Presented to:Sir Ahmed Tasman Pasha

Presented By: Sana Rao Roll no.09-29

Basic Factors In Determining

Pay Rates

Determining pay rates• Employee compensation

• How to formulate plans for paying employees

– Time based wages or salary– Performance based pay

• Pay plans

– Legal– Union company policy– An equity

Determining Pay Rates

•Employee compensation All forms of pay or rewards going to

employees and arising from their employment.

Basic Factors in Determining Basic Factors in Determining Pay RatesPay Rates

Direct Financial Payments

Indirect Financial Payments

Employee Compensation

Direct Financial Payments

Indirect Financial Payments

Employee Compensation

• Direct financial payments

Pay in the form of wages, salaries, incentives, commissions, and bonuses.

• Indirect financial payments

Pay in the form of financial benefits such as insurance

Determining Pay Rates• Direct financial payments

– base on two factor

•Pay for Time

•Pay for Performance

Determining Pay Rates• Pay for time:

– Blue collar and clerical workers get hourly or daily wages,

– And others, like managers paid by the week, month or week.

– Time pay is still the foundation of most employer’s pay plans.

Determining Pay Rates• Pay for performance:

– It ties compensation to the amount of production the worker turns out.

– For example• Piecework

Employee Compensation

Equal Pay Act (1963)

Employee Retirement Income Security Act (ERISA)

Age Discrimination in Employment Act

Americans with Disabilities Act

Davis-Bacon Act (1931)

Walsh-Healey Public Contract Act (1936)

Title VII of the 1964 Civil Rights Act

Fair Labor Standards Act (1938)

The Family and Medical Leave Act

The Social Security Act of 1935 (as amended)

Workers’ Compensation

Employee Compensation

Equal Pay Act (1963)

Employee Retirement Income Security Act (ERISA)

Age Discrimination in Employment Act

Americans with Disabilities Act

Davis-Bacon Act (1931)

Walsh-Healey Public Contract Act (1936)

Title VII of the 1964 Civil Rights Act

Fair Labor Standards Act (1938)

The Family and Medical Leave Act

The Social Security Act of 1935 (as amended)

Workers’ Compensation

Legal Considerations in Legal Considerations in CompensationCompensation

• Davis-Bacon Act (1931)– A law that sets wage rates for laborers employed by

contractors working for the federal government.

• Walsh-Healey Public Contract Act (1936)– A law that requires minimum wage and

working conditions for employees working on any government contract amounting to more than $10,000.

• Title VII of the 1964 Civil Rights Act– This act makes it unlawful for employers to

discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin.

• Fair Labor Standards Act (1938)

– This act provides for minimum wages, maximum hours, overtime pay for nonexempt employees after 40 hours worked per week, and child labor protection.

– The law has been amended many times and covers most employees.

– It covers majority of worker engaged in• Production and sale of goods for interstate and

foreign commerce

Some feature of FLSA• Exempt Employees

– Employees to whom employers are not required to pay overtime under the Fair Labor Standards Act.

• Executives, administrators, professional (learned or creative) employees, computer employees, outside sales persons

• Non-exempt Employees– Employees who must be paid overtime under the

Fair Labor Standards Act.• Hourly• Salaried non-exempt

Who Is Exempt? Who Is Not Exempt?

• Exempt Professionals– Attorneys– Physicians– Dentists– Pharmacists– Optometrists– Architects– Engineers– Teachers– Certified public accountants– Scientists– Computer systems analysts

• Exempt Executives– Corporate officers– Department heads– Superintendents– General managers– Individual who is in sole

charge of an “independent establishment” or branch

• Exempt Administrators• Executive assistant to the

president• Personnel directors• Credit managers• Purchasing agents

Nonexempt– Paralegals– Non licensed accountants– Accounting clerks– Newspaper writers– Working

foreman/forewoman– Working supervisor– Lead worker– Management trainees– Secretaries– Clerical employees– Inspectors– Statisticians

Overview of Compensation Laws• The Equal Pay Act

– Passed as an amendment to the FLSA in 1963

– Prohibits sex discrimination in pay– Unequal pay is allowed for equal work under

circumstances that are based on differences in:

• Seniority• Productivity• Merit • Any factor other than sex

Overview of Compensation Laws (cont’d)

• Employee Retirement Income Security Act (ERISA)– The law that provides government protection of

pensions for all employees with company pension plans. It also regulates vesting rights.

– vesting rights:• Employees who leave before retirement may

claim compensation from the pension plan• The Age Discrimination in Employment

Act – Prohibits age discrimination against employees who

are 40 years of age and older in all aspects of employment, including compensation.

• The Age Discrimination in Employment Act – Prohibits age discrimination against

employees who are 40 years of age and older in all aspects of employment, including compensation.

Other legislation affecting compensation

• The Americans with Disabilities Act– Prohibits discrimination against

qualified persons with disabilities in all aspects of employment, including compensation.

