UNIVERSITY OF EDUCATION, WINNEBA

SCHOOL OF BUSINESS
DEPARTMENT OF MANAGEMENT SCIENCES
FIRST SEMESTER, 2021/2022 ACADEMIC YEAR

BBA 116: INTRODUCTION TO HUMAN

RESOURCE MANAGEMENT
LECTURE 9 & 10
By
Mr. John Nana Osei Yeboah
&
Ms. Linda Quagraine
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 Lecture 9 &10

EMPLOYEE COMPENSATION
& BENEFITS
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 Employee Compensation Defined
• Dessler (2011) defines employee compensation as all
forms of pay going to employees and arising from
their employment.

• Byars and Rues (1991) define employee

compensation as all the extrinsic reward that
employees receive in exchange for their work.

• It has two main components and these are:

– Direct Financial Payments: Pay in the form of wages,
salaries, incentives, commissions, and bonuses.
– Indirect Financial Payments: Pay in the form of
financial benefits such as insurance.
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 Components of Compensation
Intrinsic Extrinsic

Financial Non-financial
participation in
decision making

Implied Explicit assigned

Performance
membership-based membership-based parking space
greater job based
freedom

preferred
cost of living protection
bonuses assignments
more increase Program
responsibility

business
labor market pay for time
opportunities piecework cards
adjustment not worked
for growth
own
services/ secretary
diversity commission profit sharing
perks
of activities
impressive
incentive time-in-rank title
plans increase

merit pay
plans
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Terminologies of Employee Compensation
• Base/ Basic Pay: the amount of pay (the fixed salary or
wage) that constitutes the rate for the job.
– It may be varied according to the grade of the job or the
level of skill required.
– The base rate may be adjusted to reflect increases in the
cost of living or market rates by the organization, unilaterally
or by agreement with a trade union.
• Total Reward: the combination of financial and non-
financial rewards available to employees.
• Total Remuneration: the value of all cash payments
(total earnings) and benefits received by employees.
• Employee Benefits: benefits include pensions, sick pay,
insurance cover, company cars, annual holidays.
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 Goals of Employee Compensation
• Companies derive their satisfaction from effective
compensation programmes because it;
– Attracts competent workers
– Motivates competent workers
– Retains effective employees.
• Supports major strategic decisions of the organisation.
• Individual skill differences are adequately rewarded
through compensation.
• Extra performance is recognized and compensated for.
• Competition for enhanced talent improvements thereby
leading to organizational productivity.
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 Types of Compensation Plans
Intrinsic versus Extrinsic Rewards
•intrinsic rewards (personal satisfactions) come from the
job itself, such as:
– pride in one’s work

– feelings of accomplishment

– being part of a work team

•extrinsic rewards come from a source outside the job,

mainly by management:
⁻ money

⁻ promotions

⁻ benefits 8
 Financial versus Nonfinancial Compensation
•financial rewards:
–Wages
–Bonuses
–profit sharing
–pension plans
–paid leaves
–purchase discounts

•nonfinancial rewards:
–make life on the job more attractive
–employees vary greatly on what types they like

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 Financial versus Nonfinancial Rewards
Performance-based versus Membership-Based
 performance-based rewards are tied to specific job
performance criteria;
 Commissions
 Piecework pay plans
 Incentive systems
 Group bonuses
 Merit pay

 membership-based rewards are offered to all

employees;
 cost-of-living increases
 Benefits
 salary increases
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The Philosophy of Reward Management
• Reward management is based on a well-articulated
philosophy – a set of beliefs and guiding principles
that are consistent with the values of the
organization and help to enact them.

• The philosophy recognizes that if HRM is about

investing in human capital from which a reasonable
return is required, then it is proper to reward people
differentially according to their contribution (i.e. the
return on investment they generate).

• These include beliefs in the need to achieve fairness,

equity, consistency and transparency in operating the
reward system.
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The Philosophy of Reward Management
– Operate fairly – people feel that they are treated
justly in accordance with what is due to them because
of their value to the organization.

– Apply equitably – people are rewarded appropriately

in relation to others within the organization,
relativities between jobs are measured as objectively
as possible and equal pay is provided for work of
equal value.

– Function consistently – decisions on pay do not vary

arbitrarily and without due cause between different
people or at different times.

– Operate transparently – people understand how

reward processes operate and how they are affected
by them. 12
 Aligning Total Rewards with Strategy
• The compensation plan should first advance the
firms strategic aims, management should produce
an aligned reward strategy.

• This means creating a compensation package

including wages, incentives, and benefits that
produces the employee behaviours the firm
needs to support and achieve its competitive
strategy.

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 Relating Rewards to Performance
• Many organizations believe that rewards should depend on
performance.

• This performance-reward relationship is desirable not only at

the organization or corporate level but also at the individual
level.

• The underlying theory is that people will be motivated when

they believe that such motivation will lead to desired rewards.

