7) Compensasion (tools and merhods)

• Labor costs


  • Gross wages
  • Taxes (e.g. income tax)
  • Social contributions payable by the employee
  • Net earnings (including family allowances)
  • Social contributions payable by the employer
  • Other costs - Taxes on labor, Training and other costs
• Personal Income Tax 15%, Social Security Tax 18.5%, Social Contribution Tax 13%
• Total of contributions, taxes 46.5%, Tax Wedge 41.15%
• Tax Burden – Single individual without children, Tax Burden – Two-earner couples with two children
• Changes in total and regular gross earnings 571,200 HUF → 393,700 HUF, +14.2‰, -2.9‰ (+17.6‰)
• Total rewards


  Monetary and nonmonetary rewards provided by companies to attract, motivate, and retain employees
• Strategic decisions can guide the design of compensation practices


  • Compliance with all applicable laws and regulations
  • Cost-effectiveness for the organization
  • Internal and external equity for employees
  • Optimal mix of compensation components
  • Performance enhancement for the organization
  • Performance recognition and talent management for employees
  • Enhanced recruitment, involvement, and retention of employee
• Tangible Rewards


  • Elements of compensation that can be quantitatively measured and compared between organizations
• Intangible Rewards


  • Elements of compensation that cannot be as easily measured or quantified
• Components of Compensation


  • Base Pay
  • Variable Pay
  • Benefit
• Creative Awards


  • Golden Banana Award, Spirit of Fred Award, The Lifetime Fred Award, World of Thanks Award
• Special Corporate Benefits


  • Microsoft - The Commons, Google - open, green areas, sports facilities, Chesapeake Energy - fitness center, frequent bonuses, medical care, Advanced Medical - a moving beer car every Friday, Clif Bar - 12-meter high climbing wall, professional gym, massage parlor, dance hall, personal trainers and nutritionists, higher salary, Asana - own office +$10,000 for furniture, yoga class, lifestyle counseling, personal cook, Zappos - $50 monthly bonus for one colleague, then drawing the "Hero of Zappos"
• Entitlement philosophy


  Assumes that individuals who have worked another year with the company are entitled to pay increases with little regard for performance differences
• Pay-for-performance philosophy


  Assumes that compensation decisions reflect performance differences
• HRM develops and administers the compensation system, HRM ensures pay practices comply with all legal requirements, Line managers evaluate employee performance and participate in pay decisions
• HRM Metrics for Compensation


  • Employee satisfaction
  • Motivation theories
  • Fairness and equity
  • Market competitive compensation
  • Competency-based pay
  • Individual versus team rewards
  • Global compensation issues
• Expectancy theory


  Employee's motivation is based on the probability that his or her efforts will lead to an expected level of performance that is linked to a valued reward
• Equity theory


  Individuals judge fairness (equity) in compensation by comparing their inputs and outcomes against the inputs and outcomes of referent others
• Compensation Fairness and Equity


  • External Equity
  • Internal Equity
  • Procedural Justice
  • Distributive Justice
  • Pay Secrecy vs. Openness
• Market Competitive Compensation Strategies


  • Lag-the-Market Strategy
  • Lead-the-Market Strategy
  • Match-the-Market Strategy
• Competency-based pay


  Rewards individuals for the capabilities they demonstrate and acquire
• Individual versus Team Rewards


  How to compensate individuals whose performance may be a result of team efforts and achievements, How to develop compensation programs that support the team concept
• The growing world economy has led to an increase in employees working internationally, Laws, living costs, tax policies, currency fluctuations, local wage scales, and more must be considered, Offshoring - Moving jobs to lower-wage countries, Reshoring - Returning operations to the home country
• Compensation of International Assignees


  • Home Country–Based Approach
  • Host Country–Based Approach
• Market pricing


  Uses market pay data to identify the relative value of jobs based on what other employers pay for similar jobs
• Pay survey


  Collection of data on compensation rates for workers performing similar jobs in other organizations
• Benchmark jobs


  Jobs that are found in many organizations that can be used for the purposes of comparison
• Pay survey data relevance and validity depends on participants, methodology, job matches, and timeliness
• Pay grades


  Groupings of individual jobs that have approximately the same value to the organization
• Market line


  Graph line that shows the relationship between job value as determined by job evaluation points and job value as determined pay survey rates
• Market banding


  Grouping jobs into pay grades based on similar market survey amounts
• Broadbanding


  Practice of using fewer pay grades with much broader ranges than in traditional compensation systems
• Red-circled employees


  Incumbent who is paid above the range set for the job
• Green-circled employees


  Incumbent who is paid below the range set for the job
• Pay compression


  Occurs when the pay differences among individuals with different levels of experience and performance become small
• Salary Inversion


  When the pay given to new hires is higher than the compensation provided to more senior employees
• Pay Increases


  • Performance-Based Increases
  • Standardized Pay Adjustments
• Economic Recessions - Organizations reduce employment-related expenses, use sparingly to reduce dissatisfaction and turnover, Gender Pay Gap - Women have gained ground recently, Gap increases in executive-level positions
• Incentives


  Tangible rewards that encourage or motivate action
• Variable pay (pay for performance)


  Compensation that is tied to performance