The Family and Medical Leave Act• Entitles eligible employees, both men and women, to

take up to 12 weeks of unpaid, job-protected leave for the birth of a child or for the care of a child, spouse, or parent.

Compensation Policy Issues

• Workers’ compensation– Designed to provide financial protection for

individuals injured on the job– Compensation is provided for:

• Medical expenses• Lost wages from the time of injury until their

return to the job• Death, dismemberment, or permanent disability

– Payouts have more than tripled in the past 20 years.

• Much of this increase is due to fraud.– The fastest growing category of workers’

compensation claims is mental stress.

Corporate Policies, Competitive Strategy, and Compensation

• Aligned reward strategy

– The employer’s basic task is to create a bundle of rewards—a total reward package—specifically aimed at eliciting the employee behaviors the firm needs to support and achieve its competitive strategy.

– The HR or compensation manager will write the policies in conjunction with top management, in a manner such that the policies are consistent with the firm’s strategic aims.

Compensation Policy Issues• Pay for performance• Pay for seniority• The pay cycle• Salary increases and promotions• Overtime and shift pay• Probationary pay• Paid and unpaid leaves• Paid holidays• Salary compression• Geographic costs of living differences

Compensation Policy Issues (cont’d)

• Salary compression– A salary inequity problem,

generally caused by inflation, resulting in longer-term employees in a position earning less than workers entering the firm today.

• Geography– Employers handle cost-of-living

differentials way.– One is to give the transferred

person a nonrecurring payment.– Other pay differential in several

ways.

• IBM example.• It dominated its industry into the

1980s.• But by 1990s, it was failing to exploit

new technologies and losing touch with its customers.

• Its board hired Louis Gerstein as CEO.• Its first strategic aim was to

transform IBM from a sluggish giant to a lean winner.

IBM example To change this situation, Gerstner’s team made

four main change sin what become the firm's new strategic compensation plan.

• The Market place Rule:– The company switched from its pervious

single salary structure to new different salary structure and merit budget for different job families.

• Fewer job, evaluated differently, in broadband:

– Second, IBM scraped its point factor job evaluation system and its 24 traditional salary grade.

• Mangers manage:– Manger rank employees on a

variety of factors (such as critical skills and results).

– Manager decide which factors are used and weights they are given.

• Big stack for stockholders:– Every no executive employee’s

cash compensation consisted of base salary.

– There was no concept of pay for performance.

• A top-rated employee receives two-and-one-half times the award of an employee within the lowest ranking.

Equity and Its Impact on Pay Rates• Equity theory

– Formulated by J. Stacy Adams– People form equity beliefs based

on two factors:• Inputs (I)

– Refer to the perceptions that people have concerning what they contribute to the job (e.g., skill and effort)

•Outputs (O)

–Refer to the perceptions that people have regarding the returns they get (e.g., pay) for the work they perform

Equity and Its Impact on Pay Rates

• The equity theory of motivation– States that if a person perceives an

inequity, the person will be motivated to reduce or eliminate the tension and perceived inequity.

• Inequity– Occurs when the ratio of outputs to

inputs is perceived to be unequal– When employees’ O/I ratios are less

than that of their referent others, they feel they are being underpaid.

– When employees’ O/I ratios are greater, they feel they are being overpaid.

• Equity– Occurs when the ratio of outputs to

inputs is perceived to be equal

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

External Equity

Procedural Equity

Internal Equity

Individual Equity

Forms of Equity

External Equity

Procedural Equity

Internal Equity

Individual Equity

Forms of Equity

Forms of Equity• External equity

– How a job’s pay rate in one company compares to the job’s pay rate in other companies.

• Internal equity– How fair the job’s pay rate is, when

compared to other jobs within the same company

• Individual equity– How fair an individual’s pay as

compared with what his or her co-workers are earning for the same or very similar jobs within the company.

• Procedural equity– The perceived fairness of the process

and procedures to make decisions regarding the allocation of pay.

• Impact of equity perceptions on employee behavior– Responses to feeling underpaid:

• Decrease inputs• Escape the situation

– Responses to feeling overpaid:• Just as satisfying as equity• Somewhat dissatisfying, but not nearly

as dissatisfying as underpayment

Addressing Equity IssuesAddressing Equity Issues

Salary Surveys

Job Analysis and Job Evaluation

Performance Appraisal and Incentive Pay

Communications, Grievance Mechanisms, and Employees’

Participation

Methods to Address Equity

Issues

Salary Surveys

Job Analysis and Job Evaluation

Performance Appraisal and Incentive Pay

Communications, Grievance Mechanisms, and Employees’

Participation

Methods to Address Equity

Issues

The Salary SurveyThe Salary Survey

To price benchmark

jobs

To make decisions

about benefits

Step 1. The Wage Survey:Uses for Salary Surveys

To market-price wages

for jobs

To price benchmark

jobs

To make decisions

about benefits

Step 1. The Wage Survey:Uses for Salary Surveys

To market-price wages

for jobs