Several important questions that managers and Hr personnel must face in designing compensation
programs.
Who should be responsible for making salary decisions?
Should pay be dictated by what other employers are paying?
What types of activities should be rewarded with higher salaries?
What criteria should be used to determined salaries?
Which employees group should receive special treatment when scarce pay resources are
allocated?
How does an employer balance ethical concerns for employees welfare versus the need to
save on labor cost?
The pay system is one of the most important mechanisms that firms and managers can use to attract,
retain and motivate competent employees to perform in ways that support
organizational objectives.
What is compensation? Total compensation has three components
Base compensation: the fixed pay an employee receives on a regular basis either in
the form of a salary.
Pay incentives: programs designed to reward employees for good performance
Indirect compensation: the costs of which approach percent of workers compensation packages
Internal versus external equiality:
Fair pay is pay that employees generally view as equitable. There are two forms of pay equity. Internal
equity refers to perceived fairness of the pay structure within a firm. External
equity refers to the perceived fairness of pay relative to what other employees
are paying for the same type of labour.
The distributive justice model: Holds that employees exchange their contributions or input to the firm for
a set ofoucomes.
The labor market model: The wage rate for any given occupation is ste at the point where the supply of
labour equals the demand for labor in the marketplace
Balancing equity: A firm should try to establish both internal and external pay equity.
Fixed versus variable pay:
Firms can choose to pay a high proportion of total compensation in the form of base pay or in the form
of variable pay that fluctuates according to some pre-established criterion
Human resources Summary 2 (1)
BUS1LF101
Haaga-Helia UAS/Universidad MondragónMéxico
Santiago García Fernández March,02, 2020
Example
Making wage concession at airlines Frontier airlines which employs 6,000 aviation profesionals made cuts
of up to 20 percent in wages and benefit for the executive management team
during 2009-2011 and has asked all of its employees to make wage and benefit
concessions in the upcoming year similarly United Airlines has cut pilots pay
by 12 percent and flight aattendant pay by 9.5 percent in addition to reducing
benefits. United has joined the ranks of American airlines continental which
have all made salary and benefit costs
Pension going up in smoke: It used to be that pension were a sacred cow, particularly in the public
sector where employees often accepted lower salaries in exchange for generous pension plans
Medical doctors Not long ago medical doctors were at the top of all profesions in terms of
earned income However their enviable position has eroded over the years due to shrinking
payments by private insurance companies
Documenting pay cuts arounf the world: A quick search through google at the time of this writing
shows numerous web sites documenting hundreds of organization in the United States and
abroad that have implemented pay cuts
