Compensation administration is an organizational process that determines the total remuneration of all the organization's employees due them for their services. The aggregation of these individual amounts creates the organization's total labor costs. Since labor costs represent 40 to 90 percent of the total costs of most organizations, the judicious determination and allocation of these costs can mean the difference between success and failure for any organization.
The nature and practice of compensation administration is ever-changing. Each year new techniques are being developed, new technology is being applied, the behavioral sciences are contributing new knowledge, and the government and society are placing new demands on how compensation is administered. Any book hoping to cover this topic must be continually updated to reflect these changes.
It is not the sole purpose of this text to reflect and codify the practice of compensation. More than just trying to tell the student and practitioner what things are like, we see that our purpose in this text is to show what things can be like. This is an expressly prescriptive role. We believe that the field of compensation administration must continuously change and improve or it will become obsolete. We hope to send out students and practitioners who can see a better way to do things in the organizations in which they work.
We also attempt to integrate behavioral theory wherever we can in the discussion of compensation decisions. This is not only because we ourselves are academics but because, through the examination of theory, the effects of practice on the individual, group, and society are much more predictable. Behavioral theory has progressed greatly, and there is a body of concepts and experiments that have focused directly on compensation. We have tried to incorporate this research in this edition.
Compensation is a complex subject, partly because organizations wish it to do so many things. First, organizations and their employees want a process that creates rewards that are seen as fair and equitable. They also want a process that is competitive, so that employees are content to stay with the organization. In addition, new focuses are on making employees more productive as well as being sure that all this is done legally. As in most circumstances where there are many goals, the actions that take place may be congruent with some goals and in conflict with others. In practice, compensation administration is at best a compromise of the various goals it seeks to serve.
Which goals are pursued actively are partly a function of organizational values. But they are also a function of the focus that society has currently placed on these goals. John Gardner, in his book Excellence: Can We Be Equal and Excellent Too?, points out the tension in our society between equality and competitive performance. In a way, compensation administration is caught on the horns of this dilemma, and the approach and focus of the various editions of this text reflect something of the shift back and forth that Gardner claims is inevitable and healthy in our society. Editions of this have published since 1955 and have reflected this tension in their focus. Through the 1960s and into the 1970s there was a deep concern with equality in our nation. Legislation such as the Equal Pay Act and the Civil Rights Act that directly affect compensation administration is a legacy of this era. At the end of the 1970s, organizations became very concerned with keeping up with the market as inflation rates went into double digits for one of the few times in our history. The 1974 edition of this text reflected that concern, with an outline that focused on equity. During the 1980s and 1990s, competitive pressures took center stage and compensation planning became global and market focused. In the U.S. and other countries, benefits became ever more complex with the shift to local (state) controls and laws.
Today, while preserving most of the progress made toward equality, organizations are much more concerned with productivity. This is a reaction to increased competition from foreign countries, which makes us much more conscious of the higher wage rates paid to American workers and the need to obtain the most from employees to counterbalance this foreign advantage. One of the areas being focused on to increase our productivity is the way employees are compensated. At the same time, cost control is still an issue (and will always be an issue) as it relates to compensation. Many organizations have only limited practical control over inventory, capital and other expenditures. What can always be controlled and managed is "pay." Motivation, the information highway, modern cost control, state's unique HR laws - all combine to create a new age and a new need for understanding the basics of compensation and benefits.
This present 2009-2010 edition reflects these concerns. The table of contents of this edition has been completely revised. The heart of the book focuses on the compensation tasks of providing a wage level for the organization, setting the base pay of employees, designing variable pay plans and providing benefits. While these are topics that have always been discussed we have updated the practice to today's new practices.
This text has gone through revisions for 55 years now. (It was first entitled Wage and Salary Administration, authored by David W. Belcher.) To acknowledge all the people who have contributed would be impossible. We hope that the scholars and practitioners with whom we have had contact both in person and through their writings will recognize that we are trying to use their best ideas. We only hope that we have given them credit where it was due. If we did not get it right, we take full responsibility.
A great deal of this text is the result of two friendships. The first was between David Belcher and Thomas Atchison who were colleagues at San Diego State University that extended over 20 years of countless luncheons at which the text and more broadly the topic of compensation has been discussed in depth. The result was the 1987 revision of the text. The second friendship is that of Thomas Atchison and Dr. David Thomsen. Founder of ERI Economic Research Institute, David has worked with Tom since 30 years ago, when he covered Tom's university classes, while Tom and his first wife Betty toured the Pacific studying Pacific Rim compensation practices.
Special mention goes to Rick Siler and Kevin Eskew, who built the foundation for this online textbook and accompanying courses. And none of these would have seen the light of day without the hard work of Trang Nguyen, Mark Barnum, Heidi Thomsen, Ryan Harvey, Debra Ivy, and Bobbie Ruth Langley.
The previous editions of this text were well received and used in a variety of courses in different college departments. Professors who are examining this text for adoption in their course may note that this text does not contain many of the pedagogical features of numerous textbooks. This has been purposeful, since this text is used considerably as a reference by professionals. However, this textbook does serve as the source material for 50 online courses found at the ERI Distance Learning Center (DLC). We recommend these courses as practical homework assignments for university students, as well as excellent training tools for HR staff. In addition, these courses are being accredited for the continuing education of lawyers, accountants, and insurance agents (CLE, CPE, and CPE credit).
Several resources accompany each ERI DLC course, in addition to this textbook. They include:
- Graphs and charts, which are active *.xls, bmp, gif, jpg presentations that may be copied and altered by consultants or clients to fit their circumstances.
- Exercises that instruct users in the use research software for data calculations and the preparation of analyses reports.
- Links to other Internet sites where materials, software, references, or data can assist the reader (including interactive, online surveys such as those found at SalariesReview.com).
- Memory jogger questions for the professional who might wish to test his/her knowledge in preparation for course final exams. These exams are required for professionals to receive continuing education credits. In addition, ERI offers its own Certificate of Applied Compensation (CAC), for those users who demonstrate mastery of the quantitative, research and analytical skills taught in ERI DLC courses. Recipients must complete this program within a 12 month period and earn 80% on every final exam.
All these features are integrated into the DLC Wizard software. Before taking ERI DLC courses, we recommend that you download this software from the HR Resources page of this website.