compensation used to serve organizations goals enhance employee needs but create profits relative...
TRANSCRIPT
Compensation
• Used to Serve Organizations Goals• Enhance Employee Needs but Create
Profits• Relative Worth of Job• Significant Part of HRM• Formal Policy Essential
Compensation Policy Objectives
• To Reward Past Performance• To Remain Competitive in
Marketplace• To Maintain Equity Among
Employees• To Motivate Future Performance• To Maintain a Realistic Budget• To Attract New Employees• To Reduce Turnover
Direct Compensation
Indirect Compensation
Total Compensation
Base Pay
• Wages
• Salary
Incentives
• Commissions
• Piece rate
• Bonuses
• Stock Options
• Profit Sharing
• Gainsharing
Pay for Time Not Worked
• Vacations
• Breaks
• Holidays
• Sick Days
• Jury Duty
Insurance Plans
• Medical
• Hospital
• Dental
• Life
• Surgical
Security Plans
• Pension
• Social Security
• Disability Insurance
Employee Services
• Educational Assistance
• Recreational Programs
• Food Services
Compensation Policy Concerns
• Pay a Fair Base Pay Rate• Reward Enhanced
Performance
Pay-for-Performance Standard
Standard by which managers tie
compensation to employee effort and
performance.
Pay-for-Performance Standard
• Merit Pay• Cash Bonuses• Incentive Pay• Goal: Increase Performance 15-
35%
Pay Equity
An employee’s perception that
compensation received is equal to the value of
the work performed.
Motivating Value of Compensation
• Pay Equity (Perception of fair value)
• Pay Expectancy (Rewards, Received = Expected)
• Pay Secrecy
Bases for Compensation
• Hourly• Monthly• Daily • Annual• Piecework• Straight Commission
Hourly Work
• Work paid on an hourly basis.
HOUR
Piecework
Work paid according to the number of units
produced.
FLSA Classification of Compensation
• Exempt(Management/Professional)
• Non-Exempt (hourly)• Pay: 1.5 times hourly rate over 40
hrs/week
Exempt Employee
Employees not covered by the overtime provisions
of the Fair Labor Standards Act.
“Management”
Nonexempt Employees
Employees covered by the overtime provisions
of the Fair Labor Standards Act.
“Labor”
Wage Mix
External and Internal Factors Affecting the Wage Mix
External Factors
Conditions of the labor market
Area wage rates
Cost of living
Collective bargaining
Government Influence
Internal Factors
Worth of job
Employee’srelative worth
Employer’s abilityto pay
Wage Mix
External Influences on Wage Rates
• Labor Market Conditions• Area Wage Rates (Surveys)• Cost of Living (CPI Adjustments)• Collective Bargaining• Government
Internal Influences on Wage Rates
• Worth of the Job• Employee's Relative
Worth (merit)• Employer's Ability to
Pay (competitiveness)
Consumer Price Index (CPI)
• Measure of the average change in prices over time in a fixed “market basket” of goods and services.
““Inflation Influence”Inflation Influence”
Escalator Clauses
• Clauses in labor agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments upon changes in the consumer price index.
Real Wages
• Wage increases larger than rises in the consumer price index; that is, the real earning power of wages.
Job Evaluation
Systematic process of determining the relative worth of jobs in order to
establish which jobs should be paid more
than others within an organization.
Job Evaluation
• Determine "Relative" Worth of Jobs
• Hierarchy of Jobs (ranking)• Assign Pay Rates• Purpose: Establish Internal Equity
Four Basic Systems
• Job Ranking• Job Grading• Point System• Factor Comparison
Job Ranking System
• Simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.
Job Ranking System
• Establish Committee• Define all Jobs• Identify Critical Factor
(Responsibilities of Importance)• Rank Every Job by Critical Factors
Job Classification System
• System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades.
Job Grade System
• Determine Number of Grades (e.g. 20)
• Describe Each Grade• Review Each Job Description• Fit Job into Grade
““Government”Government”
Point System
• Quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.