• However, many formal rewards provided by organizations do

not lend themselves to being related to performance.

• Rewards in this category are almost always determined by

organizational membership and seniority rather than by
performance.
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 Conditions for Implementing A Pay-For-
Performance Programme
• Trust in management: if employees are skeptical of management,
it makes it difficult to make a pay-for-performance program work.
• Absence of performance constraints: since pay-for-performance
programmes are usually based on individual ability and effort, the
jobs must be structured such that an individual’s performance is
not hampered by factors beyond his or her control.
• Trained supervisors and managers: the supervisors and managers
must be trained in setting and measuring performance standards.
• Good measurement systems: performance should be based on
criteria that are job specific and focus on results achieved.
• Ability to pay: the worth of the salary-increase budget must be
large enough to get the attention of the employees.
• Flexible reward schedule: it is easier to establish a credible pay-
for-performance plan if all employees do not receive pay
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adjustments on the same date.
 Pay Secrecy
• Many organizations have policy of keeping pay-related
information secret. This includes the pay system and the
individual pay received.

• The justification for pay secrecy is to avoid any discontent that

might arise from employees knowing what everyone else is
being paid.

• However, pay secrecy makes it difficult for individuals to

determine whether pay is related to performance or not.

• Better approach to tackle the issue of pay secrecy is to disclose

the pay ranges of various pay levels within the organization.
This clearly communicate the general ranges for different jobs
but it does not disclose what any particular individual is
making. 16
 Legal Considerations in Compensation
• Employers do not have free reign in designing pay
plans. Various laws specify things like minimum
wages, overtime rates, and benefits.

• Articles 67, 68, 69 70, 71, 72 and 76 of the Labour

Act of Ghana (2003), Act 651 provide some
directives relating employee compensation in
Ghana.

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 Special Cases of Compensation

individual organization-wide

group

incentives can be added to the basic pay structure to

provide rewards for performance
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 Special Cases of Compensation
Individual Compensations
•merit pay plans (annual increase, based on performance)
•piecework plans (pay based on number of units produced
typically in a specified time period)
•time-savings bonuses and commissions
these work best where clear objectives are set and tasks are independent
Organization-wide Compensation
•direct employee efforts toward organizational goals (such as cost
reduction)
•Scanlon Plan - supervisor and employee committees suggest
labour-saving improvements.
•IMPROSHARE - formula is used to determine bonuses based on
labour cost savings.
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 Special Cases of Compensation
Group Compensation
Compensation can be offered to groups, rather than individuals, when
employees' tasks are interdependent and require cooperation.

Advantages Disadvantages

Focuses the group on specific Can be costly to install and administer.

performance targets.
De-emphasizes individual
Since rewards are controllable by performance, which can result in
individuals, the programs can be very excessive peer pressure.
motivational.
Requires open communication with
The program can be integrated with employees on costs, profitability, etc. If
other corporate initiatives and leads to the performance targets are not
improved communication and carefully selected, adverse results may
employee relations occur.
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 Special Cases of Compensation
Paying for Performance
• Competency-based compensation
– Rewarded for skills, knowledge and behaviours
- Leadership - Problem solving
- Decision making - Strategic planning

– Broad-banding: pre-set pay levels that determine what people are

paid based on their type and level of competency.
Team-Based Compensation
 incentives for empowered work teams to exceed established goals
and share equally in rewards
 depends on:
 clarity of team purpose and goals
 ability of the team to obtain needed resources
 effective team communication skills and trust
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 Job Evaluation
• Employers use two basic approaches to setting pay rates:
market-based approaches and job evaluation methods.

• Many firms, particularly smaller ones, simply use a market-

based approach. Doing so involves conducting formal or
informal salary surveys to determine what others in the
relevant labor markets are paying for particular jobs. They
then use these figures to price their own jobs.

• Job evaluation methods involve assigning values to each of

the company’s jobs. This helps to produce a pay plan in
which each jobs pay is equitable based on its value to the
employer.

• However, it is evident that even with the job evaluation

approach, managers must adjust pay rates to fit the market.
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 Job Evaluation
• Job evaluation eventually results in a wage or salary
structure or hierarchy (this shows the pay rate for various
jobs or groups of jobs).

• The basic principle of job evaluation is this: Jobs that

require greater qualifications, more responsibilities, and
more complex job duties should receive more pay than
jobs with lesser requirements.

• The basic job evaluation procedure is to compare jobs in

relation to one another for example, in terms of required
effort, job complexity, and skills. You then conduct a salary
survey to see what others are paying for similar jobs. You
are then well on your way to being able to price all the
jobs in your organization equitably.
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 Aims of Job Evaluation
• Job evaluation aims to:
– Establish the relative value or size of jobs (internal relativities)
based on fair, sound and consistent judgements.

– Provide as objectively as possible a basis for grading jobs

within a grade structure, thus enabling consistent decisions to
be made about job grading.

– Enable sound market comparisons with jobs or roles of

equivalent complexity and size.

