Page 657 - Business Principles and Management

Unit 7

for greater experience or more years worked for the company. The sup-
ply and demand for that type of labor, current economic conditions, and
the prevailing wage rates in the community and the industry also affect
the rate of pay. Companies may choose to provide a range of employee
benefits as an alternative to high wages. Finally, federal and state labor
laws, such as laws that set minimum wages, affect employee pay.

THE IMPORTANCE OF COMPENSATION PLANNING
Human resources departments are usually charged with developing and
PHOTO: © GETTY IMAGES/PHOTODISC. is often one of the largest expenses of a company, it is important that the
maintaining a company’s compensation system. Because compensation

total compensation paid is consistent with the sales and other income
earned by the business. If compensation costs are too high, the company
will be unable to earn a profit. On the other hand, if wages and salaries
are too low, the company will be unable to attract the number of employ-
ees needed with the skills required to perform the company’s work. In
either case, the company will be at a competitive disadvantage.
Usually human resources departments of large companies employ econ-
omists and other specialists to develop pay plans and to help determine the
Increasing your value to your total amount of money that should be spent on employee compensation, including
employer through training benefits. Smaller companies usually attempt to compare the wages and salaries they
may result in an increase in offer to those offered by competitors so as not to lose valuable employees to other
your compensation. companies as a result of low wages. Compensation plans are reviewed frequently
to make sure they are accomplishing the goals for which they were established, to
make sure that they are fair to various categories of employees, and to evaluate the
total amount of compensation in relation to the company’s financial performance.
Changing a total compensation plan or even parts of the plan is a very diffi-
cult task but must be done from time to time. Before changing the plan, human
resources needs the approval of executives and should involve employee groups
in reviewing proposed changes and determining the effects of the changes on
employees. The actual changes, the reasons for the changes, and the effects
of the changes on compensation should be carefully explained to employees.
Employees should be given time to adjust to the changes, especially if the changes
may result in a lower level of pay or fluctuations in the amount the employee earns
from pay period to pay period.

MEETING LEGAL REQUIREMENTS
Employers must be sure that compensation plans meet all federal and state laws.
For the most part, laws do not identify the amount that must be paid to any em-
ployee. One exception is minimum wage laws. However, they do mandate that
employers do not discriminate in the way compensation is determined.

MINIMUM WAGE A minimum wage law specifies that it is illegal for employers to
pay less than an identified wage rate to any employee. Minimum wage laws have
been developed as both social and economic policies in many countries. They sug-
gest that workers should not be exploited by employers and that the country wants
its citizens to receive at least a minimum level of financial resources for their work.
Most businesses and jobs are covered by minimum wage laws, but there are some
exceptions.
The Unites States first established a federal minimum wage in the 1930s. At
that time, the minimum hourly rate was set at $.25. It has been increased from
time to time, usually after significant political debate. In 2006 the federal mini-
mum wage rate was $5.15, unchanged since 1997. Most states have established

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