343 pay structure
TRANSCRIPT
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CompensationCompensation
Cash, Bonuses, Insurance, Cash, Bonuses, Insurance, Vacation, HolidaysVacation, HolidaysPerks, RecognitionPerks, Recognition
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What does What does compensation (what compensation (what you receive for your you receive for your
services) mean to you?services) mean to you?
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A Definition . . .A Definition . . .
• All forms of – financial return, – tangible services and – benefits
• that employees receive as part of their employment relationship
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Components of a Total Components of a Total Compensation Program - 1Compensation Program - 1
• FinancialFinancial• Direct
– wages, salaries, commissions, bonuses
• Indirect– insurance plans
• life, health, dental, disability
– social assistance benefits• retirement plans, social security, workers’ comp
– paid absences•vacations, holidays, sick leave
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Components of a Total Components of a Total Compensation Program - 2Compensation Program - 2
• Non-FinancialNon-Financial• The Job
– interesting, challenging, responsible– opportunity for recognition, advancement– feeling of achievement
• Job Environment– policies, supervision, co-workers, status
symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs
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Factors that Influence Wage Factors that Influence Wage LevelsLevels
WAGEMIX
Conditions ofLabor Market
Area WageRates
Cost ofLiving
CollectiveBargaining
LegalRequirements
CompensationPolicy of
Organization
Worth ofJob
Employee’sRelative Worth
Employer’sAbility to Pay
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Designing a Compensation Designing a Compensation SystemSystem
Steps in the Decision Process
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Step 1 - Establish General Step 1 - Establish General Wage Level for OrganizationWage Level for Organization
• Factors to consider:Factors to consider:• Other firm’s rates• Union demands• Cost-of-living changes• Firm’s ability to pay
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Step 2 - Establish Wage Step 2 - Establish Wage Structure (The Pay for Each Structure (The Pay for Each
Job)Job)• Employ a job evaluation systemEmploy a job evaluation system
– Ranking– Job Classification– Point System– Factor Comparison
• Results:Results:– pay grades– rate ranges
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Step 3 - Establish Pay for Each Step 3 - Establish Pay for Each Individual on Each JobIndividual on Each Job
• Inputs:Inputs:• Performance appraisal
information• Seniority system
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A Pay Model -- 3 Basic A Pay Model -- 3 Basic ComponentsComponents
• I. Compensation Objectives• II. Foundation Concepts• III. Techniques for
Management
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A Pay Model A Pay Model I. Compensation Objectives - 1I. Compensation Objectives - 1
• Organization Performance• Labor Costs• Attitudes and Behaviors• Laws and Regulations
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A Pay Model A Pay Model I. Compensation Objectives - 2I. Compensation Objectives - 2
• Influence forms & procedures• For example:
– if objective is pay for performance, emphasize incentives, merit pay plans
– if objective is stable, experienced workforce, emphasize seniority-based pay
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A Pay Model A Pay Model II. Foundation ConceptsII. Foundation Concepts
• EquityEquity• External EquityExternal Equity• Comparison: outside organization• Internal EquityInternal Equity• Comparison: inside organization,
among jobs• Employee EquityEmployee Equity• Comparison: individuals doing same
job for same organization
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Equity TheoryEquity Theory
I = InputsI = Inputseffort, ability, experienceeffort, ability, experience
O = OutcomesO = Outcomespay, benefits, perkspay, benefits, perks
EquityEquityOOpp/I/Ipp = O = Ooo/I/Ioo
Under-reward InequityUnder-reward InequityOOpp/I/Ipp < O < Ooo/I/Ioo
Over-reward InequityOver-reward InequityOOpp/I/Ipp > O > Ooo/I/Ioo
pp = personal, = personal, oo = comparison other= comparison other
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Why does Equity Matter?Why does Equity Matter?
What Behaviors are Likely to What Behaviors are Likely to Occur when Inequity is Felt?Occur when Inequity is Felt?
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A Pay ModelA Pay ModelIII. Techniques for ManagementIII. Techniques for Management
• A. Pay Level• B. Pay Structure• C. Individual Pay Rates
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A Pay ModelA Pay ModelIII. Techniques for ManagementIII. Techniques for Management
A. Pay LevelA. Pay Level• Defined: average rates paid by
employer• Applicable concept: External Equity• 3 Pure Alternatives
– lead competition– match competition– lag competition
• Mechanism used: Market Wage Survey
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Market Wage and Salary Market Wage and Salary SurveysSurveys
Select key jobs.Determine relevant labor market.Select organizations.Decide on information to collect:
wages/benefits/pay policies.Compile data received.Determine wages and benefits to
pay.
