hr spring managing compensation 10-1. 10-2 objectives: identify the compensation policies and...
TRANSCRIPT
10-2
Objectives:
Identify the compensation policies and practices that are most appropriate for a particular firm.
Weigh the strategic advantages and disadvantages of the different compensation options.
Establish a job-based compensation scheme that is internally consistent and linked to the labor market.
Understand the difference between a compensation system in which employees are paid for the skills they use and one in which they are paid of the job they hold.
Make compensation decisions that comply with the legal framework.
10-3
Total Compensation
The package of quantifiable rewards an employee receives for his or her labors. Includes three components: base compensation, pay incentives, and indirect compensation/benefits
10-4
The Elements of Total Compensation
Total Compensation
PayIncentives
IndirectCompensation/
Benefits
BaseCompensation
10-5
Directfinancial
compensation
Indirectfinancial
compensation
Non-financial
compensation
TOTAL COMPENSATION
PraiseSelf-esteemRecognition
BenefitsServices
WagesSalariesBonusesCommissions
10-6
Compensation Policies: Criteria for Effectiveness
AdequateEquitableBalancedCost-effectiveSecureIncentive-providingAcceptable to the employee
10-7
External Influences on Compensation:Government Influences (Wage and Hour Regulations)
PROVISIONS INCLUDE:
Minimum wage
Overtime (Exhibit 10-3)Salaried or exempt (from
overtime pay) employeesHourly or nonexempt
employees
Fair Labor Standards Act (FLSA) of 1938
Child Labor
Equal Pay Act of 1963
10-8
External Influences on Compensation:Government Influences
Earnings gap reduction Nearly 3/4ths of reduction due to men’s earnings decline
Comparable worth (pay equity)
An effort to close the earnings gap between men and women. Four exceptions:
MeritSeniorityQuality or quantity of productionOr any other fact other than sex
EQUAL PAY ACT OF 1963
10-9
External Influences on Compensation:Labor Markets
DOMESTIC LABOR FORCE ISSUESSupply & demand conditions create differential pay levels
Increasing labor force diversity
INTERNATIONAL LABOR FORCE ISSUES Global supply and demand conditionsGlobal wage differentials
American employees working abroadEmploying foreign nationals in their countriesForeign workers training or working in the U.S.
10-10
The Nine Criteria for Developing a Compensation Plan
1. Internal versus External Equity Will the compensation plan be perceived as fair within the company, or will it be perceived as fair relative to what other employers are paying for the same type of labor?
2. Fixed versus Variable Pay Will compensation be paid monthly on a fixed basis —through base salaries —or will it fluctuate depending on such preestablished criteria as performance and company profits?
3. Performance versus Membership Will compensation emphasize performance and tie pay to individual or group contributions, or will it emphasize membership in the organization —logging in a prescribed number of hours each week and progressing up the organizational ladder?
10-11
The Nine Criteria for Developing a Compensation Plan (cont.)
4. Job versus Individual Pay Will compensation be based on how the company values a particular job, or will it be based on how much skill and knowledge an employee brings to that job?
5. Egalitarianism versus Elitism Will the compensation plan place most employees under the same compensation system (egalitarianism), or will it establish different plans by organizational level and/or employee group (elitism)?
6. Below-Market versus Above-Market Compensation Will employees be compensated at below-market levels, at market levels, or at above-market levels?
10-12
The Nine Criteria for Developing a Compensation Plan (cont.)
7. Monetary versus Nonmonetary Awards Will the compensation plan emphasize motivating employees through monetary rewards like pay and stock options, or will it stress nonmonetary rewards such as interesting work and job security?
8. Open versus Secret Pay Will employees have access to information about other workers’ compensation levels and how compensation decisions are made (open pay) or will this knowledge be withheld from employees (secret pay)?
9. Centralization versus Decentralization of Pay Decisions Will compensation decisions be made in a tightly controlled central location, or will they be delegated to managers of the firm’s units?