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Point System (Quantitative)
• Identify Compensatable Factors (e.g.)– Skill– Responsibility– Effort– Environment
• Establish Degree Within each Factor (e.g. 1-9)
• Create a Point Manual– Defines Factors (3-9)– Definitive Degrees (1-9)
• Analyze each Job• Assign Points• Rank by Points
Hay Profile Method
• Job evaluation technique using three factors – knowledge, mental activity, and accountability – to evaluate executive and managerial positions.
KnowledgeMental ActivityAccountability
Point Values for Job Factors of the National Metal Trades Association
Factors 1st Degree
2nd Degree
3rd Degree
4th Degree
5th Degree
Skill
1. Job knowledge 14 28 42 56 70
2. Experience 22 44 66 88 110
3 initiative and ingenuity 14 28 42 56 70
Effort
4. Physical demand 10 20 30 40 50
5. Mental or visual demand 5 10 15 20 25
Responsibility
6. Equipment or process 5 10 15 20 25
7. Material or product 5 10 15 20 25
8. Safety of others 5 10 15 20 25
9. Work of others 5 10 15 20 25
Job Conditions
10. Working conditions 10 20 30 40 50
11. Hazards 5 10 15 20 25SOURCE: Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA.
Description of Knowledge Factors and Degrees of the National Metal Trades Association
1. Knowledge
This factor measures the knowledge or equivalent training required to perform the position duties.
1st Degree
Use of reading and writing, adding and subtracting of while numbers; following of instructional use of fixed gauges, direct reading instruments, and similar devices where interpretation is not required.
2nd Degree
Use of addition, subtraction, multiplication, and division of numbers including decimals and fractions; simple use of formulas, charts, tables, drawings, specifications, schedules, wiring diagrams; use of adjustable measuring instruments; checking of reports, forms, records, and comparable data where interpretation is required.
3rd Degree
Use of mathematics together with the use of complicated drawings, specifications, charts, tables; various types of precision measuring instruments. Equivalent to one to three years applied trades training in a particular or specialized occupation.
4th Degree
Use of advanced trades mathematics, together with the use of complicated drawings, specifications, charts, tables, handbook formulas; all varieties of precision measuring instruments. Equivalent to complete accredited apprenticeship in a recognized trade, craft or occupation; or equivalent to a two-year technical college education.
5th Degree
Use of higher mathematics involved in the application of engineering principles and their performance of related practical operations, together with a comprehensive knowledge of the theories and practices of mechanical, electrical, chemical. Civil, or like engineering field. Equivalent to complete four years of technical college or university education.
SOURCE: Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA.
Factor Comparison System
• Similar to Point System• Distinguished by "Key Jobs"• Compensatable Factors
– Skill– Responsibility– Mental Effort– Working Conditions– Physical Effort
• Assign & Value to Factor• Each Job is Assigned a Factor• Add up Values to get Wage Rate
Characteristics of Key Jobs
• Have importance to employees and organizations
• Vary in terms of job requirements• Possess relatively stable job content• Are used as important jobs in salary
surveys
Compensation Structure
• Job Evaluation First• Assign a Wage Rate
Second• Base Rate on Wage
"Survey"• Geographical Area of
Worker Draw
Components of the Wage Structure
8.008.509.009.50
10.0010.5011.0011.5012.0012.5013.0013.5014.0014.5015.0015.5016.0016.5017.0017.5018.00
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J ob Classifications or Wage Classes
Wag
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Minimum Wage Wage Curve Maximum Rate
Wage Classes
Range Steps
Midpoint of
Range
Rate
R
an
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Ran
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Overl
ap
Wage andSalary Survey
• Surveys of the wages paid to employees of other employers in the surveying organization’s relevant labor market.
Wage and Salary Surveys
1. Select key jobs.2. Determine relevant labor market.3. Select organizations.4. Decide on information to collect:
wages/benefits/pay policies.5. Compile data received.6. Determine wages and benefits to
pay.
Wage Curve
• Curve in a scattergram representing the relationship between relative worth of jobs and wage rates.
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W orth ofJ obs
W age Rates
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Point Value of Jobs
Survey Data
• Government Statistical Survey
• Employer Initiated Survey
• By Job Classification• World Wide Web
Pay Grades
Groups of jobs within a particular class that are
paid the same rate or rate range.