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Company A’s Wage Level
Company A’s Wage Level
Market Wage LevelsMarket Wage Levels
Company B’s Wage Level
Company B’s Wage Level
Market Wage Level
Market Wage Level
•Which company is leading the market?Which company is leading the market?•Which company is lagging the market?Which company is lagging the market?•What would the wage level line look like for a company What would the wage level line look like for a company that was meeting/matching the market?that was meeting/matching the market?
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A Pay ModelA Pay ModelIII. Techniques for ManagementIII. Techniques for Management
B. Pay StructureB. Pay Structure• Defined: pay rates for different jobs
within a single organization• Applicable concept: Internal Equity• Pay more for jobs with
– greater qualifications– less desirable working conditions– more valuable output
• Mechanism used: Job Analysis & Job Evaluation
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Job EvaluationJob Evaluation• defined: the systematic evaluation of
job descriptions• outcome: a hierarchy of organizational
jobs according to their content and value to the organization
• Methods: – ranking– classification– factor comparison– point method
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Job Ranking SystemJob Ranking System
Simplest and oldest system of job
evaluation by which jobs are arrayed
on the basis of their relative worth
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Job Classification SystemJob Classification System
System of job evaluation by which jobs
are classified and grouped according
to a series of predetermined wage grades
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Point SystemPoint System
Quantitative job evaluation procedure
that determines the relative value of a job
by the total points assigned to it
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Factor Comparison SystemFactor Comparison System
Job evaluation system that permits the
evaluation process to be accomplished
on a factor-by-factor basis by developing
a factor comparison scale
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Hay Profile MethodHay Profile Method
Job evaluation technique using three
factors – knowledge, mental activity,
and accountability – to evaluate
executive and managerial positions
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A Pay ModelA Pay ModelIII. Techniques for ManagementIII. Techniques for Management
C. Individual Pay RatesC. Individual Pay Rates• Defined: pay rates for different
individuals doing the same job within an organization
• Applicable concept: Employee Equity• 2 Techniques
– Flat Rate– Pay Ranges
• Mechanisms used: Performance or Seniority
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Wage CurveWage Curve
Curve in a scattergram representing
the relationship between relative worth
of jobs and wage rates
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Components of the Wage StructureComponents of the Wage Structure
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Pay GradesPay Grades
Groups of jobs within a particular class
that are paid the same rate or rate range
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Elements of the Rate RangeElements of the Rate Range
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Common Pay Grade RangesCommon Pay Grade Ranges
• Laborers & Trades, up to 20%• Clerical, Technical, Para-
professional, 15-49%• First Level Supervisors,
Professionals 30-50%• Middle and Senior Level
Management, 40-100%
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Monitoring Compensation Monitoring Compensation CostsCosts
• Compra-Ratio• Formula:
• A compra ratio < 1 indicates lag• A compra-ratio > indicates excess
Actual Average Pay for GradeActual Average Pay for Grade
Midpoint Pay for GradeMidpoint Pay for Grade
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How Would You Handle Outliers?How Would You Handle Outliers?An individual whose current pay is beyond An individual whose current pay is beyond the maximum of the pay grade for his/her the maximum of the pay grade for his/her jobjob
An individual whose current pay is An individual whose current pay is below the minimum of the pay grade below the minimum of the pay grade for his/her jobfor his/her job
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Federal Wage LawsFederal Wage Laws
Davis-Beacon Act of 1931
Walsh-Healy Act of 1936
Fair Labor Standards Act of
1938
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Nonexempt EmployeesNonexempt Employees
Employees covered by the overtime
provisions of the Fair Labor Standards Act
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Exempt EmployeesExempt Employees
Employees not covered by the overtime
provisions of the Fair Labor Standards Act
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Comparable WorthComparable Worth
The concept that male and female jobs
that are dissimilar, but equal in terms
of value or worth to the employer,
should be paid the same
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Wage-Rate CompressionWage-Rate Compression
Compression of differentials between
job classes, particularly the differential
between hourly workers and their managers