
 Strategic Choices

Business unit
HR strategies
strategies
Corporate objectives,
strategic plans, vision,
and values Strategic
Social, compensation
competitive, decisions
and regulatory
environment
Compensation
systems

Employee
attitudes and
behaviours

Competitive
advantage