dessler hrm12e ppt_11

PowerPoint Presentation by Charlie CookThe University of West Alabama

Chapter 11

Establishing Strategic Pay Plans

Part Four | Compensation

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–2

Basic Factors in Determining Basic Factors in Determining Pay RatesPay Rates

Direct financial payments Indirect financial payments

Employee Compensation Components


Corporate Policies, Competitive Strategy,Corporate Policies, Competitive Strategy,and Compensationand Compensation

• Aligned Reward StrategyAligned Reward Strategy The employer’s basic task:The employer’s basic task:

To create a bundle of rewards—a total reward package—that To create a bundle of rewards—a total reward package—that specifically elicits the employee behaviors that the firm needs specifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy.to support and achieve its competitive strategy.

The HR or compensation manager along with top management The HR or compensation manager along with top management creates pay policies that are consistent with the firm’s strategic creates pay policies that are consistent with the firm’s strategic aims.aims.


Compensation Policy IssuesCompensation Policy Issues• Pay for performancePay for performance

• Pay for seniorityPay for seniority

• The pay cycleThe pay cycle

• Salary increases and promotionsSalary increases and promotions

• Overtime and shift payOvertime and shift pay

• Probationary payProbationary pay

• Paid and unpaid leavesPaid and unpaid leaves

• Paid holidaysPaid holidays

• Salary compressionSalary compression

• Geographic costs of living differencesGeographic costs of living differences


Equity and Its Impact on Pay RatesEquity and Its Impact on Pay Rates

External equity

Proceduralequity

Internal equity

Individualequity

Forms of Compensation Equity


Addressing Equity IssuesAddressing Equity Issues

Area wage and salary surveys

Job analysis and job evaluation

Performance appraisal and incentive pay

Communications, grievance mechanisms, and employees’ participation

Methods to Address Equity

Issues


Establishing Pay RatesEstablishing Pay Rates

1

2

3

4

5

Steps in Establishing Pay Rates

Determine the worth of each job in your organization through job evaluation (to ensure internal equity).

Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity).

Group similar jobs into pay grades.

Price each pay grade by using wave curves.

Fine-tune pay rates.


Step1: The Salary SurveyStep1: The Salary Survey

To price benchmark jobs

To make decisions about

benefits

Uses for Salary Surveys

To market-price wages for jobs


Sources for Salary SurveysSources for Salary Surveys

Self-Conducted

Surveys

Government Agencies

Consulting Firms

Sources of Wage and Salary Information

Professional Associations

The Internet


Step 2: Job EvaluationStep 2: Job Evaluation

Skills Effort Responsibility

Identifying Compensable Factors

Working conditions


The Job Evaluation ProcessThe Job Evaluation Process

1

Performing the actual evaluation

Getting the cooperation of employees

Preparing for the Job Evaluation

Identifying the need for the job evaluation

Choosing an evaluation committee

2

3

4


How to Evaluate JobsHow to Evaluate Jobs

RankingJob

classificationPoint method

Methods for Evaluating Jobs

Factor comparison


Job Evaluation Methods: RankingJob Evaluation Methods: Ranking• Ranking each job relative to all other jobs, usually Ranking each job relative to all other jobs, usually

based on some overall factor.based on some overall factor.

• Steps in job ranking:Steps in job ranking:

1.1. Obtain job information.Obtain job information.

2.2. Select and group jobs.Select and group jobs.

3.3. Select compensable factors.Select compensable factors.

4.4. Rank jobs.Rank jobs.

5.5. Combine ratings.Combine ratings.


Job Evaluation Methods: Job Evaluation Methods: Job ClassificationJob Classification

• Raters categorize jobs into groups or classes of jobs that Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes.are of roughly the same value for pay purposes. Classes contain similar jobs.Classes contain similar jobs.

Administrative assistantsAdministrative assistants Grades are jobs similar in difficulty but otherwise different.Grades are jobs similar in difficulty but otherwise different.

Mechanics, welders, electricians, and machinistsMechanics, welders, electricians, and machinists Jobs are classed by the amount or level of compensable factors Jobs are classed by the amount or level of compensable factors

they contain.they contain.


Job Evaluation Methods: Point MethodJob Evaluation Methods: Point Method• A quantitative technique that involves:A quantitative technique that involves:

Identifying the degree to which each compensable factor is Identifying the degree to which each compensable factor is present in the job.present in the job.

Awarding points for each degree of each factor.Awarding points for each degree of each factor.

Calculating a total point value for the job by adding up the Calculating a total point value for the job by adding up the corresponding points for each factor.corresponding points for each factor.


Step 3: Grouping JobsStep 3: Grouping Jobs

Point Method

Ranking Method

Classification Methods

Grouping Similar Jobs

into Pay Grades


Step 4: Price Each Pay GradeStep 4: Price Each Pay Grade• The Wage Curve The Wage Curve

Shows the pay rates paid for jobs in each pay grade, relative to Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job the points or rankings assigned to each job or grade by the job evaluation.evaluation.

Shows the relationships between the value of the job as Shows the relationships between the value of the job as determined by one of the job evaluation methods and the determined by one of the job evaluation methods and the current average pay rates for your grades.current average pay rates for your grades.


