Week 6: Compensation1 unreadof 1 message
Monetary & Non Monetary Compensation
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Total rewards is an organizational system of rewards that is inclusive of compensation, benefits, and any tangible or intangible items employees value and an employer provides to retain employees and reinforce preferred behaviors. These forms of compensation are broken down into two categories: direct (monetary) and indirect (non-monetary).
Discussion Question—Choose one perspective in which to respond.
Non-HR Perspective:What is the manager’s role in establishing a compensation strategy? How do managers influence the compensation process?
HR Perspective:Evaluate a current or past employer’s total reward strategy. What do you recommend/propose for your chosen organization?
In developing your response, you want to consider some of the following elements:
legal consideration, diversity of employees (e.g. multiple generations in the workforce), motivation, recruitment and retention, sustaining performance, challenges, and various employee classifications (executive, professional, international, etc.).
10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 1/13 HRMT600 | LESSON 6: COMPENSATION AND BENEFITS Topics to be covered: Employee motivation and engagement Employee compensation Employee benefits Types of employees Different people are motivated by different things. This lesson will provide an overview of employee motivation and engagement. Then you will learn how compensation and benefits are used to help employees be motivated and engaged on the job. In addition, this lesson will review the different types of positions that employees may hold, and the legal requirements for each type. Introduction Employee Motivation and Engagement Most people work because they need a paycheck and the other rewards provided through employment. As this lesson will discuss below, compensation and benefits are tools that employers can use to help motivate employees. To better understand how this process works, it is beneficial to understand motivation and engagement as these concepts pertain to the workplace and employees. To be successful in the workplace and help organizations achieve their goals and objectives, employees must be motivated and engaged while at work. Motivation is the act of providing someone with a reason for doing something. Motivation also can be a force or prompt that spurs a person to action. When a person is motivated, he or she is eager to take action or perform work. Engagement complements motivation. When an employee is engaged, he or she is committed to getting the work done and may even have an emotional connection to the work. 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 2/13 Employers must recognize that individuals are motivated by a variety of things, and something that is a primary motivator for one person may have little or no motivational value to another person. Scholars have offered various theories about what motivates people. These theories can be divided into two categories—needs-based theories and process-based theories (Nickels, McHugh, & McHugh, 2013). Needs-based theories argue that individuals are motivated when their actions will enable them to obtain the things that they need. Process-based theories argue that motivation is a more rational process, whereby individuals analyze their environment, draw conclusions regarding it, and then take actions that they feel are most appropriate for the situation. A variety of theories exist in each category. We will examine two of the most widely accepted needs-based theories and two of the most widely accepted process-based theories (Schermerhorn, Hunt, & Osborn, 2005). Needs-based Theory: Maslow’s Hierarchy of Needs 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 3/13 Developed by Abraham Maslow in 1943, this theory argues that every individual has five categories of needs, which occur in a hierarchy, with the most basic needs at the bottom. Only when basic and lower level needs are met can individuals advance up the hierarchy to meet higher level needs. According to Maslow, the five levels of needs are physiological, safety, social, self-esteem, and self-actualization. Physiological needs are the bottom level of needs and cover the vital things that individuals need to survive, including oxygen to breathe, food and water to nourish the body, sleep to restore the body, and shelter to provide protection from the environment. In the workplace, providing breaks while on the job to allow employees to rest and eat is one way to meet physiological needs. 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 4/13 Safety needs are the second level and include the need for individuals to be safe, have good health, and enjoy financial stability. In the workplace, providing employees with safe working conditions and a retirement fund to offer financial security when employees retire helps meet safety needs. The next level is social needs, which are concerned with friendship and acceptance. To have their social needs met, individuals must feel that other people care about and respect them. In the workplace, relationships with co- workers can help meet social needs. Self-esteem needs are the fourth level in the hierarchy and are based in how individuals need to feel good about themselves, to have self-confidence, status in life, and recognition for accomplishments. In the workplace, paying attention to employees’ work and recognizing them when they achieve goals, objectives, and perform exceptionally well can help meet self-esteem needs. The top level of the hierarchy is self-actualization, which is determined by how individuals experience personal development, obtaining truth and wisdom about life. In the workplace, individuals achieve self-actualization by doing work that is challenging and meaningful, allowing them to feel that they are using their talents and meeting their potential. HYGIENE FACTORS MOTIVATOR FACTORS Needs-based Theory: Two-factor Theory Developed by Frederick Herzberg, this theory argues that job satisfaction is a function of hygiene and motivator factors. 