copyright © 2010 pearson education, inc. publishing as prentice hall10-1 human resource management...

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 10-1

Human Resource Management

Chapters 10, 11, 12

Compensation and Benefits


Compensation

The monetary and nonmonetary rewards employees receive in exchange for the work they do for an organization


Total Compensation

Monetary rewards Direct compensation includes hourly wages, salaries, incentives, merit raises, bonuses, and commissions

Nonmonetary rewards Indirect compensation includes health care,

vacations, lunches, training, etc.

“Total Rewards” equals the total compensation package employees receive


Major Strategic Compensation Decisions

1. What to pay? (pay structure)

2. How to pay individuals? (pay for individuals) (variable pay plans and skill-based pay plans)

3. What benefits to offer?


1. What to Pay –Equity Theory

Employees are motivated to work harder when compensation is at the right level for the work performed

1. Input = Output2. I/O(self) = I/O comparative other

When employees are faced with “inequity” they will try to resolve it

Stop working as hard as they once did Rationalizing why there is inequity Quit their jobs


Equity and Its Impact on Pay Rates

Individual Equity

I=OProcedural

Equity

Internal Equity

I/O self=I/O others (within

company)

ExternalEquity

I/Oself=I/O (comparable other companies)

Forms of Equity


1. What to Pay – Internal Equity/Alignment

Each job in a company is valued appropriately relative to every other job

The worth of the job to the organization Pay rates are assigned to jobs Process is done through job evaluation:

• Job ranking• Job classification• Point factor• Factor comparison


1. Job Ranking

Ranking each job relative to all other jobsRanking each job relative to all other jobs, , usually based on some overall factorusually based on some overall factor like “job like “job difficulty”difficulty”..

Fairly hard to do in a large company Largely subjective


TABLE 11–3 Job Ranking by Olympia Health Care

Ranking Order Annual Pay

Scale

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


2. Job Classification

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

Administrative assistants Grades are jobs similar in difficulty but otherwise

different.Mechanics, welders, electricians, and machinists

Wage range is attached to each classification reflecting relative worth of the job in that classification


3. Point Method First identify a set of factors for which the

company is willing to pay—called “compensable factors”

Then identify the degree to which each compensable factor is present in the job

Award points for each degree of each factor Calculate a total point value for the job by

adding up the corresponding points for each factor


Point Values


Example: Mercer’s International Position Evaluation System (IPE) 5 Factors, 12 Dimensions

Organisation

Impact

Contribution

Communication

Frame

Innovation

Complexity

Knowledge

Team

Breadth

Position

1. Impact

2. Communication

3. Innovation

4.Knowledge

Risk

Environment

5. Risk

The organization context specific to the position is sized by a monetary scale such as sales or assets, range of activity and number of employees. Then Impact and relative Contribution to overall results of this context is measured.

The organization context specific to the position is sized by a monetary scale such as sales or assets, range of activity and number of employees. Then Impact and relative Contribution to overall results of this context is measured.

The responsibility for Communication within as well as outside of the organization

The responsibility for Communication within as well as outside of the organization

Assess the exposure to risk of mental or physical injury in the job. No points are yielded if work conditions meet international standards.

Assess the exposure to risk of mental or physical injury in the job. No points are yielded if work conditions meet international standards.

Relates to the knowledge level required, how this is applied in teams and the geographical and intellectual breadth wherein the job accomplish objectives and create value.

Relates to the knowledge level required, how this is applied in teams and the geographical and intellectual breadth wherein the job accomplish objectives and create value.

The specific requirements for improvements to procedures, services, or products as well as to development of new ideas, methods, techniques, services and products.

The specific requirements for improvements to procedures, services, or products as well as to development of new ideas, methods, techniques, services and products.


