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Lecture Outline
Chapter 12: Management, Compensation, Benefits, Payroll, and the
Human Resource Information Systems
CHAPTER OBJECTIVES
After completing this chapter, you should be able to do the following:
❖ Understand the performance management (PM) cycle and the role of the HRIS in PM design,
decision making, and administration
INTRODUCTION
● Performance, rewards, and payroll systems focus the basic exchange between employees
and employers: Employees provide performance, and in exchange, employers provide
rewards, which are distributed via payroll systems.
● Performance management systems are usually entirely internal to the organization, but
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● Most organizations consider rewards data to be highly confidential, so system security is
critical.
● In payroll systems, flawless data integrity and even more flawless execution are critical.
Payroll systems must be linked to external data (e.g., federal and state requirements for
minimum wage) and internal data (e.g., general ledger and benefit choices) and must be
capable of incorporating constant change.
PERFORMANCE MANAGEMENT
Overview
The PM process consists of three parts: performance planning, performance observation and
providing positive feedback and/or corrective feedback, and developing periodic performance
PM is now considered within the framework of talent management, which encompasses all areas
of HR that have to do with onboarding, developing, evaluating, and managing the workforce
through all of the normal cycles. PM is just one of the areas connected to others, such as
● recruiting (external),
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Performance Planning
● Performance planning, like most management processes, must be constructed in
such a way that any manager can do it, regardless of management style or skills.
Better managers involve the employee collaboratively in all phases of the PM
process, but the system is designed so that even directive managers can follow the
process.
● When outcomes are difficult to observe or measure, behaviors that are expected to
lead to desired outcomes are added. For each performance dimension, the
manager must develop specific outcomes and behaviors that will be used to
measure the direct report’s performance.
● When performance dimensions, measures, and standards have been developed, the
manager must communicate them to the direct report. The manager must make
certain that the direct report understands measures and standards.
Formats
● Most organizations define the performance instrument differently depending on the type
or level of the employee.
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Performance Period
● During the performance period, the manager uses the performance contract as a
Periodic Performance Summary
● At some point, a summary of performance during the period is provided to the direct
report. In most organizations, this is an annual event, but some organizations have
Typical Data Inputs
● Data inputs for PM systems include organizational-, job-, and individual-level data.
● Performance management systems must interface with staffing and training applications.
Typical Reports
● The most important standardized reports produced by the HRIS are the performance
contract and the annual summary appraisal for each employee.
Data Outflows
● Performance data are used in many HRM decisions and will flow automatically into
some processes or be available for others as needed. One automatic flow will be into
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Decision Support
● The basic decision support system in the area of PM is the entire system. Having
performance criteria, performance measures, performance standards, and recent
performance documentation in a single place allows managers to keep track of how each
direct report is doing and what interventions need to be made to improve performance.
● The PM system can provide self-service for employees by allowing them to view the
same data and use those data as a basis for deciding on areas where improvement is
needed. For example, were performance-specific goals set at a high enough level to
motivate employees to perform at higher levels on their jobs?
COMPENSATION
Overview
● Compensation is one of the most complex topics in HRM, and attempting to present an
overview is ambitious. Organizations faced with the complexities of creating and
administering compensation systems are increasingly turning to technology for help.
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● Compensation programs must meet federal and state statutory and regulatory
requirements. The Fair Labor Standards Act differentiates exempt and nonexempt
workers; the organization must pay nonexempt workers at least the minimum wage, must
pay time worked in excess of 40 hours a week overtime at a rate of 1.5 times the normal
pay, and must provide records to the federal government on hours worked and regular
and overtime pay for all nonexempt workers. The OFCCP (Office of Federal Contract
Compliance Programs) requires annual evidence of nonbiased results with respect to race
and gender for SSEGs (similarly situated employee groups) and requires multiple linear
regression analyses as evidence.
● Market benchmarking is used to price the structure (or individual jobs). Market data are
collected for as many jobs as possible. In most organizations, one or more surveys may
be developed in house to collect market benchmarks, but the bulk of benchmark data
come from commercial and association surveys. Entering data can be done through a
website with a format that maximizes ease of data. However, websites with salary data
are not without problems; employees frequently access websites that may have
unrepresentative data and argue that they are underpaid based on bad data (Menefee,
2000).
● An employee is placed in the salary grade appropriate for her or his job. Each grade has a
midpoint that serves as a proxy for all of the jobs in that grade, and a range is built around
that midpoint. (This range defines the minimum and maximum salary for jobs in that
grade, usually ±20% from the midpoint.) Exact placement in the range is usually a
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of payroll.
