Managing Compensation - Chapter Discussion

Chapter 10 Discussion: Managing Compensation

Gómez-Mejía, L.R., David B. Balkin, Robert L. Candy, Managing Human Resources, 8th edition, Pearson Education, Inc., 2016

Chapter 10 addresses one of the most important topics for both companies and employees. It has a financial, psychological and social implication for companies and employees alike. For employees it generally means financial and psychological wellbeing, for companies it means being cost effective and competitive. Each has different goals, the employee wanting a reasonable income, and the company ensuring its solvency. Such divergent goals may pose a challenge to HR.

Thus, managing compensation is one of the areas that HR carefully has to plan and strategize a total compensation package to ensure these goals are met in a fair, clear and legal manner.

Gómez-Mejía, Balkin and Candy (2016) identify the three parts that make up total compensation: a) base compensation, b) pay incentives and c) benefits (p. 287).

a) Base compensation: refers to the salary employees receive weekly, semi-monthly or monthly

b) Pay incentives: refer to extra rewards employees receive for good performance such as bonuses, profit sharing

c) Benefits: refer to the employees’ wellbeing such as health insurance, life insurance, disability insurance

However, the process is not as simple as it seems on paper. HR has to carefully design a compensation system that helps the company to compete and produce, while at the same time, be fair to the labor force and adhere to the law.

There are compensation tools that can be used to ensure equity. For example, some companies base employees’ compensation externally according to what other firms are paying for a similar position, while others focus more on an internal pay structure (Gomez-Mejia et al, 2016, p. 288).

In addition, after analyzing certain jobs, HR has to develop job descriptions, which can be classified as job based or skill-based. In other words, a job based...