10-13
The Labor Market ModelW
ag
e
Number of Qualified Workers0
W1
N1
Supply ofQualifiedEmployees
Demand forEmployees
10-14
Pacesetters in demands for pay and benefits
Can help determine wages even for non-unionized employees
Collective bargaining agreements can set wage and benefit levels
Tend to support seniority over merit-based wage increases
External Influences on Compensation:Labor Unions
10-15
Percent of Salary in the Form of Bonus and Long-term Income for Various Pay 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
Per
cen
t o
f B
ase
Sal
ary
10-16
When to Use a Job-based Pay Policy A job-based pay policy tends to work best in
situations where: Technology is stable Jobs do not change often Employees do not need to cover for one another
frequently Much training is required to learn a given job Turnover is relatively low Employees are expected to move up through the
ranks over time Jobs are fairly standardized within the industry
10-17
Individual-based Compensation Individual-based compensation programs are more
suitable when: The firm has a relatively educated workforce with both the
ability and the willingness to learn different jobs The company’s technology and organizational structure
change frequently Employee participation and teamwork are encouraged
throughout the organization Opportunities for upward mobility are limited Opportunities to learn new skills are present The costs of employee turnover and absenteeism in terms
of lost production are high
10-18
Compensation Decisions:Relative to Three Groups
Same or similar jobs within the organization
(Individual pay determination)
Different jobs within the organization
(Pay-structure)
Similar jobs in other organizations
(Pay-level)
10-19
Compensation Decisions:Pay SurveysTechniques used to collect local, regional, national or international compensation data
Sources for competitive data range from existing surveys to conducting your own
Pay survey issues include:Usefulness of surveysWho will be surveyedThe method usedInformation gathered
10-20
Compensation Decisions:Job EvaluationFormal process for determining the relative worth of various jobs
Essential steps includeInvolving employeesSelecting and weighing criteria (compensable factors)
Frequently used methods includeJob rankingClassification or grading systems (See exhibit 10-7)Point system (See exhibit 10-8)Factor comparison
10-21
Compensation Decisions:Job EvaluationFormal process for determining the relative worth of various jobs
Essential steps includeInvolving employeesSelecting and weighing criteria (compensable factors)
Frequently used methods includeJob rankingClassification or grading systems (See exhibit 10-7)Point system (See exhibit 10-8)Factor comparison
10-22
Contemporary Pay Classifications
Reduction of the number of job levels
Can result in fewer pay grades and greater worker flexibility
Reduction in the number of salary ranges
Creates a smaller number of broad salary ranges
More emphasis on basing salary increases on performance
DELAYERING BROADBANDING
10-23
Pay Structure of a Large Restaurant Developed Using a Job-Based Approach
JobsNumber ofPositions Pay
GRADE 6GRADE 5
GRADE 4
GRADE 3
GRADE 2
GRADE 1
ChefManagerSous-ChefAssistant ManagerLead CookOffice ManagerGeneral CookShort Order CookAssistant to Lead CookClerkServerHostessCashierKitchen HelperDishwasherJanitorBusserSecurity Guard
2112215221
454423262
$20.00-$31.00/hr.$11.50-$21/hr.
$7.50-$12.00/hr.
$6.50-$8.00/hr.
$6.00-$7.00/hr.
$5.50-$6.25/hr.
10-24
Pay Schedule of a Large Restaurant Designed Using a Skill-Based Approach
Skills
5
4
3
• Create new items for menu• Find different uses for leftovers
(e.g., hot dishes, buffets)• Coordinate and control work of all employees
upon manager’s absence• Cook existing menu items following recipe• Supervise kitchen help• Prepare payroll• Ensure quality of food and adherence to
standards• Schedule servers and assign workstations• Conduct inventory• Organize work flow on restaurant floor
$23.00/hr.
$17.00/hr
$10.50/hr
PaySkill Block
10-25
Pay Schedule of a Large Restaurant Designed Using a Skill-Based Approach (cont.)
Skills
2
1
• Greet customers and organize tables• Take orders from customers• Bring food to tables• Assist in kitchen with food preparations• Perform security checks• Help with delivery• Use dishwashing equipment• Use chemicals/disinfectants to clean
premises• Use vacuum cleaner, mop, waxer, and other
cleaning equipment• Clean and set up tables• Perform routine kitchen chores
(e.g., making coffee)
$7.50/hr.
