CHAPTER 9 1. Define compensation and describe the various forms of compensation. Compensation is the total of all rewards provided employees in return for their services. Forms of compensation include direct financial compensation, indirect financial compensation ( benefits), and nonfinancial compensation. 2. Define financial equity and explain the concept of equity in direct financial compensation. Financial equity is workers? perceptions that they are being treated fairly. Forms of compensation equity include external equity, internal equity, employee equity, and team equity. 3. Identify the determinants of direct financial compensation. The organization, the labor market, the job, and the employee all have an impact on job pricing and the ultimate determination of an individual?s financial compensation. 4. Describe the organization as a determinant of direct financial compensation. Compensation policies and ability to pay are organizational factors to be considered. 5. Describe the labor market as a determinant of direct financial compensation. Factors that should be considered include compensation surveys, expediency, cost- of- living increases, labor unions, the economy, and certain federal and state legislation. 6. Explain how the job is a determinant of direct financial compensation. Management techniques used for determining a job?s relative worth include job analy-sis, job descriptions, and job evaluation. 7. Define job evaluation and describe the four traditional job evaluation methods. Job evaluation is a process that determines the relative value of one job in relation to another. In the job evaluation ranking method, the raters examine the description of each job being evaluated and arrange the jobs in order according to their value to the company. The classification method involves defining a number of classes or grades to describe a group of jobs. In the factor comparison method, raters need not keep the entire job in mind as they evaluate; instead, they make decisions on separate aspects or factors of the job. In the point method, raters assign numerical values to specific job factors, such as knowledge required, and the sum of these values provides a quantita-tive assessment of a job?s relative worth. 8. Describe job pricing. Placing a dollar value on the worth of a job is job pricing. 9. Identify factors related to the employee that are essential in determining direct financial compensation. The factors include pay for performance, seniority, experience, membership in the organization, potential, political influence, and luck. 10. Describe team- based pay, company- wide pay plans, professional employee compensation, sales representative compensation, and contingency worker compensation. If a team is to function effectively, firms should provide a reward based on the overall team performance. Organizations normally base company- wide plans on the firm?s pro-ductivity, cost savings, or profitability. Compensation for professionals is for the knowl-edge they bring to the organization. The unstable nature of professional jobs and their salaries results in a heavy emphasis on market data for job pricing. Designing compensa-tion programs for sales employees involves unique considerations. Contingency workers who are employed through an employment agency or on an on- call basis often earn less than traditional employees. Contingency workers who are independent contract work-ers typically earn more. 11. Explain the various elements of executive compensation. In determining executive compensation, firms typically prefer to relate salary growth for the highest- level managers to overall corporate performance. Executive compensa-tion often has five basic elements: ( 1) base salary, ( 2) short- term incentives or bonuses, ( 3) stock option plans, ( 4) executive performance- based pay, and ( 5) perquisites.
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