1. Compensation & Performance Management
Unit 1 – Introduction to Compensation, Buss 1703

2. What is compensation?
• Compensation is a systematic approach to
providing monetary & non monetary value to
employees in exchange for work performed.
• Compensation may be defined as money
received in performance of work and many kinds
of benefits that an organization provides to
their employees.

3. Why think of Compensation?
• To recruit & retain qualified employees.
• To increase or maintain morale.
• To determine basic wage & salary.
• To reward for job performance.
• Stay competitive
• Advance company reputation

4. From a theoretical Perspective
Get it right! Don’t pay more.. Don’t pay less
• Address expectations of the employees
▫ Attend to the Market pay and use salary surveys
▫ Evaluate what others are paying in the same field
▫ Align pay to strategy as expectations increase
▫ Vroom’s Expectancy Theory
• Address Internal Equity in the Organization
▫ Offer wage differentials acceptable to employees
▫ Consider different tasks performed
▫ Consider seniority of various positions
▫ Use a job evaluation tool to understand the differences
▫ Adam’s Equity Theory

5. The Compensation Model
Compensation
Monetary
Direct Indirect
Non-Monetary

6. Class Activity
• Discuss Direct and Indirect monetary
compensation. What are the available options?

7. Direct Compensation
• Base Pay
• Bonus
• Long term incentives
(Stock options)
• Profit sharing
▫ Distribution plan - Now
▫ Deferred plan - Later

8. Indirect Compensation
• Insurance (health,
Life).
• Leaves (sick, annual,
emergency)
• Uniform
• Staff Welfare
• Phones/laptop
• Retirement programs

9. Non-Monetary Compensation
• Enhance dignity & satisfaction from work
performed.
• Promote social relationship with co-workers.
• Allocate sufficient resources to perform work
assignments.
• Offer supportive leadership & management.
• Enhance physiological health, intellectual
growth.

10. What should you keep in Mind?
• Job descriptions
• Job analysis
• Job evaluation:
▫ Arrange jobs in their order of importance and complexity for the
company.
• Pay structure
• Salary surveys
▫ Find out what other companies in comparable jobs are paying.

11. Factors Affecting Compensation
External Internal
• Demand & supply of labor
• Cost of living
• Society
• Labor unions
• The economy
• Can you think of Others?
• Compensation policy
• The org. ability to pay
• Job analysis & description
• Employee
• Can you think of Others?

12. Different Payment Schemes based on..
• Time Wage Plan
▫ Full Time Employees
• Piece Wage Plan
▫ Part-Time Employment
• Others
▫ Contractual
▫ Temporary
▫ Internships
▫ Deputation

13. Compensation Based on Performance
• Variable compensation programs are designed to
pay employees in accordance with the performance
of the employee.
• Why do it?
▫ Objective of these programs is to motivate the
employees and groups and to make a difference
between performers & non performers.
• Methods
▫ Production incentives
▫ Profit sharing
▫ Gain sharing (team)
▫ Bonus