Impact Org. Size 4 207 Impact 5

Contribution 2

Communication Communication 5 115Frame 4

Innovation Innovation 4 75Complexity 3

Knowledge Knowledge 6 195

Teams 3

Breadth 1

TOTAL POINTS 592

POSITION CLASS 62

Degree Point


48 Position ClassPozisyon

SınıfıPozisyon

SınıfıPozisyon

Sınıfı

26 - 50 40 426 - 450 56 826 - 850 72

51 - 75 41 451 - 475 57 851 - 875 73

76 - 100 42 476 - 500 58 876 - 900 74

101 - 125 43 501 - 525 59 901 - 925 75

126 - 150 44 526 - 550 60 926 - 950 76

151 - 175 45 551 - 575 61 951 - 975 77

176 - 200 46 576 - 600 62 976 - 1000 78

201 - 225 47 601 - 625 63 1001 - 1025 79

226 - 250 48 626 - 650 64 1026 - 1050 80

251 - 275 49 651 - 675 65 1051 - 1075 81

276 - 300 50 676 - 700 66 1076 - 1100 82

301 - 325 51 701 - 725 67 1101 - 1125 83

326 - 350 52 726 - 750 68 1126 - 1150 84

351 - 375 53 751 - 775 69 1151 - 1175 85

376 - 400 54 776 - 800 70 1176 - 1200 86

401 - 425 55 801 - 825 71 1201 - 1210 87

Toplam Puan Aralığı



Pozisyon Sınıfı dış dünyayla karşılaştırmak

için ortak bir dil oluşturur


What happens to the organizations after the evaluation?

Position size

S

S-1

S-1

S-1S-1

S-2

S-2S-2

S-2

S-2

S-2

S-2

S-2

S-3

S-3

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

S

S-1

S-2

S-2

S-3

S-3

S-1

S-2

S-2

S-1

S-2

S-2

Grade

Position size

11

12

13

14

15

10

S-2

S-2

S-1

Constructing the GradesConstructing the Grades


BroadbandingBroadbanding

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


4. Factor Comparison Ranking jobs in relation to each other on factors

like mental or physical requirements, skill, responsibility, and working conditions

Combines job ranking and the point method It breaks down the wage into smaller parts Monetary rates are included, so as the market

changes, it needs to be updated


Factor Comparison Hourly rate Skill Responsibility Working

Conditions

Carpenter assistant $12 $7 $2 $3 Carpenter $18 $10 $5 $3 Senior Carpenter $25 $12 $8 $5 Supervisor $30 $15 $10 $5


1. What to Pay – External Equity

The competitiveness of the company’s pay relative to pay elsewhere in the industry

Determined through salary surveys

Affects how attractive the firm is to potential employees

Also affects attitude and motivation of current employees


Salary Surveys

Provides a systematic way to collect information about wages in the external labor market

Mean, median, upper and lower quartiles

Companies can conduct their own surveys or purchase survey data

Should look at companies in same industry and other industries that might be competing with you for employees

Should come from appropriate geographic labor market


Company Pay Policy Firms can pay at the market level (follow),

above the market (lead), or below the market (lag)

Choose organizational position Pay leaders

Greater employee loyalty Attracts better-quality employees Drawback- high operating costs

Pay laggards – accept high turnover for low hourly costs


Salary Structure Base pay (fixed amount paid) increases based on:

COLA(cost of living adjustment) which is determined by CPI(consumer price index) ( TÜFE)

Merit increases—salary increase based on how well employee has performed (performance evaluation)

Variable pay – (part of the pay that changes depending on individual and company performance) includes bonuses, commissions, and stock options

Company strategy determines the mix of base and variable pay Low-cost strategy –percentage of base pay is higher Differentiation strategy – percentage of variable pay is higher


2. How to Pay - Variable Pay Programs (job based)

A portion of an employee’s pay is based on some individual and/or organizational measure of performance.

Earnings fluctuate according to performance. Turns part of fixed labor costs into variable cost thus

reduce expenses when performance declines.Bonuses (usually annual):

Rewards recent performance (when profits improve) rather than historical performance

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2. How to Pay - Variable Pay Programs (Skill-Based, Competency-Based)

Require employees to acquire certain skills, knowledge or competencies to receive an increase

Person oriented rather than job oriented Rewards employees for learning organizationally relevant knowledge

Benefits :Provide staffing flexibilityLessen “protection of territory” behaviors

Drawbacks:Paying for a skill, not for performance of the skillExamples:Examples:

Rewarding the waitress for memorising the menuRewarding the waitress for memorising the menu Rewarding the programmer as he masters the skill of writing Rewarding the programmer as he masters the skill of writing

new relevant programs new relevant programs

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2. How to Pay - Incentives

To motivate employees to work as hard as possible to reach goals

To focus employees on outcomes desired—based on individual performance, team performance, or company performance


