WAGE & SALARY COMPENSATION

"Compensation is what employees receive in exchange for their contribution to the organization" Human Resources and Personnel Management (Werther & Davis. McGraw-Hill, Inc. New York, NY, 1996.)

Direct Compensation - Compensation directly related to wages and salaries, incentives and gainsharing. Direct compensation is based on performance, not a condition of employment, unlike indirect compensation.

Indirect Compensation - Compensation not related to wages and salaries or incentives and gainsharing, but employee fringe benefits that are given to employees as an incentive for becoming a part of the organization. Some benefits of direct compensation are insurance benefits, life and disability insurances, mandated leave and benefits, retirement plans, vacation and personal days, holiday pay, leave of absence, employee services, and special programs.

Benefits of Effective Compensation Management

• Recruit qualified employees
• Maintain employee satisfaction
• Retain current workforce
• Strive toward internal and external equity
• Reward desired employee behavior
• Control costs
• Comply with state and federal regulations
• Easy to understand compensation system
• Managable compensation system

Questions about Compensation Systems

[How are pay scales determined?] [What is Broadbanding?]

What is Wage Compression?

• Narrowing the wage gap between the lowest and highest paid employee. This will occur when lower paid employees receive a larger wage increase than the highest paid employees.

Are there any government restricts regarding employee pay?

• The Fair Standards Act of 1938 (FLSA) is a law that regulates compensation management.

What type of incentive systems are used by companies?