Definition and importance of compensation is compared from several different
a. Perceives compensation as a measure of justice.
b. Example - Comparing earnings of women with those of men highlights potential
pay inequities. The
A simple let the market decide our compensation strategy does not work, either in the
U.S. or internationally. Emerging labor markets in some developing countries and highly
regulated labor markets in some developed countries are responsible for les
a. Emphasis placed on employee contributions (pay for performance) is a
key policy decision since it directly affects employees attitudes and work
b. Performance-based pay affects fairness in that employees need to
Ethics In pay systems, all three objectives must be achieved simultaneously. It is not
efficiency versus fairness versus compliance. The tension of working toward all
objectives at once creates fertile grounds for ethical dilemmas. Ethics means the
Relational Returns from Work - Non-financial returns from work have a
substantial effect on employees behavior.
Examples of relational returns Recognition and status, employment
security, challenging work, opportunities to learn, personal satisfac
1. Income Protection
Included in transactional returns.
Some income protection programs are legally required. E.g., in the U.S.,
employers must pay into a fund that provides income replacement for
workers who become disabled or unempl
Compensation is usually a source of financial security for employees.
Employees may see compensation as:
1. A Return in an exchange between their employer and themselves,
2. An Entitlement for being an employee of the company, or
3. A Rew
The experience curve refers to the systematic reductions in production costs
that have been observed to occur over the life of a product.
Learning effects are cost savings that come from learning by doing.
So, when labor produc
Forms of Pay
The varieties of returns people receive from work are categorized as total compensation
and relational returns.
1. Total compensation returns are transactional in nature and include pay
received directly as cash (e.g., base, merit, ince
C. When an organizations business strategy changes, the pay systems should
change, too. Example IBMs strategic and cultural transformation:
1. For several years, IBM emphasized internal alignment, e.g., elaborate job
evaluation plan, clear hierarchy