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 5/13 Process-based Theory: Equity Theory Developed by John Stacey Adams in 1963, this theory argues that fairness is a primary motivator for employees. The basic ideas of this theory include the following. If an employee feels that his or her efforts at work are recognized and rewarded appropriately, he or she will be motivated to perform as well as possible. If an employee feels that his or her efforts are not appreciated and/or are not being adequately compensated, that individual will not be motivated to perform well. Employees compare their situations to those of co-workers doing similar work. If they think a co-worker is being recognized or rewarded more but that co-worker does not produce more or better work, they will regard this as unfair. Process-based Theory: Expectancy Theory Expectancy theory argues that individuals use a rational decision making process to decide whether it is to their benefit to put more or less effort into their work. As part of this process, individuals ask themselves three questions: In this situation, will a high level of effort result in the preferred outcomes? This is the expectancy portion of the theory. If an individual expects that putting forth more effort will lead to preferred results, he or she is more likely to expend that effort. If the preferred outcomes result, will this lead to rewards? This is the instrumentality portion of the theory. If an individual thinks that putting a high level of effort into a task will yield preferred outcomes, which will lead to rewards, he or she is more likely to be motivated to put forth a high level of effort. If the preferred outcomes lead to rewards, what is the value of those rewards? This is the valence portion of the theory. If an individual thinks that putting a high level of effort into a task will lead to preferred outcomes and rewards AND those rewards will be desirable, he or she is more likely to be motivated to put forth a high level of effort. When employers make decisions about employee compensation and benefits, which are discussed below, they should consider what motivates their employees and encourages them to be engaged at work. Without motivation and engagement, employees likely will not be successful in their jobs. Without successful employees, organizations cannot achieve their goals and objectives. Employee Compensation 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 6/13 Compensation is fixed and paid on a weekly, monthly, or other basis. Generally, salaried employees do not receive additional compensation when they work overtime. 1/8 Salary One way to motivate employees and help them feel engaged on the job is to compensate them in a manner that they regard as fair and equitable for the type and level of work that they perform. Compensation can be defined as the method used to pay an employee for his or her work. The different types of pay systems used in the United States to compensate employees include the following (Nickels, McHugh, & McHugh, 2013, p. 311): ‹ › Pay-for-performance System According to Cascio (2010), in today’s marketplace, HRM professionals generally promote a pay-for-performance system to determine employee compensation. Under this system, employees are paid according to their contributions and value that they are adding to an organization. This has resulted in many organizations having policies such as the following regarding employee pay: Compensation is no longer an entitlement, deserved by employees on the basis of seniority. Instead, employees must demonstrate that they have contributed to an organization and are deserving of compensation. Rather than aligning pay increases with inflation, organizations award increases on the basis of merit. This makes pay more variable, and it turns compensation into a reward that employees receive when they perform well. Instead of paying employees on the basis of what competitors are paying for similar work, organizations focus more on paying what is affordable as per the organization’s budget. Organizations are inclined to restrict the amounts awarded for compensation in an effort to control the costs of salaries, wages, and other forms of compensation. 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 7/13 Pay Compression Organizations are more willing to outsource jobs overseas in an effort to reduce costs of compensation. Organizations may find that pay-for-performance is not the optimal approach to meet the needs of an organization and its employees. Two other options for pay systems include the following (Cascio 2010): In a competency-based pay system employees are paid according to their skills and their level of knowledge, as opposed to the specific jobs that they are doing for an organization. In a market-based pay system, employees are paid according to benchmarks and matches for the same jobs in the marketplace. Let’s look at several tools used by HRM professionals to establish a pay system. Current job descriptions that provide an accurate understanding of the work specific positions accomplish for an organization. Job evaluation methods that rank jobs according to their overall value to an organization and their importance in enabling an organization to achieve its goals and objectives. Pay surveys that provide market data about compensation for different types of positions and the work they accomplish and attach specific pay rates to specific positions. A pay structure that classifies jobs according to grade levels with associated pay rates. To develop a pay structure, HRM professionals should adhere to the following guidelines (Cascio, 2010): Group jobs that have a similar general value into the same pay grade. Place jobs that are clearly different in value into different pay grades. Ensure that a pay structure includes “a smooth progression of point groupings” (Cascio 2010, 431). Ensure that an updated pay structure fits realistically into an organization’s existing structure for allocating pay. Ensure that established pay grades are reasonably compatible with relevant pay grades and patterns in the marketplace. 10/5/2020 APUS Content https://apus.brightspace.com/shared/elf/hrmt600/lesson6/index.html 8/13 INTERNAL EQUITY EXTERNAL EQUITY INDIVIDUAL EQUITY Regardless of their philosophies and policies regarding compensation, organizations must strive to pay employees in a manner that is fair and equitable. According to Cascio (2010), to achieve this, organizations must be concerned with three types of equity: internal, external and individual. In addition to equity, HRM professionals will have other issues that must be considered when establishing pay systems. For example, they must be aware