1. How do differing perspectives (society, managers and employees) affect the views of compensation? Answer: There are basically four perspectives in views of compensation. These are as follows: Society’s View:
Pay works as a measure of justice.
Benefits acts as a reflection of justice is society.
Gain or loss jobs attributed to differences in compensation. •
Pay increase lead to price increase.
Giving stock as a means of pay to employees creates sense of ownership. •
Links between executive pay to company’s performance supposedly increases stockholder’s returns. Manager’s View:
Increase employee behaviors and improve organization’s performance. Employee’s view:
Source of great financial security.
Return in an exchange between employer and themselves.
Rewarding employees as job well done.
Act as being an employee of the company.
2. Explain the difference between base pay and performance pay. Answer:
Base Pay: Base pay generally describes the minimum compensation that an employee can expect from his job. It can express in terms of hourly rate or it could be in a number of other different forms. In salary basis, base pay could be expressed as a monthly salary such as $5000 per month or $60000 per year. Performance pay: Performance pay reward employees for their great performance at their job. It is easy to quantify but not all the time. For example, a business dealership can act as a reward for an employee who perform consistently excellent and fulfill sales target. Companies also try to improve in less quantifiable job like teamwork. In that case, the incentive would be tied up with the supervisor’s subjective rating of employee’s performance at a scheduled review. Achieving higher rating allow employees to receive more incentive pay. Most incentive plans that provide financial rewards for performance are pay for performance plans but not all of them because some are merit pay plans.
3. What are the three tests used to determine whether a pay strategy is a source of competitive advantage? Are these tests difficult to pass? Can compensation be a source of competitive advantage? Answer:
Three tests are as follows:
Aligned with the business strategy.
Aligned externally with the economic and sociopolitical conditions. •
Aligned internally with the overall HR system.
Alignment is probably the easiest test to pass.
Compensation as a source of competitive advantage is a debatable issue. Some types of single pay practices can be easily imitated such as amount of base pay, benefits, stock options etc. But according to the strategic perspective, it is the way pay practices fit together, fit the organization strategy, and are managed that may result in a sustained competitive advantage.
4. Why is internal alignment an important compensation policy? Answer:
Internal alignment or internal equity distinguishes the comparative value of various jobs within an organization. It forms the basis of the pay construction by providing appropriate pay differences to jobs of unequal value. It also distinguishes the differential value of the experiences to perform different jobs and the conditions under which jobs are accomplished. Observations of internal alignment effect employees’ motivation, gratification, improve cooperation with team, desire to stay with the organization for longer time and also increase their interest in chasing various HR activities like training and development.
5. Explain the difference between egalitarian versus hierarchical pay structures. Answer:
There are two types of corporate structures, egalitarian and hierarchical. Egalitarian: In egalitarian structure all employees share equal responsibility and power and it is more popular then hierarchical structure. In an egalitarian structured company employees have general job description rather than specific. In an egalitarian structure, rather than reporting...
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