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eobf_E 7/5/06 3:00 PM Page 242

Employee Compensation

compressed workweek involves working longer hours each Madura, Jeff (2004). Introduction to Business. Belmont, CA:
day for fewer days than the normal Monday-through-Fri- Thomson/South-Western.
day workweek. For example, at many businesses employ- Nickels, William G., McHugh, James M., and McHugh, Susan
ees work ten-hour days, four days a week. M. (2005). Understanding Business (7th ed.). Boston, MA:
McGraw-Hill/Irwin.
Job sharing allows two or more people to divide the
Pfeffer, Jeffery (1994). Competitive Advantage Through People.
tasks of one job. It allows the same consistency as a full-
Boston, MA: Harvard Business School Press.
time person, because the work is simply divided among
Pride, William M., Hughes, Robert J., and Kapoor, Jack R.
the people who share the job responsibility. Job sharing is
(2002). Business (7th ed.). Boston: Houghton Mifflin.
popular among people who only want to work part time
but want a job with full-time responsibilities. These types
of people include older workers, retirees, students, and Marcy Satterwhite
working parents. Home-based work programs allow
employees to perform their jobs at home instead of in an
office setting. These people are often known as telecom-
muters, because they commute to work through elec- EMPLOYEE
tronic mail, faxes, and other types of telecommunications. COMPENSATION
Home-based work is popular with disabled workers, eld-
erly workers, parents with small children, and workers In exchange for job performance and commitment, an
who have had to relocate far away from the workplace employer offers rewards to employees. Adequate rewards
because of a spouse’s job change. Through home-based and compensations potentially attract a quality work force,
work, all of these types of employees are able to take care maintain the satisfaction of existing employees, keep qual-
of personal and family responsibilities while maintaining ity employees from leaving, and motivate them in the work-
and enjoying their job and/or career. place. A proper design of reward and compensation systems
requires careful review of the labor market, thorough analy-
sis of jobs, and a systematic study of pay structures.
CONCLUSION
There are a number of ways of classifying rewards. A
It should be noted that the various types of benefits commonly discussed dichotomy is intrinsic versus extrinsic
offered to employees can depend greatly on the size and rewards. Intrinsic rewards are satisfactions one gets from
type of the business as well as its geographic location. For the job itself, such as a feeling of achievement, responsibil-
example, a small business might be unable to afford to ity, or autonomy. Extrinsic rewards include monetary com-
provide complete health care coverage for employees pensation, promotion, and tangible benefits.
because there are not enough employees to divide the risk.
This would cause the cost of the insurance to be high. On Compensation frequently refers to extrinsic, mone-
the other hand, a large company may not want to give all tary rewards that employees receive in exchange for their
1,000 employees a turkey for Thanksgiving because of the work. Usually, compensation is composed of the base
enormity of the undertaking. A video store would be more wage or salary, any incentives or bonuses, and other ben-
likely to give employees free movie rentals, while a restau- efits. Base wage or salary is the hourly, weekly, or monthly
rant would offer employees free or reduced-price meals. pay that employees receive. Incentives or bonuses are
rewards offered in addition to the base wage when
Employee benefits may be the major deciding factor for
employees achieve a high level of performance. Benefits
many people when choosing a company for employment.
are rewards offered for being a member of the company
In order to attract and retain the best-quality employees,
and can include paid vacation, health and life insurance,
companies must be willing to offer flexible and extensive
and retirement pension.
types of benefits to meet various employee needs.
A company’s compensation system must include poli-
SEE ALSO Employee Compensation
cies, procedures, and rules that provide clear and unam-
biguous determination and administration of employee
BIBLIOGRAPHY compensation. Otherwise, there can be confusion, dimin-
Boone, Louis E., and Kurtz, David L. (2006). Contemporary ished employee satisfaction, and potentially costly litiga-
Business. Mason, OH: Thomson/South-Western. tion.
Bounds, Gregory M., and Lamb, Charles W., Jr. (1998).
Business. Cincinnati, OH: South-Western College Publishing.
DETERMINANTS OF
French, Wendell L. (2003). Human Resources Management.
Boston: Houghton Mifflin. COMPENSATION
Jenks, James M., and Zevnik, Brian (1993). Employee Benefits Fair and adequate compensation is critical to motivating
Plain and Simple. New York: Collier. employees attracting high-potential employees, and

242 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION