© 2004 by prentice hall terrie nolinske, ph.d. 10 - 1 10 managing compensation

© 2004 by Prentice Hall Terrie Nolinske, Ph.D.

10 - 1

10

Managing Compensation


10 - 2

HR Challenges

• What compensation practices are

most appropriate for a firm?

• What (dis)advantages of compensation systems exist?

• On what is employee compensation based?

• How are compensation decisions affected by the legal system?


10 - 3

Total Compensation Package

Quantifiable rewards employee gets for work done…

• base compensation,

• pay incentives

• indirect compensation

and benefits


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Total Compen$ation

Pay Incentives

Indirect Compensation

Benefits

Base Compensation


10 - 5

9 Elements of a Compensation Plan

1. Internal vs. External Equity perceived fairness

2. Fixed vs. Variable Pay paid at fixed times via base salary or

fluctuate based on criteria

3. Performance vs. Membership tie pay to individual or group

contributions


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9 Elements of Compensation Plan (cont’d)

4. Job vs. Individual Pay based on job or skill / knowledge

5. Egalitarianism vs. Elitism all have same plan or establish different plans

6. Below-Market vs. Above-Market Pay above-market level

at market level below-market level


10 - 7

9 Elements of Compensation Plan (cont’d)

7. Monetary vs. Nonmonetary Awards motivate via money or job security

8. Open vs. Secret Pay know what others are paid or not

9. Centralization vs. Decentralization made in central location or

delegated to unit managers


10 - 8

The Labor Market Model

Supply of workers

Demand for workers

Number of Qualified Workers

Wages


10 - 9

Percent of Salary in Form of Bonus and Long-term Income for Various

Salary Brackets

88

6560

5550

4540

3225

167

0

10

20

30

40

50

60

70

80

90

Over$750

$550-$750

$450-$550

$350-$450

$250-$350

$200-$250

$165-$200

$135-$165

$105-$135

$65-$105

$25-$65

Percent of base salary


10 - 10

Use Job-based Pay Policy When…

• job and technology are stable• staff do not cover for one another • training is required • turnover is relatively low• jobs are fairly standardized in industry


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Use Individual-based Compensation When…

• firm has educated workforce • firm is in uncertain environment• collaboration occurs in organization• limited mobility exists• chances to learn new skills exist• lost production cost high due to

employee turnover / absenteeism


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Pay Structure of Large Restaurant Developed Using Job-Based Approach

JOBS # POSITIONS PAY6

GRADE 6 Chef 2 $21.50-32.00 / hr

GRADE 5 Manager 1 $12.50-22.00 / hrSous-Chef 1

GRADE 4 Assistant Manager 2 $8.50-13.00 / hrOffice Manager 1

GRADE 3 General Cook 5 $7.50-9.00 / hr

GRADE 2 Server 45 $7.00-8.00 / hrCashier 4

GRADE 1 Dishwasher 3 $6.50-7.25 / hr


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Pay Schedule of Large Restaurant Designed Using Skill-Based Approach

Creating new items for the menu!

• Find different uses for leftovers$23.00 /hr (e.g., hot dishes, buffets)• Coordinate staff in manager absence

• Cook food following recipes $17.00 / hr• Supervise kitchen help• Prepare payroll• Ensure adherence to standards

• Schedule servers / workstations $10.50 / hr• Conduct inventory• Organize work flow on restaurant floor


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Pay Schedule of Large Restaurant Designed Using Skill-Based Approach

• Organize tables $7.50 / hr• Take orders from customers• Bring food to tables• Assist kitchen with food prep• Perform security checks• Help with delivery

• Use dishwashing equipment $6.00 / hr• Clean premises with disinfectants• Clean and set up tables• Perform routine kitchen chores

(e.g., making coffee)


10 - 15

MAA National Position Evaluation Plan

Factor 1st 2nd 3rd 4th 5th

SKILL

1. Experience 22 44 66 88 110

2. Initiative 14 28 42 56 70

EFFORT

3. Physical demand 10 20 30 40 50

4. Mental demand 5 10 15 20 25

RESPONSIBILITY

5. Material or product 5 10 15 20 25

6. Work of others 5 10 15 20 25


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Hierarchy of Clerical Jobs in an Office

1

point

2 grade

3

wkly pay range

Customer Service Rep 300 5 $500-650

Administrative Assistant 298 5

Secretary 230 4 $450-550

Accounting Clerk 175 3 $425-475

Senior Word Processor 160 3

Word Processor 125 2 $390-430

Payroll Clerk 120 2

Mail Clerk 80 1 $350-400


10 - 17

Market Salary Data for Selected Benchmark Office Jobs

Weekly Pay PercentileBenchmark Jobs 25th 50gh 75th Weekly Pay

Average

Customer Service Representative

$400 $500 $650 $495

Credit Clerk $400 $450 $550 $455

Accounting Clerk $370 $425 $475 $423

Word Processor $380 $390 $430 $394

Clerk Typist $330 $350 $400 $343


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Drawbacks of Job-based Compensation Programs

• Uniqueness of firm not taken into account

• Subjective, arbitrary process

• Less appropriate at high levels of firm

• Wage and salary data obtained from market surveys are not definitive

• Employees’ perception of internal/external equity matter


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Suggestions for Implementing Job-based Compensation Plans

• Think strategically

• Secure employee input

• Increase job range of pay and

expand scope of responsibility

• Expand variable proportion of pay

• Establish dual-career ladders


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Example of a Dual-Career LadderBand Managerial Individual Contributor

13 President

12 Executive VP

11 VP Executive Consultant

10 Assistant VP Senior Consultant

9 Director Consultant

8 Senior Manager Senior Adviser

7 Manager Adviser

6 Senior Specialist

5 Specialist

4 Senior Technician

3 Senior Administrative Support


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Pay Systems and the Legal Environment

• Fair Labor Standards Act of 1938

• The Equal Pay Act of 1963

• The Internal Revenue Code


10 - 22

As an employee, many firm’s expect that you take a percent of the risk with them. Firms have moved away from fixed forms of compensation in favor of variable forms. No longer are there many jobs where your benefits and pay steadily climb.

What do you think about this trend – how did it start, is it a good thing?

Case

© 2004 by prentice hall terrie nolinske, ph.d. 10 - 1 10 managing compensation

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