chapter 11(establishing strategic pay plans)

Human Resource Management

TWELFTH EDITION

G A R Y D E S S L E R

B I J U V A R K K E Y

Copyright © 2011 Dorling Kindersley (India) Pvt. LtdAuthorized adaptation from the United States edition of Human Resource Management, 12/e

Establishing Strategic Pay Plans

Chapter 11

Part 4 | Compensation


11–2

Basic Factors in Determining Basic Factors in Determining Pay RatesPay Rates

Direct Financial Payments

Indirect Financial Payments

Employee Compensation


11–3

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

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


11–4

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


11–5

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

External Equity

Procedural Equity

Internal Equity

Individual Equity

Forms of Equity


11–6

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


11–7

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.


11–8

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


11–9

Sources for Salary SurveysSources for Salary Surveys

Employer Self-Conducted

Surveys

Government Agencies

Consulting Firms

Sources of Wage and Salary Information

Professional Associations

The Internet


11–10

TABLE 11–1 Some Pay Data Web Sites

Sponsor Internet Address What It Provides Downside

Salary.com Salary.com Salary by job and zip code, plus job and description, for hundreds of jobs

Adapts national averages by applying local cost-of-living differences

Wageweb www.wageweb.com Average salaries for more than 150 clerical, professional, and managerial jobs

Charges $169 for breakdowns by industry, location, etc.

Paycheck India and WageIndicator

www.paycheck.in Input current salary and use salary checker

Based on gross earnings.

HT www.shine.com Salary by job, designation Based on gross earnings

moving.com moving.com Median salaries for thousands of jobs, by city

Doesn’t consider factors like company size or benefits

cnnmoney.com cnnmoney.com Input your current salary and city, and this gives you comparable salary in destination city

Based on national averages adapted to cost of living differences


11–11

Establishing Pay Rates (continued)Establishing Pay Rates (continued)

Skills

Effort

Responsibility

Working Conditions

Step 2. Job Evaluation:Identifying

Compensable Factors


11–12


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


11–13


RankingFactor

ComparisonJob

Classification

Methods for Evaluating Jobs

Point Method


11–14

Job Evaluation Methods: RankingJob Evaluation Methods: Ranking

• Ranking each job relative to all other jobs, Ranking each job relative to all other jobs, usually based on some overall factor.usually 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.


11–15

TABLE 11–2 Job Ranking by Olympia Health Care

1. Office manager $43,000

2. Chief nurse 42,500

3. Bookkeeper 34,000

4. Nurse 32,500

5. Cook 31,000

6. Nurse’s aide 28,500

7. Orderly 25,500

Ranking Order Annual Pay Scale


11–16

Job Evaluation Methods: Job Evaluation Methods: Job ClassificationJob Classification

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

Administrative assistantsAdministrative assistants

Grades are jobs similar in difficulty but otherwise Grades are jobs similar in difficulty but otherwise different.different. Mechanics, welders, electricians, and machinistsMechanics, welders, electricians, and machinists

Jobs are classed by the amount or level of Jobs are classed by the amount or level of compensable factors they contain.compensable factors they contain.


11–17

FIGURE 11–3 Example of a Grade Level Definition

Source: www.opm.gov/fedclass/gscler.pdf. Accessed May 18, 2007.

This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart.


11–18

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 Identifying the degree to which each compensable factor is present in the job.factor is 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 Calculating a total point value for the job by adding up the corresponding points for each factor.up the corresponding points for each factor.


11–19


Point Method

Ranking Method

Classification Methods

Step 3. Group Similar Jobs

into Pay Grades


11–20


• Step 4. Price Each Pay Grade—Wage Curve Step 4. Price Each Pay Grade—Wage Curve

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

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


11–21

FIGURE 11–4Plotting a Wage Curve


11–22


• Step 5. Fine-Tune Pay RatesStep 5. Fine-Tune Pay Rates

Developing pay rangesDeveloping pay ranges Flexibility in meeting external job market rates.Flexibility in meeting external job market rates.

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

Allows for rewarding performance differences and seniority.Allows 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 for Raising underpaid jobs to the minimum of the rate range for

their pay grade.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 grade.jobs to maximum in the pay range for their pay grade.


