Compensation

Written by: Catherine Pesta

Overview

Whatever your personal reasons for working, the bottom line is that almost everyone works for money. Money provides housing, gives children clothing and food, sends teens to college, and allows vacations, and eventually, retirement. To underplay the importance of money and benefits as motivation for people who work is a mistake.  Compensation and benefits plans play an important role in satisfaction of the employer and employee alike.

In order to successfully carry out a compensation system, the human resources department must create and abide by a compensation policy. The policy takes into consideration job descriptions, job analyses, job evaluations, pay structures, salary surveys (Thomson, 2012).

History

The Equal Pay Act of 1963, a federal law signed by John F. Kennedy, requires that men and women be given equal pay for equal work in the same company. The jobs do not need to be identical, but they must be substantially equal. Pay differentials are permitted when they are based on seniority, merit, quantity or quality of production, or a factor other than sex.

The Equal Pay Act was an amendment to the Fair Labor Standards Act of 1938. The Fair Labor Standards Act introduced America the forty-hour work week that is still familiar to us today (Jackson, 2009) . Also introduced by this law, was national minimum wage and requirement that all hours worked over the normal forty hours were compensated at “time and a half.”   

Bonuses

                  Bonus pay is any compensation provided by an employer that is over their specified pay (salary or hourly rate).  Employers pay out bonuses at random or regularly. Bonus pay can boost morale and increase motivation at a workplace and bonuses are rewarded for many different reasons.

At a time when the job market is on the mend, employers are focusing on hiring and retaining top talent.  Employers attract prospective employees by offering hiring bonuses and keep current talent by offering retention bonuses. In 2011 nearly two thirds (63%) of organizations reported using hiring bonuses, and 41% use or expect to implement retention bonuses. The survey included a range of employee levels including executives, directors, and managers (Hansen, 2011).

                  Some employers award “referral bonuses” to current employees who successfully refer a prospective employee. The bonus is paid after a specified period of time passes after the prospective employee is hired and determined a good fit. “Performance bonuses” are given when employees meet predetermined goals or benchmarks. Employers are not required to pay bonuses unless there is a contractual obligation. In most cases, contractual bonuses are awarded to executives and other high-level employees and are included in their negotiated compensation package.

Minimum Wage

Occupations, primarily in the service industry, are compensated at a base pay of “minimum wage” in the United States. Minimum wage is regulated on both a federal and state level.  Federal minimum wage is currently $7.25 per hour and $2.13 per hour for tipped employees. States and territories may determine their own minimum wage as long as it exceeds the federal level. Currently, Washington has the highest minimum wage in the United States at $9.13. Studies have found that the majority of workers who get hired in at minimum wage get a pay raise within one year.

During his recent inaugural address, President Obama, pushed for Congress to raise the minimum wage to $9 per hour because those that are currently working full time and being compensated minimum wage are living beneath the poverty line. Some employers and economists oppose boosting minimum wage because it increases the unemployment rate because employees are more expensive for employers to hire (Lowrey, 2013).

Other Forms of Compensation

Employee benefits are another form of compensation and typically refer to retirement plans, insurance (health, life, disability), vacation time, stock options, etc. Benefits are increasingly expensive for companies to provide to employees, so some companies are using flexible benefit plans, where the employee pays for a portion of the benefit.  Benefit plans are voluntarily established and maintained by the employer. According to a national study, employees who reported that their organization had effective benefits communications were more likely to be loyal to their organization, and more satisfied with their benefits and with their jobs (SHRM, 2008). Continuous benefits communication can make it more likely that employees will value, understand and use their benefits program.

Sources

Jackson, H. J., & Mathis, L. R. (2009). Human Resource Management, 13^th Edition. South Western: Cengage Learning.

SHRM: Society of Human Resources Management (2008). Religion and Corporate Culture. Alexandria, VA

Hanson, F. (2011). Currents in Compensation & Benefits. Compensation & Benefits Review (pp. 263-274). New York City: Sage. (Original work published 2011)

Lowrey, A. (2013, February 13). Obama Pushes for Increase in Federal Minimum Wage - NYTimes.com. The New York Times - Breaking News, World News & Multimedia. Retrieved March 31, 2013, from http://www.nytimes.com/2013/02/13/us/politics/obama-pushes-for-increase-in-federal-minimum-wage.html?_r=0

The Equal Pay Act of 1963 (EPA). (n.d.). EEOC Home Page. Retrieved March 31, 2013, from http://www.eeoc.gov/laws/statutes/epa.cfm

Thomson, D. (2012). Compensation and Benefits. From the Trenches: Projecting the Future Reality of Compensation and Benefits (pp. 66-72). New York City: Sage.