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4-1

A Human Resource A Human Resource Management ApproachManagement Approach

STRATEGIC STRATEGIC COMPENSATIONCOMPENSATION

Prepared by David Oakes

Chapter Chapter 4 4

Traditional Bases for Pay: Traditional Bases for Pay: Seniority and MeritSeniority and Merit

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4-2

Collective BargainingCollective Bargaining

Designed to: Negotiate labor contracts Provide grievance procedures

Led to: Job control unionism Collective bargaining units Union shops

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4-3

Seniority PaySeniority Pay

Designed to award job tenure

Set base pay with time- designated increases

Facilitates administration of pay

Avoids perception of favoritism Poor fit with most competitive strategies

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4-4

Longevity PayLongevity Pay

Designed to Pay grade maximum for length of service To reduce employee turnover

Used for most government employees

General Schedule System for federal employees

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4-5

General ScheduleGeneral Schedule

Divided into 15 Steps

Based on skills, education, & experience levels

Employees eligible for 10 within-grade pay increases Step waiting periods of 1-3 years

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4-6

Merit Pay PlansMerit Pay Plans

Pay increases based on performance Reward excellent effort or results Motivate future performance Helps retain valued employees In 2004, raises averaged 3.5%

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4-7

Elements of Merit PayElements of Merit Pay

Based on objective & subjective indicators of job performance

Periodic performance reviews

Realistic & attainable standards

Pay increases reflect performance

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4-8

Performance Appraisal PlansPerformance Appraisal Plans

Trait systems

Comparison systems

Behavioral systems

Goal - oriented systems

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4-9

Trait System CharacteristicsTrait System Characteristics

Work quality

Appearance

Dependability

Cooperation

Initiative

Judgment

Leadership responsibility

Decision-making ability

Creativity

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4-10

Comparison SystemsComparison Systems

Rates & ranks performance Pay raises based on ranking

Types Forced distribution Paired comparisons

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4-11

Behavioral SystemsBehavioral Systems

Critical-incident technique (CIT)

Behaviorally-anchored rating scales

(BARS) Behavioral observation scales (BOS)

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4-12

Critical Incident TechniqueCritical Incident Technique

Employees & supervisors identify & label job behaviors & results

Supervisors observe & record

Requires extensive documentation

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4-13

Behaviorally-Anchored Rating Behaviorally-Anchored Rating ScalesScales

Based on 8 - 10 expected job behaviors

Employees rated on ability to

perform each behavior

Ratings highly defensible

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4-14

Behavioral Observation ScalesBehavioral Observation Scales

Documents positive performance behaviors on job dimensions

Employees rated on exhibited behaviors

Ratings averaged for over-all rating

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4-15

Goal - Oriented SystemGoal - Oriented System

Management- by-Objectives Supervisors & employees set objectives Highly effective technique Rated on how well objectives are met Mainly for professionals & managers

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4-16

Performance Appraisal PracticesPerformance Appraisal Practices

Conduct a job analysis

Incorporate results into ratings

Trains supervisors on use

Implement Formal appeals process

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4-17

Sources of Performance Appraisal Sources of Performance Appraisal InformationInformation

Employee

Supervisor

Coworkers

Subordinates

Customers/clients

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4-18

360 Degree Performance Appraisal360 Degree Performance Appraisal

Uses more than one appraisal source

Reduces recruiting & hiring costs

Appropriate for work team evaluations

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4-19

Common Raters’ ErrorsCommon Raters’ Errors

Bias errors

Contrast errors

Errors of central tendency

Errors of leniency or strictness

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4-20

Bias ErrorsBias Errors

First-impression effect Positive halo effect Negative halo effect Similar-to-me effect Illegal discriminatory biases

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4-21

Contrast ErrorsContrast Errors

Supervisor compares employees’

performances to other employees, not

to explicit performance standards

What if the best employee is average?

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4-22

Errors of Central TendencyErrors of Central Tendency

Supervisors rate all employees as average

Usually occurs when only extreme

behaviors require documentation

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4-23

Errors of LeniencyErrors of Leniency

Leniency errors-managers rate employees’ performances more highly than they would rate them using objective criteria

Causes employees to believe they are going to receive larger pay raises than they deserve

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4-24

Pay For Performance LinkPay For Performance Link

Link appraisals to business goals Analyze jobs Communicate Establish effective appraisals Empower employees Differentiate among performers

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4-25

Limitations of Merit Pay ProgramsLimitations of Merit Pay Programs

Failure to differentiate

Poor measures

Supervisor biases

Poor communication

Undesirable social structures

Using non-merit factors Undesirable competition

Motivational value small

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4-26

Competitive Strategies Competitive Strategies

Lowest-Cost Reduce output costs per employee Merit pay works if tied to long - term productivity

Differentiation Make product or service unique Merit pay can promote creativity

and risk-taking