Unit 1 Flashcards
(16 cards)
Purpose of a compensation system
Attract people to join the organization and perform the tasks needed
Reward
Anything provided by the job or the organization that satisfies the employees needs.
Extrinsic Rewards
Satisfy basic human needs for survival, security and recognition.
Intrinsic Rewards
Satisfy human needs like self-esteem, achievement, growth and development.
Rewards System
Mix of extrinsic and intrinsic rewards provided to employees.
Compensation System
Economic or monetary part of the reward system.
Three main components:
Base pay, Performance pay, Indirect pay
Total Rewards
A philosophy that considers all the rewards an organization offers its employees.
Reward Strategy
The plan for the mix of rewards to be provided and how it will be provided.
Base Pay
Foundation pay, usually based on a unit of time worked.
Performance Pay
Monetary reward to employees based on performance.
Indirect Pay
Non cash items or services that satisfy a variety of employee needs.
Compensation Strategy
The plan for the mix of base pay, performance pay and indirect pay to be paid to employees at different levels.
Two key questions for compensation strategy:
How should it be paid?
How much should be paid?
Optimal Reward System
The reward system that adds the most value to the organization after considering all its costs.
Maslow’s Hierarchy of Needs
Physiological-food and shelter
Safety/Security-protection from physical and emotional harm
Social-affection and belongingness
Respect/Self-esteem-status and recognition
Self-actualization-growth and self-fulfillment
Goals of the Reward and Compensation System
- promote achievement of the organizations goals
- fit with and support the organizations strategy and structure
- attract and retain qualified individuals
- promote desired employee behaviour
- be seen as equitable
- comply with the law
- be within the financial means of the organization
- achieve the above goals in the most cost effective manner
Road map to effective compensation
- understand your organization and people
- formulate your reward and compensation strategy
- determine your compensation values
- design your performance pay and indirect pay plans
- implement, manage,evaluate and adapt the compensation system
