CHAPTER 1: THE PAY MODEL

CHAPTER 1 THE PAY MODEL

Prepared by:

JOEY ALBERT L. AGNAS

TABLE OF CONTENTS

Compensation

Contrasting Perspective of Compensation

Total Returns for Work

Total Compensation

Cash Compensation

Benefits

TABLE OF CONTENTS

Relational Returns

The Pay Model

OBJECTIVES

Define Compensation

Identify the different perspective of compensation

Explain the Total Returns for Work

Explain the Pay Model

01

DEFINITION OF COMPENSATION

COMPENSATION

Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship

02

CONTRASTING PERSPECTIVE OF COMPENSATION

CONTRASTING PERSPECTIVE OF COMPENSATION

Manager's Views

Stockholder's Views

Society's Views

Their views on various aspects, including compensation, are shaped by their responsibilities and goals in managing a team or department.

Their views are shaped by their interests as owners and investors in the company

Opinions and beliefs held by individuals within that society.

CONTRASTING PERSPECTIVE OF COMPENSATION

Global Views

Employee's Views

These views can be influenced by cultural, economic, legal, and social factors.

Reflects how employees perceive and understand various aspects of their work environment, including compensation.

03

total returns for work

total returns for work

Total Returns

When measuring performance, Total Return is the actual rate of return of an investment or a pool of investments over a given evaluation period.

04

total compensation

Benefits

Cash Compensation

Additional services, or advantages that employees receive beyond their regular salary or wages.

Monetary payment that an employee receives in exchange for their work or services.

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cASH COMPENSATION

Merit / Cost of Living

Base Pay

Quality or performance of an employee's work and their deservingness of rewards or recognition based on their achievements.

Fixed amount of money that an employee receives for performing their job functions.

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Short Term Incentives

Long Term Incentives

Rewards or benefits provided to employees based on their performance and contributions to the organization over an extended period.

Performance-based rewards or bonuses that are typically designed to motivate and reward employees for achieving specific, short-term goals or objectives.

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06

benefits

BENEFITS

Work/ Life Program

Allowances

Life, Health and Disability Insurance

Set of policies, initiatives, and benefits designed to help employees balance their professional responsibilities with personal and family needs.

Additional payments or financial benefits that are provided to employees beyond their regular salary or wages

Insurance coverage designed to provide financial protection to individuals and their families in the event of certain life events or health-related situations.

07

relational returns

RELATIONAL RETURNS

Employment Security

Recognition / Status

Learning

Assurance or guarantee that employees will have a stable and continuous source of income and job stability within an organization.

Acknowledging and appreciating employees for their contributions, achievements, or positive behaviors.

Acquisition of knowledge, skills, behaviors, or understanding through study, experience, or teaching.

08

the pay model

Pay Model

The Pay model helps understand the compensation system in a structured way. The three main components of the Pay Model are the: 1. Objectives of the pay system 2. The policies that form the foundation 3. The techniques that link the policies to the objectives

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1. COMPENSATION OBJECTIVES

Fairness

Efficiency

Compliance

Ability to accomplish a task, produce results, or utilize resources in the most effective and optimal manner

Act of adhering to established rules, regulations, laws, policies, or standards.

Involves treating individuals or groups with honesty, respect, and without bias or discrimination.

2. FOUR POLICY CHOICES

Management

Employees Contribution

External Competitiveness

Internal Alignment

Aligning the salaries for similar types of jobs, as well as the rewarding of different kinds of work.

Ensuring the right people to get the right pay for achieving the right objectives in the righ way

Focuses comparison between competitors

Relation emphasis placed on employees contribution

3. THE PAY SYSTEM TECHNIQUES

Evaluation

Incentive Program

Pay Structure

Internal Structure

Encompasses a range of processes aimed at assessing performance, job roles, market trends, and overall organizational effectiveness.

A system that defines what each individual and job role is paid based upon their value to the business.

Systematic arrangement and organization of different components within an organization's pay system.

It particularly used in business management to motivate employees and in sales to attract and retain customers

Pay Model

REFERENCES

https://www.toolshero.com/human-resources/pay-model-of-compensation/

https://www.studocu.com/row/document/university-of-chittagong/human-resource-management/compensation-chapter-2-pay-model/15674180

Questions?

Thank you!

JOEY ALBERT AGNAS

Presenter

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Recognition / Status

Status:

The person's position in the company.

Employee Recognition:

Involves acknowledging and appreciating the efforts, achievements, or behaviors of individuals or teams within the organization.

Society's View

Society's View refers to the collective opinions, attitudes, and perspectives of the broader community or population within a given society.

• Pay as a measure of "justice". Benefits as a reflection of "Justice" in society.
• Job losses ( or gains) attributed to differences in compensation.
• Belief that pay increases lead to price increases.

