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CHAPTER 11 Managing compensation & benefits. Chapter outcomes. Explain the link between pay, motivation and performance Define job evaluation and discuss four popular methods of performing it Develop a time-based pay system using pay grades and steps

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Managing compensation & benefits


Chapter outcomes

  • Explain the link between pay, motivation and performance
  • Define job evaluation and discuss four popular methods of performing it
  • Develop a time-based pay system using pay grades and steps
  • Discuss three types of individual incentives
  • Discuss why gainsharing, profitsharing and employee stock ownership plans (ESOPs) have grown as organisational incentive plans
  • Understand executive compensation methods
  • Understand the growth of employee benefits and their organisational objectives


  • Compensation/total rewards
  • Wage and salary administration
objectives of a compensation system
Objectives of a compensation system
  • _______________
  • 2. _______________
  • 3. _______________
  • 4. _______________

Wage survey to determine the “going rate” in the labour market

Job evaluation system that employees perceive as “equitable”

Reward good performance

Documentation of HR records

Government legislation


Motivation and performance model

Feedback to employee



Employee considers equity of performance rewards

Employee sets expectations and goals

Performance is evaluated

performs job

are given

Employee sets new goals and expectations based on prior experiences

job evaluation je
Job evaluation (JE)


Result is a pay system with pay rates for each job depending on the status of the job according to the hierarchy

Does NOT review the employees in the job but the worth of the position


Job evaluation (JE) (continued)

  • Job evaluation committee
  • Outside assistance

Pay systems

  • _______ based systems
  • _______ based systems
  • __________ based systems

Guidelines for incentive plans

  • Bold incentives
  • Emphasis on team performance
  • Quick feedback
  • Above-average base
  • Simple formula

Incentive plans

  • Problems with incentive plans
  • Different types:
    • Cash profit-sharing
    • Business incentives
    • Team/group incentives

Executive compensation

  • 4 forms of pay:
    • (1)
    • (2)
    • (3)
    • (4)
  • Golden parachutes
  • Stock options


  • Types of benefits
  • Benefits required by law:
    • Unemployment insurance
    • Compensation for injuries and diseases
  • Voluntary benefits
  • Paid time off
  • Insurance
  • Employee services

Total benefit planning

  • Flexible benefit plans

Advantages of flexible plans

  • Attract and retain employees
  • Avoid duplicate coverage


  • Organisations use both extrinsic and intrinsic rewards to compensate employees for their time and effort. Pay systems are designed to attract, retain and motivate employees while complying with government legislation.
  • Job evaluation is used to evaluate jobs systematically and to assign them to pay grades. The HR specialist strives to maintain a pay system that employees view as equitable, both internally and externally. Standard methods of evaluation include ranking, classification, point and factor comparison. Each offers different advantages.
  • Pay systems are usually designed to compensate people for the amount of work they produce (piecework), the skills they learn and use or the time they spend on the job (hourly and salaried). Most employees in South Africa are paid through time-based systems.
  • Individual employee, team-based and organisationwide systems, such as profit-sharing and gainsharing, are replacing automatic pay increases to relate pay to performance.


  • Executive compensation has become a complex area of HR functions. Top executives often receive compensation in as many as four areas, including salary, bonuses, long-term incentives and benefits.
  • Employee benefits are not just a fringe cost to employers; they represent a substantial percentage of the total payroll. Benefits are usually awarded to all workers or on a seniority basis.
  • Certain benefits are required by law, including unemployment insurance and compensation for injuries and diseases.
  • Retirement income is provided through private/government pension plans and personal savings. Employers believe that they directly or indirectly provide all these sources - which constitute the single most expensive benefit area.


  • Health insurance programmes provided by employers have expanded to include life/disability insurance, as well as the traditional medical and hospitalisation coverage.
  • Paid time off from work represents a major benefit cost.
  • Flexible benefit plans are of great interest to employers because they help contain benefit costs and provide employees with more individualised benefit programmes.
  • Changing employee demographics have caused employers to offer childcare programmes to help employees meet their family needs.