11–23

FIGURE 11–5Wage Structure


11–24

TABLE 11–3 U.S. Federal Government Pay Scales

Source: http://opm.gov/oca/07tables/pdf/DFW.pdf. Accessed May 18, 2007.


11–25

FIGURE 11–6CompensationAdministrationChecklist

Source: Reprinted from www.HR.BLR.com with permission of the publisher Business and Legal Reports Inc., 141 Mill Rock Road East, Old Saybrook, CT © 2004.


11–26

Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs

Base Pay

Executive Benefits and

Perks

Short-term Incentives

Long-Term Incentives

Compensating Executives and Managers


11–27

Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs

• What Really Determines Executive Pay?What Really Determines Executive Pay? CEO pay is set by the board of directors taking into CEO pay is set by the board of directors taking into

account factors such as the business strategy, account factors such as the business strategy, corporate trends, and where they want to be in the corporate trends, and where they want to be in the short and long term.short and long term.

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

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


11–28

Compensating Professional EmployeesCompensating Professional Employees

• Employers can use job evaluation for Employers can use job evaluation for professional jobs.professional jobs.

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

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

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


11–29

Competency-Based PayCompetency-Based Pay

• CompetenciesCompetencies Demonstrable characteristics of a person, including Demonstrable characteristics of a person, including

knowledge, skills, and behaviors, that enable knowledge, skills, and behaviors, that enable performance.performance.

• What is Competency-Based Pay?What is Competency-Based Pay? Paying for the employee’s range, depth, and types of Paying for the employee’s range, depth, and types of

skills and knowledge, rather than for the job title he skills and knowledge, rather than for the job title he or she holds.or she holds.


11–30

Competency-Based Pay Competency-Based Pay (continued)(continued)

Support High-Performance

Work Systems

Support Performance Management

Why Use Competency-Based Pay?

Support Strategic Aims


11–31

Competency-Based Pay in PracticeCompetency-Based Pay in Practice

• Main elements of skill/competency/knowledge–Main elements of skill/competency/knowledge–based pay programs:based pay programs:

1.1. A system that defines specific skills, and a process A system that defines specific skills, and a process for tying the person’s pay to his or her skill.for tying the person’s pay to his or her skill.

2.2. A training system that lets employees seek and A training system that lets employees seek and acquire skills.acquire skills.

3.3. A formal competency testing system.A formal competency testing system.

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


11–32

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 Costs of paying for unused knowledge, skills, and behaviorsbehaviors

Complexity of programComplexity of program

Uncertainty that the program improves productivityUncertainty that the program improves productivity


11–33

Other Compensation TrendsOther Compensation Trends

• BroadbandingBroadbanding

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

Pro and ConsPro and Cons More flexibility in assigning workers to different job grades.More flexibility in assigning workers to different job grades.

Provides support for flatter hierarchies and teams.Provides support for flatter hierarchies and teams.

Promotes skills learning and mobility.Promotes 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.


11–34

FIGURE 11–7Broadbanded Structure and How It Relates to Traditional Pay Grades and Ranges


11–35

Other Compensation Trends (continued)Other Compensation Trends (continued)

• Comparable WorthComparable Worth Refers to the requirement to pay men and women Refers to the requirement to pay men and women

equal wages for dissimilar jobs that are of equal wages for dissimilar jobs that are of comparable (rather than strictly equal) value to the comparable (rather than strictly equal) value to the employer.employer.

Seeks to address the issue that women have jobs Seeks to address the issue that women have jobs that are dissimilar to those of men and those jobs are that are dissimilar to those of men and those jobs are often consistently valued less than men’s jobs.often consistently valued less than men’s jobs.


11–36

The Pay GapThe Pay Gap

• Factors Lowering the Earnings of Women:Factors Lowering the Earnings of Women:

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

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

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

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.


11–37

Improving Productivity Through HRIS: Improving Productivity Through HRIS: Automating Compensation AdministrationAutomating Compensation Administration

• Benefits of Compensation Automation:Benefits of Compensation Automation:

Allows for quick updating of compensation programs.Allows for quick updating of compensation programs.

Eliminates costs of formerly manual processes.Eliminates costs of formerly manual processes.

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

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

chapter 11(establishing strategic pay plans)

Education

dorling kindersley india

ltdauthorized adaptation

pay policies

pay cycle salary

probationary pay

performance pay

pay ratesconduct

pay rates steps