chapter 1

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chapter 1 The Pay Model

introduction

Total Returns For Work

1 ) Cash Compensation

What is Compensation

All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

Forms of Pay

- Relational returns: are psychological.

1 ) Forms of pay are categorized in two ways. - Total compensation: is pay received directly as cash and indirectly as benefits.

Compensation does not mean the same thing to everyone

Employees

3 ) Pay can influence employee motivation and behavior in two ways: - The incentive effect is the degree to which pay influences individual and aggregate motivation. - The sorting effect is the effect that pay can have on the composition of the workforce. - How an organization pays can result in sorting effects.

2 ) Employees may see compensation as: - a return in an exchange, - an entitlement for being an employee of the company, - an incentive to take/stay in a job and invest in performing well, or - as a reward for having done so.

1 ) Pay is usually a major source of financial security.

Managers

1 ) Compensation influences manager’s success in two ways. - First, it is a major expense that must be managed. - Second, it is a major determinant of employee attitudes and behaviors.

Stockholders

2 ) Stockholders have a particular interest in executive pay. L- inking executive pay to company performance increases stockholders' returns.

1 ) Some stockholders say using stock to pay employees creates a sense of ownership. - Others argue it dilutes stockholder wealth

Society

2 ) Job losses (or gains) in a country is partly a function of labor costs (and productivity).

1 ) Some people see pay as a measure of justice. - Laws and regulations aim to eliminate the gap between male/female earnings differentials. - Benefits may also be seen as a reflection of equality or justice in society.

Subtopic