Building Blocks and Structure of Strategic Compensation Systems

Most compensation professionals' work centers on extrinsic compensation, largely leaving practices supporting intrinsic compensation to HR and organizational development professionals. Extrinsic compensation can be described by two sets of practices: core compensation and employee benefits. See Figure 1-2 in your textbook to visualize the organization of the building blocks of compensation systems.

Core compensation incorporates hourly wages or annual salaries and methods for increasing pay for overtime. We will address these practices in Chapters 3 and 5 of your textbook; you'll learn that some of the programs are job based while others are person focused. Some practices are based on pay-for-performance principles.

Employee benefits refers to compensation other than wages or salaries. These benefits can be distinguished as ones required by law and others offered at the discretion of the employer. Many new benefits appear in employee benefits packages, such as pet insurance. You will study employee benefits in Lessons 10, 11, and 12.