Compensation: Employment and Internal Alignment
1. Define compensation and discuss the variety of returns people received from their work? (8 marks) Compensation refers to all forms of financial return and tangible services and benefits employees receive as part of employment relationship. Other than that compensation means something that counterbalance, offsets, or makes up for something else. However in the different language the compensation itself have richness of meaning, which combines entitlement, returns and reward.
Compensations are related with the employee and the employer performances, it means by employee performance of their works and the employer as the organization performance. Compensation need to be consider in all aspect especially in internal or external factor such as technology advancement, human capital, economic, government and others because it may affect the organizations itself. Other than that, the benefit of compensation toward the employees is it may increase the employee morale and it’s also a way to attract and retain employees.
The variety of returns people receive from their work that are categorized as total compensation and relational returns. The total compensations are transactional and the relational returns are psychological. Total compensation can be divided into two. First is cash compensation that means by they include pay directly as cash such as base, merit/cost of living, short term incentives and long term incentives. That normally employer pays for the work performed based on their result in performance appraisal.
Second is indirectly as benefits such as income protection, work/life balance, and allowance. That is non-monetary benefits for the employees, for example all female employees are entitled for maternity allowance, transportations allowance, EPF or SOCSO and others. The relational returns are involved learning opportunities, status, challenging work and so on. By means the compensation is intangible. For example for recognition and status, as human being normally people are loved to be respect by the others because that is a human nature.
The increase of status means position of the employee may improve their morale and individual self-esteem. It also may influence other people to compete and improve their performance and gain the competitive advantages. 2. Pay system are designed to achieve certain objective, list and briefly describes the three compensation objective? (10 marks) i. Efficiency ? Performance ? Quality ? Customer and stockholder ? Cost ii. Fairness iii. Compliance iv. Ethics • Efficiency
Can be stated more specifically first in improving performance, increasing quality, delighting customers and stakeholder and second is controlling labor cost. It also means by the pay of the employees are equivalent with the employee performance. When the employees are satisfied with their payment it will improve the quality of work indirectly will also increase the product quality. When the employees feels satisfied with their payment it will make the organization stable and it will help for the customer and stockholder loyalty (good image of organization).
The organization also my control labor cost because they are able to attract and retain their employees. • Fairness It is call as a fair treatment for all of the employees by recognizing both employees contributions for example higher pay for greater performance, experience, or training and employees needs for example fair wage as fair procedures. The procedural fairness is refer to the process used to make pay decisions. It suggested the way a pay decision is made be equally as importance to employees as the result of decisions.
For example, the CEO position are received the higher pay in organization it is because the decision that been made may give a big impact towards the organization rather than the decision that had been made by the operator that may give a little impact only in department. • Compliance As a pay objective means conforming to federal and state compensation law and regulations. If laws change, pay system may need to change, too to ensure continued compliance. As compliance go global, they must comply with the laws of all the countries in which they operates.
It means by, even they are same position but in different country, the employees cannot have the same pay. It is because every country has own currency. So, it is not suitable to use the same compensation system in different country, it also may cause dissatisfaction among employees. 3. Discuss four perspective of compensation? (12marks) i. Society Some people see pay as measure of justice. For example the comparison of earning between men and women highlights what many consider inequities in pay decisions. Benefits given as part of total compensation package may also be seen as a reflection of equity or justice in society.
The society also may see that involved job losses or job gain in a country over time. It means by the compensation may increase the employee morale (job gain) or decrease employee morale (job losses) because of dissatisfaction. Some consumers know that pay increase often lead to price increases. It’s because the employer need to pay the employees by using their profits. ii. Stockholders They are also interested in how employees are paid. Some believe that using stock to pay employees creates sense of ownership that will improve performance, which will, in turn, increase stockholder wealth.
It is because, the employee will feel more responsible as they feels that the organization as their own. iii. Managers For manager, compensation influences their success in two ways. First it is major expense. Competitive pressures, both global and local, force manager to consider the affordability of their compensation decision. Other than that, managers also used it to influences employees behavior and improve the organization performance because they have an authority to evaluate the employees’ performance that relate to the compensations and benefits. v. Employees The pay individuals receive in return for the work they perform is usually the major source of their financial security. Employees may see compensation as a return in an exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done. The employees see pay as the important things in their live because it determines the standard of living and the money that they need to plan for their future. 4. Elaborates four steps in developing a compensation strategy? 12 marks) i. Assets Total Compensation Implications Think about any organizations past, present, and its future. What factors in its business environment have contributed the company’s success? Which factor that become more or less likely important as company looks ahead? The company classifies the factors as business strategy and competitive dynamic, HR strategy, culture/values, social and political context, employee/union needs and others HR system. Which is the employer itself must have clear understanding about their business. i. Map a Total Compensation Strategy Mapping is often used in marketing to clarify and communicate a products identity. A strategic map offers a picture of company compensation strategy. It can also clarify the message that the company is trying to deliver with its compensation system. The comparison with competitors using the diagram based on element on pay model such as, objective, internal alignment, external competitiveness, employee contributions and management. iii. Implement strategy
Involve implementing strategy through the design and execution of compensation system. Where implement the system that had been created. iv. Reassess Reassess and realign, closes the loop and recognize that the strategy must be changing to fit the changing conditions. Thus the periodic reassess is needs to continuously learn, adapt, and improve. The result from using the system need to be assessed against objectives we are trying to achieve. 5. Define an internal alignment and briefly discuss any four factors which shape internal alignment? (10 marks)
Internal alignment can be define as internal equity, refers to the pay relationships among different jobs/ skills/ competencies within a single organization. It also means by how to structure the position in organizations. For example, if a person holding degree, he will be measure under competencies, which is he has a good qualification than others. Factors which shape internal alignment :- i. Government policies, laws and regulations. The equal employment legislations forbids pay system that discriminate on the basis of gender, race, religion or national origin.
The equal pay for equal work with considers under equal if it is equal skills, equal effort and equal responsibility and is performed under equal working conditions. ii. Organization strategy It may influence the internal alignment. The belief is that pay structure that are not aligned with organization strategy may become obstacles to the organization success. iii. Organization Human Capital Human capitals are based on education, experience, knowledge, abilities and skills require performing the work. It is a major influence in internal alignment.
The greater the values added by the skills and experience the more pay those skills will command. iv. Overall HR policies The organization other human resource policies also may influence internal pay structures. Most organizations tie money to promotions to induce the employees to apply for higher-level position. If organization has more levels, it can offer more promotions, but there may be smaller pay differences between levels. The belief is that more frequent promotions (even without significant pay increase) offer sense of career progress to employees. [pic]