● There are many forms of short-term incentive pay. Unlike merit pay, short-term
incentive pay is rarely added to base pay and must be re-earned every year. Typical short-
term incentive programs include bonuses, gain sharing, goal sharing, small-group
● Long-term incentives are primarily based on organization stock, options to buy
organization stock, or phantom (make-believe) stock. The goal of long-term incentives is
twofold: to align the interests of employees with those of shareholders and to motivate
aligned performance over periods of more than 1 year.
● Perquisites are rewards that are a function of organizational status. Executive dining
rooms, first-class or corporate-jet air travel, and club memberships are examples.
● Attraction or retention awards are one-time awards that are used to attract prospective
employees to the organization or persuade them to remain with the organization. These
awards may take the form of cash, stock options, benefits, or adjustments to benefits
Typical Data Inputs
● Compensation data inputs include internal, external, and generated data. Internal data
include information about jobs (descriptions and specifications), people (performance and
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Typical Reports
● There are a number of standard reports in the compensation arena; however, because of
the sensitive nature of compensation information, they are not widely circulated.
● The most common reports include budget reports to managers showing how their actual
Data Outflows
● The primary data outflow from compensation modules is to payroll.
● Compensation analysts draw on the data for additional analyses; however, managers
Decision Support
● The major rewards decision that has to be made about every employee is how much to
pay the individual. Decision support systems (DSS) in compensation are all aimed at that
decision. While much of this activity is carried out by compensation and other HR
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Web-based compensation modules, managers can perform salary-planning functions
much easier than was possible with paper-based processes. Data such as current salary,
compa-ratio, and salary ranges can be viewed for all of their employees at once; for
international organizations, such systems can handle multicurrency requirements; and
BENEFITS
Overview
● There are five broad types of benefits programs in most U.S. organizations. Because
some company-provided benefits in this country are government provided in other
countries, a different typology would be required for organizations abroad.
● The first set of benefits programs that is common in U.S. companies includes pension
● The fourth area of benefits is paid time off and includes vacation, holidays, personal
days, special purpose days (because of jury duty, bereavement, or military service for
example), and family leave.
● The fifth and final category of benefits includes miscellaneous benefits, including
dependent care, flexible working benefits (telecommuting, job sharing, and compressed
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● Additionally, legal requirements for benefits programs are more stringent than those for
compensation programs.
● Another major difference between benefits and compensation programs, one that strongly
affects HRIS configuration, is the growing trend to outsource benefits programs and
administration.
● In benefits, program design, benefit delivery, and program administration (including
employee communications) are increasingly outsourced. As a result, the HRIS must
Typical Data Inputs
There are HRIS benefits modules with different purposes, and each requires a different type
of data input.
● One set of functions focuses on the organization’s relationship with current and
prospective benefits vendors.
Typical Reports
● There are dozens of reports required by federal and state government units, including the
IRS, units of the Department of Labor, and other federal agencies, and similar units at the
state level. With Web-based access to benefits and other employee information, summary
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Data Outflows
● Data generated by benefits programs have to be transferred to payroll and accounting
internally. Data are sent externally to benefits providers, outsourced benefits
Decision Support
● Decision support tools overlap, to some extent, with reports in the benefits and payroll
arenas because frequently these reports trigger the need to make changes to comply with
federal, state, or local requirements.
● When organizations offer flexible benefit plans, it is common to track the choices made
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PAYROLL
Overview
● Payroll is the transactional process through which compensation is transferred to
employees, and federal, state, and local income and payroll taxes are withheld from
employees’ checks. It is also through payroll that any benefits costs borne by employees
are withheld.
Typical Data Inputs
● Data entered into the payroll system from inside the organization include compensation
data, benefits data, and other payroll addition data (e.g., special awards) and deductions
data (e.g., union dues, wage garnishment for child support, and credit union repayment
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Typical Reports
● There are a number of standard payroll reports. These show, for the organization as a
whole (or for subunits), the actual amount paid to employees for a period (and
Data Outflows
Payroll data go to accounting; federal, state, and local agencies; and to benefits outsourcing firms
Decision Support
Payroll data are not usually used for decision-making purposes. They are used extensively for
audit purposes.
CHAPTER SUMMARY
The combined PM, compensation, benefits, and payroll systems constitute the most important
parts of the HRIS. Because pay and benefits constitute the largest variable cost to any
organization and the largest cost to many organizations, it is critical that managers plan, track,
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Compensation and benefits systems can be used to hire the right people, retain the high
performers, and motivate all employees to perform at a higher level. Compensation can also be