SINGLE RATE STRUCTURE
Organization wage curve
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Evaluated Points
Wag
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1 2 3 4 5 6 7 8
Wage Classes
Point Conversion Table
Wage Class Point Range Hourly Rate Range
1 101-150 $14.25-15.502 151-200 $15.25-16.503 201-250 $16.25-17.504 251-300 $17.25-18.505 301-350 $18.25-19.506 351-400 $19.25-20.507 401-450 $20.25-21.508 450-500 $21.25-22.50
Wage Structure withIncreasing Rate Ranges
Issues in Rate Structures
• Wage Rate Compression• Narrow Difference from Job to Job• White-Grey-Blue Collar Impact• Low Morale/Turnover/Behavior• Two Tier Wage Systems• A/B Scales• Time of Employment• Grandfathering• Cost of Living Comparison (COLA)
Government Regulations
• Overtime Mandate (1 1/2 times over 40 hours)
• Pay Prevailing Rates in Area• Minimum Wages• Child Labor (16-19 yrs)• Equal Rights for All
Comparable Worth
• The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same.
Wage-Rate Compression
• Compression of differentials between job classes, particularly the differential between hourly workers and their managers.
Advantages ofIncentive Pay Programs
• Employee effort is focused on important targets
• Rewards are variable costs linked to results
• Incentives are directly related to improved performance
• Incentives reward those responsible for higher performance
Straight Piecework
• Incentive plan under which employees receive a certain rate for each unit produced.
Differential Piece Rate
• Compensation rate under which employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount.
Employee Opposition to Incentive Plans
• Production standards are set unfairly.• Incentive plans are really “work speedup.”• Incentive plans create competition among
workers.• Increased earnings result in tougher
standards.• Payout formulas are complex and difficult
to understand.• Incentive plans cause friction between
employees and management.
Six Components ofEffective Incentive Plan
Administration1. Grant incentives based on
performance2. Adequate financial resources to
reward performance3. Clearly defined and accepted
performance standards4. Easily understood payout formula5. Reasonable administrative costs6. Wide coverage of employees
Merit Guidelines
Guidelines for awarding merit raises that are ties
to performance objectives.
Motivating ThroughMerit Raises
Bonus
• Incentive payment that is supplemented to the base wage.
Team or Group Incentive Plan
Compensation plan where all team members receive
an incentive bonus payment when productive or services standards are
met or exceeded.
Standard Hourly Plan
• Incentive plan that sets rates based upon the completion of a job in a predetermined standard time.
Criticisms of Executive Incentive Plans
• Incentive payments are excessive compared with return to stockholders.
• Time periods for judging and rewarding performance are too short.
• Quarterly earnings growth is emphasized at the expense of research and development.
• Emphasis is placed upon equaling or exceeding executive salary survey averages.
• Benefits do no relate closely to individual performance
Perquisites
Special benefits given to executives; often
referred to as perks.
Executive Perquisites• Company-provided car• Free financial consulting• Club memberships• Use of company plane and yacht• Low-cost or no-cost loans• Special travel allowances• Limousine service• Kidnap and ransom protection• Free legal counseling• Family member travel allowances• Home entertainment allowance• Payment of children’s educational expense• Executive dining room• Estate planning
StraightCommission
Plan
Compensation plan based upon a
percentage of sales.
Straight Salary Plan
Compensation plan that permits salespeople to be paid for performing various duties that are
not reflected immediately in their
sales volume.
Combined Salaryand
Commission Plan
Compensation plan that includes a straight salary
and a commission.
Gainsharing Plans
Programs under which both employees and the organization
share the financial gains according to a predetermined formula that
reflects improved productivity and profitability.
Profit Sharing
Any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay,
special current or deferred sums based
upon the profits of the enterprise.
Relationship of CompensationManagement to Other HRM
Functions
Compensation Hot Links
Abbott, Langer, and Associates
ERI
Hewitt Associates
Office Team
Robert Half
America’s Job Bank
World at Work (Formerly ACA)