– Be transparent – the basis upon which grades are defined and

jobs graded should be clear.

– Ensure that the organization meets equal pay for work of equal
value obligations.
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 Compensation and Motivation
EQUITY THEORY OF MOTIVATION
• The equity theory of motivation postulates that people
are strongly motivated to maintain a balance between
what they perceive as their contributions and their
rewards.
• Equity theory states that if a person perceives an
inequity, a tension or drive will develop in the persons
mind, and the person will be motivated to reduce or
eliminate the tension and perceived inequity.
• People who feel inequities in their compensation tend
to;
• Withdraw higher levels of performance
• Agitate for same levels of compensation with their referents
• Higher levels of turnover in search for higher paying jobs
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 Compensation and Motivation
EQUITY THEORY OF MOTIVATION
When dealing with compensation, managers should
address four forms of equity issues:
• External equity: this refers to how a jobs pay rate in one
company compares to the jobs pay rate in other companies.
• Internal equity: this refers to how fair the jobs pay rate is
when compared to other jobs within the same company.
• For instance, is the sales manager’s pay fair, when compared to
what the production manager also earns?
• Individual equity: this refers to the fairness of an individuals
pay as compared with what other coworkers are earning for
the same or similar jobs within the company; based on each
individuals performance.
• Procedural equity: this refers to the perceived fairness of the
processes and procedures used to make decisions regarding
the allocation of pay. 26
 Compensation Policies
• Pay leaders – pay higher wages and salaries than the
rates paid on the labour market.
–This policy has the advantage of attracting highly
skilled and competent workforce.

• Market rate, or going rate – pay what most

employers pay for similar jobs.

• Pay followers – pay below market rate because of

poor financial conditions or firms believe that they do
not require highly capable employees.
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 Compensation Policies
• Certain policies must be formulated before a
successful compensation system can be developed
and implemented.
• Naturally, these policies are strongly influenced by an
organization’s objectives and it’s environment.

• Pay policies must deal with the following issues:

1. What the minimum and maximum levels of pay are (taking into
consideration the worth of the job to the organization, its ability
to pay, government regulations, union influence and market
pressures).

2. What the general relationships among levels of pay are

(whether to emphasize seniority or performance).

3. What the divisions of total rewards are.

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 Employee Benefits
 Benefits are the focus of negotiations with employees
when wage and salary increases are not feasible.
 Employee benefits have grown in importance and
variety.
 Employee Benefits are typically membership-based
rewards offered to attract and keep employees.
 Employees benefits do not directly affect a worker’s
performance, but inadequate benefits lead to
employee dissatisfaction.
 Benefits help maintain employee commitment.
 Benefits today reflect the diversity of the work force.
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 Employee Benefits
 Employee benefits can be categorized into two main
types;
 Legally required benefits
 Voluntary benefits
 One key challenge of employee benefits is designing a
benefits package which is attractive to applicants and
current workers, and provides all the legally required
benefits.

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 Legally Required Benefits
Social Security: Financed by equal employee and employer
contributions, based on a percentage of earnings.
– Gives income to retirees, disabled and surviving dependents
– Provides some health insurance.
Unemployment Compensation: Funded by employers who pay
tax imposed on taxable wage base.
– Tax varies based on organization’s unemployment factors.
– Provides employees with some income continuation during
periods of involuntary unemployment.
Family and Medical Leave: This requires employers to allow
workers of unpaid leave for family/ medical reasons.
– Specifies record-keeping and communication requirements.
Workers’ Compensation: Paid for by the organization
– Based on likelihood of accidents, past history, and the type of 32
industry.
 Voluntary Benefits
• Payment for Time Not Worked

• Health Care

• Life Insurance

• Retirement Plans

• Employee Stock Option Plans

• Supplemental Unemployment Benefits

• Employee Services Premium Pay

• Unique Benefits
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 Voluntary Benefits
Employer-operated coverage
• Employers self-fund insurance programs
• Often hire third party to administer.

Traditional health insurance

• Typically has the fewest coverage limitations for the
employee
• Usually the most expensive

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 Paid Time Off
Vacation and Holiday Leave
– Vacation time is usually related to the length of time
on the job.
– Some companies also allow personal days that can be
used for any reason.

Disability Insurance Programmes

• Provides salary continuation for:
– Short-term and Long-term disabilities
• Some companies provide financial incentives to
employees to not use their sick leave.
• Long-term disability plans usually replace a portion of
the employee’s salary, often35 60 percent.
 Survivor Benefits
• Usually are two types:
– contributory
– non-contributory
• In non-contributory the employer pays the total cost of
the benefit.
Group Term Life Insurance:
• Benefit is usually based on one to five times annual rate
of pay.
Travel insurance:
• Life insurance for business travel-related deaths

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BBA 116: INTRODUCTION TO HUMAN
RESOURCE MANAGEMENT

Any Questions or Contributions???

End of Lecture!

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