Deck 10: Using Performance-Based Pay to Achieve

Question 1

Explain how an organization's approach to total compensation can help it be effective or can prevent it from being effective.

Answer 1

An organization's approach to total compensation will help it to be an effective organization. Total compensation is strategically important and effective because of the following reasons:
1. Attract, motivate and retain talent: Total compensation helps in attracting, motivating, and retaining the talent required for sustainable competitive advantage. Total compensation practices provide rewards that are sufficient to attract the right people at the right time for the right jobs and to keep them motivated to perform their jobs to the best of their ability.
2. Implementing business strategies: Focusing the energy of employees on implementing the organization's particular competitive strategy. Effective compensation encourages the kind of employee behavior that is needed to implement the business strategy while enhancing the employee satisfaction.
3. Improving productivity: Effective compensation motivates employees to spend their energy on the activities that are the most important to the organization's success. When pay is tied to productivity, productivity tends to go up
4. Cost containment : If an organization adopts a low pay structure, it is likely to make it harder to attract, motivate, and retain talent. Therefore, different organizations adapt different strategies like changing the pay mix and by emphasizing on the non-monetary compensation. This will help in motivating and retaining employees as well contain costs for the organization.

Question 2

How and why do the objectives of total compensation vary across companies?

Answer 2

The objectives of total compensation vary across companies depending on the various factors like the organizational business strategy, company size, and company culture.
• Business strategy: A firm's strategic objectives often have important implications for the design and implementation of the total compensation.
• Size: Small organizations typically offer less monetary compensation then large ones do. However, employees in small organizations typically report being more satisfied, presumably because they receive better non-monetary compensation.
• Company culture: The culture of the company and the preferences of the top management also have a significant impact on the many aspects of the company's total compensation.

Question 3

What are the elements of total compensation? Which ones are most important to you personally?

Answer 3

Following are the elements of total compensation:
• Base pay: Base pay is the fixed amount of salary that is paid to an employee by an employer in return for the work performed and it does not include the bonus, benefits, or any other probable compensation from an employer. Other benefits like the provident fund, eligibility for loan, etc. are directly dependent on the base pay. The more the base pay, the better is the monthly take-home salary. It is very important for the organizations to offer competitive base pay to retain and attract the top talent.
• Incentives/variable pay/bonuses: Variable cost will vary based on the performance, and rewards for the outstanding performer in one year without building in fixed compensation costs. This flexible compensation element has been on a rise over the last decade and it continues to increase. More companies are providing a variable pay, a greater percent of employees are entitled to participate, and incentive award prospects are increasing.
• Healthcare benefits: At present, to limit the increased premium costs, benefits coverage is being reduced or changed and the companies are providing employees various options to choose healthcare plans which include consumer-directed health plans, HMOs, limited health coverage for part-time workers to make it more affordable for the employees.
• Work-life benefits: This is contingent on performance. For.eg., flexibility to work from home, flexible working hours, etc.
The base pay, healthcare benefits and work life benefits are important.

Question 4

Describe the purpose of job evaluation. What are the advantages and disadvantages of using the job ranking method? What are the advantages and disadvantages of using a customized job evaluation point system?

Question 5

List the possible negative consequences that organizations are likely to experience if employees do not understand their total compensation.

Question 6

What are your views on pay secrecy? How much do you think employees should be told about how their pay is determined?

Question 7

If you were considering a job offer, which elements of total compensation would be more important to you: base pay, incentives, or benefits and services? Why? What are the implications of your answer for employers seeking to attract people like you to work for them?

Question 8

How involved do you think the government should be in compensation decisions? Should there be a minimum wage? A maximum wage?