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Compensation Magnus (1) - Compensation Benefits 1 MGT 356...

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MGT 356; Dr. Magnus  Compensation & Benefits 1
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Compensation Compensation —all forms of financial returns and  tangible benefits that employees receive as part of  an employment relationship. Direct compensation = cash received in the form of base  salary, overtime, shift differentials, bonuses, sales  commissions, etc. Wage and salary program (base pay, overtime pay, etc.) Performance incentives (merit increases, bonuses, gain-sharing  pay, commissions, etc.) Indirect compensation = general category of employee  benefits programs Legally required benefits (social security, workers’ compensation,  COBRA, FMLA) Discretionary programs (medical coverage, paid time off, etc.) 2
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Compensation Systems Five characteristics of an effective compensation  system. enables an organization to attract and retain qualified,  competent workers motivates employee performance, fosters a feeling of equity,  and provides direction to their efforts supports, communicates, and reinforces an organization's  culture, values, and competitive strategy complies with government regulations cost structure reflects the organization's ability to pay 3
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Equity Theory Employees often evaluate the “fairness” of their pay  relative to that of other employees Compare own INPUT (effort, ability, experience) –  OUTPUT (pay, benefits, working conditions) RATIO  to that of a comparison other If equal, equity exists If unequal, then inequity exists and employee may work to  restore equity Reduce own inputs, increase one’s outcomes (e.g., theft), or leave  the situation (turnover) Two types of equity in compensation systems: External equity – determined through market pay surveys Internal equity – established through effective job analysis and  4
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Traditional Approach to Compensation Job Analysis Job Documentation Job Rating Create Job Worth Hierarchy Prepare to Survey Conduct Survey Analyze Market Data Reconcile Internal & External Considerations Develop Pay Structure  To discover nature of duties performed  To clarify authority and responsibility  To determine KASOCs  To record job information  Typical content:  Job summary                             Specific duties                             KASOCs  Identify benchmark positions  Select information sources  Choose comparators  What information is needed?
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