HRM – FINAL SUMMARY

CRITERIA IN DESIGNING A COMPENSATION SYSTEM
	Compensation is a wage or salary paid to the people for their work. Total compensation is the package of quantifiable rewards an employee receives for his/ her labors which include three components ; base compensation, pay incentive and indirect compensation/benefits.
	Base compensation : the fixed pay an employee receives on a regular basis in form of a salary or as an hourly wage. Pay incentive : a program designed to reward employees for good performance Benefits : comprise of a wide variety of programs eg health insurance, vacations.
	Intro : Compensation decisions must be viewed strategically. If an organization wishes to create an innovative, entrepreneurial culture, it may offer business and stock equity programs so that employee can participate in the growth and success of the company but sets it base pay benefits at relatively modest levels. For a large, stable organization, more structured pay and benefits programs may be more common. Designing a compensation system enables the organization to achieve its strategic objectives and is molded to the organization's unique characteristics and environment. There are 9 criteria required in developing a compensation plan :
	1.	Internal vs external equity : Fair pay is the pay that employees normally view as equitable. Internal equity refers to the perceived fairness of the pay structure within a firm. External equity refers to the perceived fairness of pay relative to what other employers are paying for the same type of labor. The distributive justice model and the labor market model must be taken into consideration in internal vs external equity. Distributive justice model stated that employees constantly compares what they bring to the organization to what they receive in return and also compares this outcome ratio with that of other employees within the organization. They will think that they are fairly paid when the ratio of their inputs and outputs equivalent to that other employees whose job demands are similar to their own. The labor market model depicted that the wage rate for any given job is set at point where the supply of labor equals to the demand for labor in the marketplace. When there is low demand for labor (employer not willing to pay more) and the lower the pay workers are willing to accept for a given job (high supply if labor), the lower the wage rate for that job. Ideally, an organization should try to establish both internal and external equity pay. In general, external equity is more appropriate for newer, smaller organization in rapidly changing market.
	2.	Fixed vs variable pay Fixed pay is where an organization pays a high proportion of total compensation in the form of base pay Variable pay is where the compensation fluctuates according to some pre established criterion eg provide lower salary for several years in exchange for a company stock. Fixed pay benefits the employees where it secures the employees income and variable pay is advantageously beneficial in smaller companies/ organization with a product that is not well established yet. Those organization that treat employees fairly and clearly communicate to them the downside and upside of the compensation risk they face are more likely to prevent a deterioration of morale in spite of the added stress.
	3.	Performance vs membership Performance based is where the organization tied up a substantial portion of employees pay to performance of individual or group and the amount received can vary from one person/group to another eg sales commission, pay based product sold, bonuses for full attendance Membership contingent compensation provide a similar wage to every employee in a given job as long as the employee achieves at least satisfactory performance.
	4.	Job vs individual pay Job based pay policy is where employees are paid on the basis of the job they can do or talents that hey have than can be successfully applied to variety of tasks/ situation. The policy tends to work if the technology is stable, jobs do not change often, employees do not need to cover for another frequently, much training is required to learn a given job, employees are expected to move up through the ranks over time, Jobs are fairly standardized within the industry eg automobile industry. Individual based pay is suitable when the organization has a relatively educated workforce with both the ability and the willingness to learn different jobs, the company's technology and organizational structure change frequently, employee participation and teamwork are encouraged throughout the organization, opportunities for upward mobility is limited and the opportunities to learn new skills are present eg manufacturing company.
	5.	Elitism vs egalitarianism Egalitarian pay system is a pay plan In which most employees are part of the same compensation system. It gives organization more flexibility to deploy employees in different areas without having to change their pay levels. It also reduces barriers between people who need to work closely together.It is more common in highly competitive environments where organization frequently takes business risks and try to expand their market share by continually investing in new technologies/ products/ ventures. Elitist pay system is a pay plan in which different compensation systems are established for employees or groups at different organizational goals.. It tend to result in a more stable workforce because employees make more money only by moving up through the company and are more prevalent among older, well established organization with mature products.