Step 5: Fine-Tune Pay RatesStep 5: Fine-Tune Pay Rates• Developing Pay RangesDeveloping Pay Ranges

Flexibility in meeting external job market ratesFlexibility in meeting external job market rates

Easier for employees to move into higher pay gradesEasier for employees to move into higher pay grades

Allows for rewarding performance differences and seniorityAllows for rewarding performance differences and seniority

• Correcting Out-of-Line RatesCorrecting Out-of-Line Rates

Raising underpaid jobs to the minimum of the rate range Raising underpaid jobs to the minimum of the rate range for their pay gradefor their pay grade

Freezing rates or cutting pay rates for overpaid (“red circle”) Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay gradejobs to maximum in the pay range for their pay grade


HR in Practice: HR in Practice: Developing a Workable Pay PlanDeveloping a Workable Pay Plan

• Simplified Approach:Simplified Approach: Conduct a wage surveyConduct a wage survey

Conduct a job evaluationConduct a job evaluation

Conduct once-a-year job appraisalsConduct once-a-year job appraisals

Compile the compensation budget Compile the compensation budget for upcoming yearfor upcoming year


Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs

Base pay

Executive benefits/perks

Short-term incentives

Long-term incentives

Compensating Executives and Managers


Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs• What Determines Executive Pay?What Determines Executive Pay?

CEO pay is set by the board of directors taking into account CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and factors such as the business strategy, corporate trends, and where they want to be in the short and long term.where they want to be in the short and long term.

CEOs can have considerable influence over the boards that CEOs can have considerable influence over the boards that determine their pay.determine their pay.

Firms pay CEOs based on the complexity of the jobs they fill.Firms pay CEOs based on the complexity of the jobs they fill.

Shareholder activism and government oversight have tightened Shareholder activism and government oversight have tightened the restrictions on what companies pay top executives.the restrictions on what companies pay top executives.

Boards are reducing the relative importance of base salary while Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.boosting the emphasis on performance-based pay.


Compensating Professional EmployeesCompensating Professional Employees• Employers can use job evaluation for professional jobs.Employers can use job evaluation for professional jobs.

• Compensable factors focus on problem solving, Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and creativity, job scope, and technical knowledge and expertise. expertise.

• Firms use the point method and factor comparison Firms use the point method and factor comparison methods, although job classification is most popular.methods, although job classification is most popular.

• Professional jobs are market-priced to establish the Professional jobs are market-priced to establish the values for benchmark jobs.values for benchmark jobs.


Why Use Competency-Based Pay?Why Use Competency-Based Pay?

High-Performance Work Systems

StrategicAims

Competency-Based Pay Supports

Performance Management


Competency-Based Pay in PracticeCompetency-Based Pay in Practice• Main elements of skill/competency/knowledge–based Main elements of skill/competency/knowledge–based

pay programs:pay programs:

1.1. A system that defines specific skillsA system that defines specific skills

2.2. A process for tying the person’s pay to his or her skillA process for tying the person’s pay to his or her skill

3.3. A training system that lets employees seek and acquire skillsA training system that lets employees seek and acquire skills

4.4. A formal competency testing systemA formal competency testing system

5.5. A work design that lets employees move among jobs to A work design that lets employees move among jobs to permit work assignment flexibilitypermit work assignment flexibility


Competency-Based Pay: Pros and ConsCompetency-Based Pay: Pros and Cons• ProsPros

Higher qualityHigher quality

Lower absenteeismLower absenteeism

Fewer accidentsFewer accidents

• ConsCons Pay program implementation problemsPay program implementation problems

Costs of paying for unused knowledge, skills, and behaviorsCosts of paying for unused knowledge, skills, and behaviors

Complexity of programComplexity of program

Uncertainty that the program improves productivityUncertainty that the program improves productivity


Special Topics in CompensationSpecial Topics in Compensation• BroadbandingBroadbanding

Consolidating salary grades and ranges into a few wide levels Consolidating salary grades and ranges into a few wide levels or “bands,” each of which contains a relatively wide range of or “bands,” each of which contains a relatively wide range of jobs and salary levels.jobs and salary levels.

Pros and ConsPros and Cons

More flexibility in assigning workers to different job gradesMore flexibility in assigning workers to different job grades

Provides support for flatter hierarchies and teamsProvides support for flatter hierarchies and teams

Promotes skills learning and mobilityPromotes skills learning and mobility

Lack of permanence in job responsibilities can be unsettling Lack of permanence in job responsibilities can be unsettling to new employees.to new employees.


The Pay GapThe Pay Gap• Factors Lowering the Earnings of Women:Factors Lowering the Earnings of Women:

1.1. Women’s starting salaries are traditionally lower.Women’s starting salaries are traditionally lower.

2.2. Salary increases for women in professional jobs do not Salary increases for women in professional jobs do not reflect their above-average performance.reflect their above-average performance.

3.3. In white-collar jobs, men change jobs more frequently, In white-collar jobs, men change jobs more frequently, enabling them to be promoted to higher-level jobs over enabling them to be promoted to higher-level jobs over women with more seniority.women with more seniority.

4.4. In blue-collar jobs, women tend to be placed in In blue-collar jobs, women tend to be placed in departments with lower-paying jobs.departments with lower-paying jobs.


Improving Productivity Through HRIS: Improving Productivity Through HRIS: Automating Compensation Automating Compensation AdministrationAdministration• Benefits of Compensation Automation:Benefits of Compensation Automation:

Allows for quick updating of compensation programsAllows for quick updating of compensation programs

Eliminates costs of formerly manual processesEliminates costs of formerly manual processes

Coordinates centralized compensation budgets to prevent Coordinates centralized compensation budgets to prevent overages in compensation and raisesoverages in compensation and raises

Can integrate and automatically administer other pay actionsCan integrate and automatically administer other pay actions

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