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Designing Compensation Systems and Employee Benefits

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Designing Compensation Systems and Employee Benefits

Compensation 1

Describe the differences between job analysis and job evaluation and how these practices help establish internally consistent job structures. A job analysis is a step-by-step specification of an employment position's requirements, functions, and procedures. Just as a seed cannot blossom into a flower unless the ground is properly prepared, many human resource management (HRM) practices cannot blossom into competitive advantage unless grounded on an adequate job analysis. A job evaluation is the process of analyzing and accessing the various jobs systematically to ascertain their relative worth in an organization. Job is evaluated on the basis of their content and is placed in the order of their importance. To achieve internal consistency, a firm's employees must believe that all jobs are paid what they are "worth." In other words, they must be confident that company pay rates reflect the overall importance of each person's job to the success of the organization. Because some jobs afford a greater opportunity than others to contribute, those holding such jobs should receive greater pay. For instance, most would agree that nurses should be paid more than orderlies because their work is more important; that is, it contributes more to patient care, which is a primary goal of hospitals.

Compensation 2 For pay rates to be internally consistent, an organization first must determine the overall importance or worth of each job. A job's worth typically is assessed through a systematic process known as job evaluation. In general, the evaluation is based on "informed judgments" regarding such things as the amount of skill and effort required to perform the job, the difficulty of the job, and the amount of responsibility assumed by the jobholder.
Describe the challenges in developing compensations that are both internally consistent and market competitive. An organization's compensation practices can have far-reaching effects on its competitive advantage. As compensation expert Richard Henderson notes, "To develop a competitive advantage in a global economy, the compensation program of the organization must support totally the strategic plans and actions of the organization. To achieve internal consistency, a firm's employees must believe that all jobs are paid what they are "worth." In other words, they must be confident that company pay rates reflect the overall importance of each person's job to the success of the organization. A firm achieves external competitiveness when employees perceive that their pay is fair in relation to what their counterparts in other organizations earn. To become externally competitive, organizations must first learn what other employers are paying and then make a decision regarding just how competitive they want to be. They then Compensation 3 establish pay rates consistent with this decision. After the pay practices of other companies have been identified, the organization must determine how competitive it wants to be (or can afford to be). Specifically, it must set a pay policy stipulating how well it will pay its employees relative to the market (i.e., what competitors pay for similar jobs). The determination of a pay policy is a crucial step in the design of a pay system. When setting its pay policy, a company must consider its strategic plan. For example, if long-term employee commitment is a strategic goal, then the organization should attempt to develop compensation strategies that will enhance retention, such as establishing a generous retirement plan for long-service employees or adopting a profit-sharing system tied to tenure. Once market rates for jobs are determined and a pay policy is established, an organization must price each of its jobs.
Two employees perform the same job and each received exemplary performance ratings. Discuss whether it is fair to give one employee a smaller percentage merit increase because his pay falls within the 3rd quartile but give a larger percentage merit increase to the other because his pay falls within the 1st quartile and explain why. Yes, it is fair. According to the textbook, this way keeps things equal. When companies hold position in pay range constant, pay raise amounts increase with level of performance. Using the example in textbook, you have two employees who perform the same job, who both got exemplary performance ratings, but the base pay puts them into Compensation 4 different quartiles of the pay grade. If these employees were to receive the same pay raise percentage, the base pay rate for the employee in the 3rd quartile likely would exceed the maximum pay rate for the range more quickly than would the base pat rate for the employee in the 1st quartile. Budgets limit the merit pay percentages in each cell. Merit pay increases awarded to employees vary according to performance level and position in the pay range (Martocchio, J. (2011). Strategic Compensation: A Human Resource Management Approach. Pearson Learning Solutions).
Discuss the basic concept of insurance and how this concept applies to health care. In its most basic form, insurance is a way to distribute risk in either a monetary or a non-monetary sense, such as a village helping to rebuild a house when it has burned down or a merchant choosing to distribute his goods via multiple means to cut down on the risk of loss associated with a single method. The modern monetary sense of insurance originated in ancient Chinese and Babylonian societies, during the 3rd and 2nd millenia BC respectively. In order for something to be insurable in the modern sense, it typically needs to share seven common characteristics. These include a large number of similar units, a definite loss event, accidental loss intent, a meaningful or large loss, affordable premium rates, calculable loss values, and the limited risk or catastrophically large loss. Compensation 5 Health insurance provides coverage for medicine, visits to the doctor or emergency room, hospital stays and other medical expenses. Policies differ in what the cover, the size of the deductible and/or co-payment, limits of coverage and the options for treatment available to the policyholder. Health insurance can be directly purchased by an individual, or it may be provided through an employer (

Except for the Family and Medical Leave Act, the remaining legally required benefits were conceived decades ago. Describe the changes in the business environment and society that might affect the relevance or perhaps the viability of any of these benefits. Because many people are working past the age of retirement, Social Security has become an issue. There is fear that there will not be enough money to meet promised benefits. Another issue that has come about is Unemployment Benefits. Because of the economy, many people have lost jobs. Unemployed individuals usually collect unemployment benefits between 12 and 18 weeks. With no jobs in sight, Congress approved the Emergency Unemployment Insurance, which gave those individuals an additional 13 weeks of unemployment benefits.

Compensation 6 Medicare/Medicaid and the Food Stamp program have also seen more than average participants. Again, with many people losing their jobs, these programs are in danger of running out of money.


Henderson, Richard I. Compensation Management in a Knowledge-Based World. 9th ed. Upper Saddle River, NJ: Prentice Hall, 2003. Martocchio, J. (2011). Strategic Compensation: A Human Resource Management Approach. Pearson Learning Solutions.

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