	6.	Below market vs above market compensation The decision to pay above market for all employee groups also allows the organization to hire the 'cream of the crop' , minimize voluntary turnover and create a climate that makes all employees feel they are part of an elite organization. Companies that are trying to grow rapidly in a tight labor market must consider paying above market wages. Employees also can be compensated at the market levels or below market levels.
	7.	Monetary vs non monetary rewards Monetary can be cash or payments that can be converted into cash in the future eg stocks, retirement plan Non monetary are intangible eg interesting work, challenging assignments, public recognition, family friendly policies, work life balance programs (flexible working hours, day care, yoga classes) Organization that emphasize monetary reward wants to reinforce individual achievement and responsibility and organization enforces non monetary reward prefers to reinforce commitment to the organization.
	8.	Open vs secret pay Open pay is where employees have access to information about other workers compensation level and how compensation decisions are made eg public sectors Secret pay is where the organization withheld the knowledge from the employees eg private sectors Recent research prove that greater pay opened is more likely to be successful in organization with extensive employee involvement because open pay can foster perceptions of fairness and greater motivation only in a climate that nurtures employees relations.
	9.	Centralization vs decentralization of pay decision Centralized is where the compensation decision is made tightly controlled central location eg HR department at HQ. Decentralized is where the compensation decision is delegated to manager of the unit.
	Concl : When designing and administering compensation programs, behavioral aspects must be considered. Equity, organization justice, pay openness and external equity are all important.

FUNCTION OF HRM, HR EFFECTIVENESS, STRATEGIC HRM THAT LEADS TO PRODUCTIVITY
	-	Definition productivity : a measure of the quantity and quality of work done, and considering the cost of the resources used.
	-	Intro - Human resource management (HRM) is a philosophy of people management based on the belief that human resources are uniquely important to sustain business success. An organization gains comparative advantage by using its people effectively, drawing on their expertise and ingenuity to meet clearly defined objective. Human resource management is a set of practices or techniques about managing people in an organization as effectively as possible for the good of the employees, the company and society.
	-	Function - HRM was identified with a strategic approach, linking the management of people to the achievement of business objectives. The key functions of HRM are manpower planning, recruitment and selection, training and development, appraisal, consultation and negotiation for the workforce.
	-	Productivity at the organizational level ultimately affects profitability and competitiveness in a for-profit organization and total cost in a not-for-profit organization. Perhaps none of the resources used for productivity in organization are so closely scrutinized as the human resources. Many of the activities undertaken in an HR system are design to affect individual or organizational productivity. Pay, appraisal systems, training, selection, job design and compensation are HR activities directly concerned with the productivity.
	-	Engagement is a gauge of involvement and commitment based on a person's attitudes toward and dedication to the work required and people involved. For the employee these benefits include higher job satisfaction and better job performance; for the company the benefits include lower attrition, higher productivity and business profitability.
	-	Recruiting is a process of generating a pool of qualified applicants for organizational jobs. Recruiting is well-positioned to measure and improve engagement at the earliest moments of connection, resulting in new hires with consistently high engagement levels day one on the job. Recruitment and Selection practices are somewhat integrated whereby the former refers to how the firm seeks to attract potential employees to the processes used to identify which applicants are best suited for the job based on their skills, knowledge and experience.
	-	Training is a form of HR practice, once the individual is hired; training is used to teach them on the knowledge, practical skills and behaviors necessary for performing the specific job.
	-	Compensation and Benefits these are financial and non-financial means of rewarding workers for their contribution towards the business
	-	performance appraisal is an important HR practice as it considers the formal process of comparing employees' actual performance with how they should be performing in order to achieve the business' projected goals from the appraisal they realized that it was due to their bad HR practices that employees were not performing up to standard and hence made the decision to restructure some of these practices in order to understand the importance of Human Resource Management (HRM) to the achievement of competitive advantage and shows the key to a successful organization be the development of staff.
	-	Concl : HRM can also be useful because managing people well may influence so many outcomes in an organization such as productivity, employee involvement which is important to the customers and society. A useful way to measure organizational HR productivity is by considering unit labor cost, which is computed by dividing the average cost of workers by their average levels of output. It has been found that companies, linked HRM practices with the business strategy, deliver higher financial performance outcomes.