Understanding Compensation: Salaries, Wages, and Valuation

Posted on Dec 19, 2024 in Other subjects

Defining Compensation and Its Components

  • Walking the long path and the concept of personal work is the same as working for the benefit of others.
  • Salary is the remuneration payable by the employer to the employee for their work.
  • Real wage refers to the amount of money allocated and paid per hour, day, week, etc., for work performed or a part made.
  • For administrative work, common wage types include hourly, piece rate, adjusted to the cost of living, profit-sharing, or various forms of indirect compensation, including non-monetary benefits.
  • Wage is the term that designates the prevailing wage for a day’s work, typically reserved in practice for the workforce.
  • The amount received by the employee for their work, after the deduction of taxes and social security contributions, is called the net salary.
  • Remuneration is classified into unit remuneration, whether in units of time or product.
  • Commissions represent a very common method of compensating vendors.
  • Prizes or rewards are extraordinary forms of compensation.
  • Rent or income of the employee is the product of the wage rate multiplied by the number of units (of time or product) under consideration, with the addition of awards for production, overtime pay, etc.
  • Some aspects of indirect compensation include satisfaction and interest in work, independence, authority, prestige, and privileges.

Methods for Setting Wages and Job Valuation

  • Models used in the past to set wages were by order or decree, based on bargaining, and the criterion of a group.
  • The preconditions for a valuation of positions are: presentation of the study, approval from the highest hierarchical level, and a presentation of the plan to group leaders and subordinates.
  • The administrative guideline method is a program that is regarded as a specialized technique; it is based on objective statistical tests.
  • The method of scales or degrees of default can be reduced to three steps: the management of typical positions, assigning a monetary value, and a weighted combination of both results.
  • A common error in the factor comparison method is the halo effect, which occurs when the qualifier believes that because a position has been assessed with maximum requirements in one factor, it should have high requirements in all factors.
  • The basic steps in constructing a scale using the points method are: selecting and defining the factors necessary to measure a particular class of positions, identifying and defining the degree of each factor, determining the relative value to be assigned to each factor, assigning point values for each factor, and designing a manual for the valuation of positions.
  • The valuation of positions is established according to the legal need for establishing fair wages.
  • The factor comparison method consists of three stages: a) comparing the factors of a position with a number of models and definitions, b) allocating a certain level to these factors under comparison, and c) placing each position in order to correspond to a pay scale based on statistical methods.
  • The most important technique for the valuation of wages is the points method, which begins with the valuation tool and a valuation manual with instructions.

Executive Compensation and Wage Surveys

  • On executive compensation, the current trend is to provide a base salary plus a variable rate based on results.
  • A regional survey of wages shows from experience that at the working level, there are positions that are comparable, showing differences in salary up to 75% in the same area and economic activities in our country.
  • The factor comparison method uses five factors, the so-called administrative requirements.

Compensation Management System

  • A general plan of work for the establishment of a compensation management system includes the following subsections: objectives, performance standards, outlining the problem, course of action, expected outcomes, resources required, and a program for the establishment of a salary administration system.
  • Two external factors that influence compensation are productivity and compensation incentives.

The Meaning and Challenges of Remuneration

  • Within the meaning of remuneration, a vital aspect is control; that is, the salary involved in relation to the exercise of personal power over one’s environment.
  • Other facets of the meaning of remuneration include the motivation that is expressed by saying that compensation indicates the amount of goods and services that may be acquired and the ease of obtaining them.
  • Also, following the objectives sought by the effective administration of compensation is to encourage proper performance.
  • Three of the challenges that affect compensation are: unions, comparable pay for comparable work, and legal determinations.
  • From the angle of social justice, the share of profits allows us to banish the old concept that only capital receives the income that is generated.