Work/Life Program

Strive to maintain an excellent engaged workforce

Example: Employee assistance programs, worksite health and wellness.

Incentive Program

Incentive programs are initiatives or systems designed by organizations to motivate and reward employees for achieving specific goals, demonstrating outstanding performance, or contributing to the success of the company.

Learning

Given the opportunity to connect current knowledge with new learnings.

Example: Seminar

Pay Model

The Pay Model of Compensation helps us understand the compensation in a structured way. The Pay Model of Compensation was developed by G.T. Milkovich and J.M. Nemwan in 2002. They define compensation as forms of financial gain and tangible services and benefits that employees receive as part of their employment.

Pay Structure

Refers to the comprehensive framework that outlines how employees are compensated within an organization.

It encompasses the entire system of determining and administering compensation, including elements like job evaluation, salary ranges, pay grades, incentives, and various forms of compensation.

Evaluation

It is the systematic determination of a subject's merit, worth and significance, using criteria governed by a set of standards.

Also, to give motivation to the employees to have better feedback to work harder.

External Competitiveness

Competitiveness is about the remuneration plan being competitive enough compared to what competitors are offering. The plan has to offer sufficient benefits for the potential employee to get them interested and keep them. The salaries can’t be too high either, as that would negatively impact competitiveness of the products and services.

Employees Contribution

Employee contribution is about how important the performance of the employees is regarding the remuneration model. Strong employee contribution means that incentives and rewards are based on what the employees add.

Merit

Managers rate their employees based on performance over the year

Example: Top performers get larger raises, while the bottom performers get no raise.

Cost of Living

The amount of money need to cover basic expenses such as housing, food, taxes and even healthcare.

Global Views

Global Views refer to perspectives, opinions, or attitudes that are shared or observed on a global scale, involving multiple countries, cultures, or regions.

• China: Tradional meaning of compensation providing necessities of life replaced with dai yu.
• Japan: Traditional word with kyuyo replaced with hou-syu; recently the phrase used is teate

Benefits

Benefits, in the context of employment and compensation, refer to the additional perks, services, or advantages that employees receive beyond their regular salary or wages.

These benefits are provided by employers to enhance the overall compensation package and contribute to the well-being, job satisfaction, and work-life balance of their employees. Benefits can vary widely among organizations, but they often include:

Internal Structure

It is defined as the fairness of pay in a work environment.

The internal structure helps determine how employees are compensated based on their positions, responsibilities, and performance levels.

Employment Security

Employment security is a key aspect of a positive work environment and can have significant impacts on employee morale, engagement, and overall well-being.

Stockholder's Views

Stockholder's Views refer to the perspective or viewpoint held by individuals who own shares or stocks in a company

• Using stock to pay employees create a sense of ownership.

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Life, Health, and Disability Insurance

Policies as employee benefits can help your worker prepare for these situations and manage them more effectively.

Compliance

Follow the rules and regulations given by the law

Compliance is essential for maintaining ethical conduct, legal adherence, and a commitment to established norms.

Cash Compensation

Includes:

• Salary or wages
• Commission
• Tips
• Paid Leave
• And any allowances

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Management

The final component of the four policy methods of the Pay Model Compensation is administration; managing the compensation structure. Efficiency is the goal here as well.

The system has to work well enough to achieve the objectives, and it also needs to be adaptable to react to new requirements. New requirements can be the result of new regulations or new salary objectives for the organization.

Allowances

Fixed amounts as money that will be received by the employees including their salaries.

Employers give this to meet a particular type of expenditure over above salary.

Employee's Views

Employee's View refers to the perspective or viewpoint of individuals who work for a company.

• Major source of financial security.
• Return in an exchange between employer and themselves.
• Entitlement for being an employee of the company.

Efficiency

It is often associated with achieving a high level of output with minimal waste, effort, or cost.

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Short Term Incentives

Incentives are those additions to base pay provided to employees within the current operating year.

Example: Project Bonus, Retention Bonus and Spot Awards

Manager's Views

Manager's Views refer to the perspective or viewpoint held by individuals in managerial roles within a company.

• A major expense
• Used to influence employee behaviors and to improve the organization's performance

Long Term Incentives

Is a company policy that rewards employees for reaching specific goals that lead to increased shareholders.

Examples: Extra Vacation Days, Paid Sabbaticals, etc.

Fairness

Fundamental objective of the pay system. It refers to the fair treatment by recognizing both employee's contribution in the company

Internal Alignment

Internal alignment refers to aligning the salaries for similar types of jobs, as well as the rewarding of different kinds of work. Positions are assessed on their relative contribution to the organization’s objectives. If the compensation structure is seen as fair by the employees, it will help motivate employees to improve themselves and accept training.

Base Pay

The initial salary paid to an employee not including any benefits, bonuses or raises.

Refers to hourly rate, weekly, monthly or annual salary.