Managing_Compensation_Study_note - MANAGING COMPENSATION...

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MANAGING COMPENSATION STUDY NOTE I. STRATEGIC COMPENSATION PLANNING Compensation Pay is a statement of an employee’s worth by an employer Pay is a perception of worth by an employee The compensation program is a significant part of HRM. The compensation paid to employees represents a major cost to employers. For employees, the compensation they receive affects how they live. All organizations should have a formal compensation policy explaining the objectives of the compensation program and how it should be administered Strategic compensation planning is the effort of the organization to link employee motivation and concerns for compensation to the objectives and goals of the organization. Through strategic compensation planning the organization seeks to attract and maintain quality employees consistent with maximizing its compensation budget Compensation specialists recognize three important aspects to strategic compensation planning: (1) linking compensation to organizational objectives, (2) the pay- for-performance standard, and (3) the motivating value of compensation. A. Linking Compensation to Organizational Objectives Many managers believe that compensation programs have not always achieved their intended purpose. Simply paying an employee an hourly wage for performing a specific job may not maximize the return received on the investment made. That is, there is not always a link between employee output and the compensation given. Strategic compensation planning attempts to link employee rewards to specific organizational goals. That is, this planning should facilitate the effective use of employees. Therefore, compensation programs must be flexible and tailored to meet both organizational and employee needs. The textbook lists seven of the more common goals of compensation policy. These are to (1) reward employees’ past performance, (2) remain competitive in the labor market, (3) maintain salary equity among employees, (4) mesh employees’ future performance with organizational goals, (5) control the compensation budget, (6) attract new employees, and (7) reduce unnecessary turnover. The goals of strategic compensation assist in decisions affecting compensation policy. B. The Pay-for-Performance Standard A current emphasis in the compensation area is pay for performance. This term includes a wide range of compensation options, including merit pay, cash bonuses, and incentive pay. The pay-for-performance standard seeks to tie employee compensation to employee effort and job performance. By stressing this compensation policy, employers hope that employees will be motivated to perform with greater effort, thereby lowering employer wage costs Pay for performance is effective, since empirical studies show that employees will increase their output between 15 and 35 percent when this standard is employed Several considerations for an effective pay-for-performance policy are provided in the textbook
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This note was uploaded on 04/07/2009 for the course H ADM 211 taught by Professor Sway during the Fall '07 term at Cornell University (Engineering School).

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Managing_Compensation_Study_note - MANAGING COMPENSATION...

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