$6.00/hr.
PaySkill Block
10-26
The Key Steps in Creating Job-Based Compensation Plans
© 1998 by Prentice Hall
1. Job AnalysisJob Evaluation for Internal Equity
2. Job Descriptions
IdentifyCompensable Factors
3. Job Specifications
4. Rate Worth of All JobsUsing a PredeterminedSystem
5. Job Hierarchy
7. Establish Final PayPolicy
Individual Pay Assignment
6. Classify Jobs byGrade Levels
1. Check Market Value Using Benchmark or Key Jobs
Market Surveys forExternal Equity
Within-Pay-Range Positioning Criteria for Individual Equity
Criteria for Pay Positioning Within Range for Each Job• Experience• Seniority• Performance
© 2001 by Prentice Hall 10-26
10-27
MAA National Position Evaluation Plan
1st Degree
Skill1. Knowledge2. Experience3. Initiative and IngenuityEffort4. Physical Demand5. Mental or Visual DemandResponsibility6. Equipment or Process7. Material or Product8. Safety of Others9. Work of OthersJob Conditions10. Working Conditions11. Hazards
142214
105
5555
105
Factor2nd
Degree
284428
2010
10101010
2010
3rd Degree
426642
3015
15151515
3015
4thDegree
568856
4020
20202020
4020
5thDegree
70110
70
5025
25252525
5025
Points Assigned to Factor Degrees
10-28
Hierarchy of Clerical Jobs, Pay Grades, and Weekly Pay Range for a Hypothetical Office
1Points
2Grade
3Weekly Pay Range
30029829023022522017517016516012512012011595808060
5
4
3
2
1
$500-$650
$450-$550
$425-$475
$390-$430
$350-$400
Customer Service Rep.Executive Secretary/Admin. Asst.Senior SecretarySecretarySenior General ClerkCredit and CollectionAccounting ClerkGeneral ClerkLegal Secretary/AssistantSenior Word Processing OperatorWork Processing OperatorPurchasing ClerkPayroll ClerkClerk-TypistFile ClerkMail ClerkPersonnel ClerkReceptionist
10-29
Market Salary Data for Selected Benchmark Office Jobs
Weekly Pay Percentile
1. Customer Service Rep.2. Credit and Collection Clerk3. Accounting Clerk4. Word Processing Operator5. Clerk-Typist
25thWeekly Pay
Average
$400$400$370$380$330
50th 75th
$500$450$425$390$350
$650$550$475$430$400
$495$455$423$394$343
Benchmark Jobs
10-30
Drawbacks of Job-based Compensation Programs Job-based compensation plans do not take into account the nature of the
business and its unique problems. The process of establishing job-based compensation plans is much more
subjective and arbitrary than its proponents suggest. Job-based systems are less appropriate at higher levels of an
organization. As the economy has become more service oriented and the
manufacturing sector has continued to shrink, jobs have become more broadly defined.
Job-based compensation plans tend to be bureaucratic, mechanistic, and inflexible.
The job-evaluation process is biased against those occupations traditionally filled by women.
Wage and salary data obtained from market surveys are not definitive. In determining internal and external equity, it is the employees’
perceptions of equity that count, not the assessments of job-evaluation committees.
10-31
Suggestions for Implementing Job-based Compensation Plans Think strategically in making policy decisions
concerning pay. Secure employee input. Increase each job’s range of pay while expanding its
scope of responsibility. Expand the proportion of employees’ pay that is variable
(bonuses, stock plans, and so forth). Establish dual-career ladders for different types of
employees so that moving into management ranks or up the organizational hierarchy is not the only way to receive a substantial increase in pay.
10-32
Example of a Dual-Career LadderManagerial Individual ContributorBand
PresidentExecutiveVice PresidentVice PresidentAssistantVice PresidentDirectorSenior ManagerManager
1312
1110
9876543
2
1
Executive ConsultantSenior Consultant
ConsultantSenior AdviserAdviserSenior SpecialistSpecialistSenior TechnicianSenior Administrative Support,TechnicianAdministrative Support,Senior Manufacturing AssociateClerical Support, ManufacturingAssociate