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Learning outcomes for HRM3705
1. Explain what Strategic compensation: a component of HR systems
2. Explain the essence of strategic compensation
3. Explain contextual influences on compensation practice
4. Analyse traditional bases for pay
5. Incentive pay
6. Internally consistent pay systems
7. Building market-competitive compensation systems
8. Building pay structures that recognise employee contributions
9. Employee benefits
10. Compensating executives
11. Compensating the flexible work force
12. Total rewards
TOPIC 1 - Strategic compensation: a component of HR
systems
Define and critically discuss the context of compensation
Compensation is a systematic approach to providing monetary value to employees in exchange for
work performed. Compensation may achieve several purposes assisting in recruitment, job
performance, and job satisfaction.
Differentiate between tactical and strategic decisions and discuss the relevant concepts
Strategy - the set of compensation practices that are good for firms will vary based upon the firm’s
goals.
Determining compensation relative to the market.
Striking a balance between fixed and variable compensation.
Deciding whether or not to utilize team-based versus individual pay.
Creating the appropriate mix of financial and non-financial compensation.
Developing a cost-effective compensation program that results in high performance.
,Like employee and labour relations, the compensation and benefits functions of HR often can be
handled by one HR specialist with dual expertise. On the compensation side, the HR functions include
setting compensation structures and evaluating competitive pay practices. A comp and benefits
specialist also may negotiate group health coverage rates with insurers and coordinate activities with
the retirement savings fund administrator. Payroll can be a component of the compensation and
benefits section of HR; however, in many cases, employers outsource such administrative functions as
payroll.
Critically discuss the compensation department's main objectives
Compensation may be used to:
Recruit and retain qualified employees.
Increase or maintain morale/satisfaction.
Reward and encourage peak performance.
Achieve internal and external equity.
Reduce turnover and encourage company loyalty.
Modify (through negotiations) practices of unions.
Discuss the difference between cash compensation (direct compensation) and
benefits (indirect compensation), and define each of the direct and indirect forms of
compensation
Cash Compensation is the total of fixed and variable components that are given to an employee
this include wages and salaries paid for an agreed time period
Benefits (Indirect compensation) are form of compensation to an employee’s so as to retain the
best talent and competitively remunerate them for their effort retirement, medical aid, travelling
allowances etc
Discuss how compensation professionals relate to various stakeholders
Compensation professionals prepares HR professional and other stakeholders to have a
considerable impact on an organization's effectiveness by developing and retaining talent,
formulating performance management systems, and designing competitive compensation plans.
The compensation strategy is derived from the HR Strategy and it defines the position of the
organization on the job market, the level of the total cash, the main bonus principles in the organization
and rules for the base salary setting.
The compensation strategy is the strategy, which is approved by the Board of the organization as the
owner of the compensation strategy is always the top executive management of the organization. The
compensation strategy has a huge impact on the costs of the organization and that is the main reason
for the top management approval. The rest of managers are the users of the compensation strategy.
The compensation strategy defines the pay market, the organization follows, the desired position on
the pay market and the way, how the desired level and position on the pay market will be achieved.
The compensation strategy defines the basic compensation components used in the organization and
the standard rules applied to each compensation component. The compensation strategy has to be in
line with the business and HR Strategies as the compensation of employees is aligned with the
expectation of the top management from them. The compensation strategy does not change often as
the compensation principles cannot be changed within few days.
Discuss and contrast the different strategic choices with regard to the aims of strategic
compensation
Elements to achieve objectives
Attract Wage surveys to determine going rate in
labour market
Retain Equitable Job evaluation and reward
systems
Equitable Job evaluation and reward Equitable Job evaluation and reward
systems systems
Equitable Job evaluation and reward HR records (policies)
Govt Legislation
systems
Identify the characteristics of strategic compensation
Reflect the organization strategy
compensation objectives need to be tied to corporate objectives
Discuss the relationship between strategic compensation and compensation management
Compensation management is designing and implementing total compensation package with a
systematic approach to providing value to employees in exchange for work performance.
Compensation is an integral part of HR management which helps in motivating the employees and
improving organisational effectiveness.
Strategic compensation: Designed aligned to the business goals and strategies
Retain current employees: when compensation are not competitive, resulting in high turnover.
Reward desire behavior: Effective compensation plans rewards performance, loyalty, experience,
responsibility and other behaviors.
Control cost: Rational compensation helps an organization obtain and retain workers at a reasonable
cost.
Facilitate understanding: Easily understood by human resource specialist, operating manager and
employees.
Attracting candidates
Motivating employee for high performance
Consistency in compensation
Critique a company's compensation strategy
Recruitment
While a number of issues impact small-business recruitment efforts, including work-life balance and
corporate culture, compensation packages are a critical factor to many would-be employees. In other
words, while employees may be attracted to your business for a variety of reasons, salary and benefits
are important, and they play a major role when it comes to recruiting top talent to a small company.
Retention
Compensation management is important not only to recruiting top employees but to keeping them in
their positions once hired. Small businesses often invest significant amounts of time and money in
training new staffers and bringing them up to speed. A company that loses a key player to the
competition because of poor compensation management not only loses a talented employee in which it
has invested, but the business also incurs additional expenses when it comes to rehiring and retraining
for the vacated position.
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