Employee Incentive PlansIndividual Employee Incentive

Plans

Sales Compensation Programs

Organizationwide Incentive Programs

Executive Incentive Compensation Programs

Team/Group-based Variable Pay Programs

Pay-for-PerformancePlans


Types of Incentive Plans Individual

Merit Pay Programs—employees receive a compensation adjustment based on results of their performance evaluation Permanently raises base salary and company’s costs Rewards employees for past performance

Lump-Sum Merit Bonuses—one-time payment for performance not rolled into employees’ salaries


Types of Incentive Plans Individual (cont’d)

Piecework Incentive Plans—reward employees for future performance

Straight piecework plan—receive a certain rate of pay for each unit produced

Differential piecework plan—the pay received per unit produced changes at certain levels of output


Types of Incentive Plans Individual (cont’d) - Spot Awards

Manager gives awards “on the spot” when they see certain behaviors exhibited by employees

Can be cash or non-cash like merchandise, gift certificates, paid time off, etc.

Recognition programs like employee-of-the-month can also be used


Sales Incentive Plans Straight commission plan—pays

an employee a percentage of the total sales they generate

Straight salary plans—employees receive a set compensation (employees may not be as motivated to sell as much as they can)

Mixed salary/commission plan—employees receive a lower base salary (50%) and the remaining is commission based


Team/Group Incentive PlansTeam/Group Incentive Plans Team (or Group) Incentive Plans

Incentives are based on team’s performance.

How to Design Team Incentives

Members are paid based on one of three formulas:

All receive the same pay earned by the highest producer.

All receive the same pay earned by the lowest producer.

All receive the same pay equal to the average pay earned by the group.

Potential for “free riders” (social loafers) who do not work as hard as others

Gain sharing plans—designed to help increase a company’s efficiency by rewarding teams that exceed productivity levels with a share of the gains realized


Organizationwide Incentive Plans

Profit Sharing Plans: Company profits are shared with employees: Encourages collaboration and teamwork Paid only when a company is doing well

Ownership plans Stock option plans—provides employees the right to

purchase shares of their company stock at some established price for period of time


Executive Incentive Compensation Plans

Base pay

(fixed salary)

Executive benefits/perk

s(insurance, retirement

plans)

Short-term incentives

(yearly bonuses)

Long-term incentives

(purchasing stocks)

Compensating Executives and

Managers


Company Characteristics and Compensation

Small firms may pay less-than-market wages Small firm may not have high merit pay but use

incentives like profit sharing or bonuses to link individual performance to company performance

Established firms have more resources to pay at or above market

Whether a job is a core job or a support position affects pay decisions

Larger companies have more resources and more complex pay systems


Environmental Influences Labor supply—when market is tight, companies

have to pay higher wages to attract and retain employees


3. What Benefits to Offer

Mandatory BenefitsSocial SecurityWorkers’ compensationUnemployment compensationFamily and medical leave

Voluntary BenefitsHealth and WellnessLife ManagementRetirement


Insurance Benefits

Life and HealthLife and Health

Dental and VisionDental and Vision

DisabilityDisability

Long-Term CareLong-Term Care


3. What Benefits to Offer - Flexible Benefits

Employees tailor their benefit program to meet their personal need by picking and choosing from a menu of benefit options.

Individualize rewards according to different needs (extra vacation time, medical plan, life insurance, company car vs. cash etc.) Rewarding according to individuals’ goals and needsModular Plans Predesigned benefits packages for specific groups of employees (ex.

Packages for single employees or employees with children) Core-Plus Plans A core of essential benefits and a menu-like selection of other benefit

options (%60 to %40)Cafeteria Cafeteria (Flexible Benefits) Approach(Flexible Benefits) Approach Each employee is given a limited benefits fund budget Each employee is given a limited benefits fund budget

to spend on preferred benefits.to spend on preferred benefits.

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copyright © 2010 pearson education, inc. publishing as prentice hall10-1 human resource management...

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job relative

job evaluation

job difficulty

job classificationraters

job rankingranking

pay rateswhat

total rewards

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