Human Resource Management

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Human Resource Management

• Compensation and Benefits

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Compensation

• Hot topics
• Compensation Management
• Benefits

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Hot or Warm Topics

• Executive compensation - Are corporate
  executives overpaid or underpaid?
• Sex discrimination and comparable worth
• Open vs. secret pay plans
• Skill-based compensation plans
• Team vs. individual pay

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Executive Compensation (2012)

• Rank Name Company Pay (mil) 5-Yr Pay
  (mil)
• 1 John H Hammergren McKesson 131.19 285.02
• 2 Ralph Lauren Ralph Lauren 66.65 204.06
• 3 Michael D Fascitelli Vornado Realty 64.40
• 4 Richard D Kinder Kinder Morgan 60.94 60.94
• 5 David M Cote Honeywell 55.79 96.11
• 6 George Paz Express Scripts 51.525 100.21
• 7 Jeffery H Boyd Priceline.com 50.185 90.3
• 8 Stephen J Hemsley UnitedHealth
  Group 48.835 169.3
• 9 Clarence P Cazalot JrMarathon Oil 43.71 67.23
• 10 John C Martin Gilead Sciences 43.19 214.92
• 11 John D Wren Omnicom Group 42.625 110.41
• 12 James Dimon JPMorgan Chase 41.995 140.92
• http//www.forbes.com/lists/2012/12/ceo-compensati
  on-12_land.html

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Executive Compensation (2008)

• Average compensation for 200 chief executives at
  America's largest public companies was 10.8
  million
• Sanjay Jha Motorola 104.4 million
• Larry Ellison Oracle 84.6 million
• Robert Iger Walt Disney 51.1 million
• Kenneth Chenault American Express 42.8 million
• Vikram Pandit Citigroup 38.2 million
• Mark Hurd Hewlett-Packard 34.0 million
• Jack Fusco Calpine 32.7 million
• Rupert Murdoch News Corp. 30.1 million
• David Cote Honeywell International 28.7 million
• A.G. Lafley Procter Gamble 25.6 million

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CEO Compensation Compared to Average Production
Worker

• 2011 380 to 1
• 2007 344 to 1
• 2006 364 to 1
• 2005 465 to 1
• 2004 431 to 1
• 2003 301 to 1
• 2001 525 to 1
• 1990 107 to 1
• 1982 42 to 1
• 1970 28 to 1
• Since 1990, if the minimum wage rate had risen at
  the same rate as CEO pay, minimum wage would now
  be 23.03 instead of 7.25.
• http//money.cnn.com/2012/04/19/news/economy/ceo-p
  ay/index.htm/

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Europe's 25 Highest-Paid CEOs(2005)

• 1. Lindsay Owen-Jones, L'Oreal (France),
  28.3M2. John Browne, BP (Britain), 14.0M3.
  Arun Sarin, Vodaphone (Britain), 12.2M4. Henri
  De Castries, AXA (France), 9.1M5. Josef
  Ackermann, Deutsche Bank (Germany), 8.4M
• http//www.timeinc.net/fortune/information/pressce
  nter/fortune/press_releases/20050627H_europe.html
• (2013) Euros
• Martin Winterkorn Volkswagen (VW) 16,596,206
• Joseph Jimenez Novartis 12,544,596
• Alfredo Saenz Abad Bank of Santander 10,723,000
• Bernard Arnault LVMH 10,696,670
• Peter Voser Royal Dutch Shell 10,208,000
• http//www.topafric.com/index.php/en/site-map/421-
  top-10-best-paid-ceos-in-europe.html

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Change CEO Pay/ Relative to 1988-2005 Worker
Pay (2005)US CEO (2005) Australia 292 15.6
33 Belgium 157 18 46 Canada 152
23.1 49 France 197 22.8 56 Germany
187 20.1 55 Italy 232 25.9 53
Japan 8 10.8 25 Netherlands118 17.8
40 New Zealand -- 24.9 18 Spain 98
17.2 32 Sweden 304 19.2 44
Switzerland172 19.3 64 UK 161 31.8
55 US 169 39 Ratio of CEO compensation
to the compensation of manufacturing production
workers. Source Authors analysis of Towers
Perrin (1988, 2003, and 2005).
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http//www.pay-equity.org/info-time.html
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Median Annual Earnings of Full-time Workers
(Bureau of Labor Statistics, 2000 census)
Male Female
Physicians, surgeons 140,000
88,000 Lawyers 90,000 66,000 Judges,
magistrates 88,000 50,000 Actuaries
80,000 56,000 Pharmacists 70,000
63,000 Teacher assistants 20,000
15,000 Cooks 17.000 15,000
http//gblakely.com/BADM553/censr-15.pdf
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Compensation Goals

• Attracting good employees
• Retaining good employees
• Motivating employees
• Complying with the law
• Having a cost effective compensation system

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Compensation and theThree Equities

• External Equity
• Attracting good employees
• Internal Equity
• Retaining good employees
• Individual or Employee Equity
• Motivating employees

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External Equity

• Attracting good employees
• Labor Market Model
• Market Surveys
• http//www.bls.gov/emp/ep_data_occupational_data.h
  tm
• http//www.bls.gov/oes/current/oes_nat.htm
• http//swz.salary.com/
• Pay strategy/policies

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Internal Equity

• Retaining good employees
• Job Evaluation
• General Basis
• Skill
• Effort
• Responsibility
• Working Conditions

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Internal Equity

• Job Evaluation Techniques
• Ranking
• Jobs are compared to each other based on their
  overall worth to the company. The worth of a
  job is usually measured by judgments of skill,
  effort, responsibility, and working conditions.
• The advantage of the ranking method is that it is
  simple.
• The disadvantages, similar to the ranking method
  of performance appraisal, are that the intervals
  between the ranks are assumed to be equal, the
  judgments are global, and as the number of jobs
  for evaluation increases it becomes increasingly
  difficult. Also, the evaluators must have
  knowledge of all jobs.

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• Classification method
• Jobs are classified into a grade/category
  structure. Each tier of the structure has a
  description and associated job titles. For
  example, the Westinghouse system had
• Grade 1 Unskilled ex. File clerk
• Grade 2 Skilled ex. Typist, lathe operator
• Grade 3 Interpretive ex. Chief clerk
• Grade 4 Creative ex. Engineers, sales reps
• Grade 5 Executive ex. Department heads
• Grade 6 Administrative ex. Chief engineer,
  Director of RD
• Grade 7 Policy ex. Vice-president of Marketing
• Each job is assigned to the grade/category
  providing the closest match to the job.
  Standards are developed mainly along occupational
  lines. The standards help identify and describe
  key characteristics of occupations that are
  important for distinguishing different levels of
  work.
• Pay ranges are then assigned to grades.
• See http//www.opm.gov/oca/08tables/html/gs.asp
• The advantages of this method are that it is
  simple and has been in use for many years.
• Its disadvantages include the fact that
  classification judgments are subjective, and the
  standard used for comparison may have built-in
  biases. Also, some jobs may fit into more than
  one grade/category or their descriptions are so
  broad that they do not relate to specific jobs.

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• Factor Comparison
• Select benchmark jobs.
• Sets of compensable factors are identified as
  determining the worth of jobs. The number of
  factors is usually four or five and typically
  relate to skill, responsibility, effort and
  working conditions.
• Jobs are then ranked on each factor.
• Wages are then allocated to the factors. The
  organizations other jobs are then compared to
  the benchmark jobs and rates of pay for each of
  the other jobs.
• Factor comparison has the advantage that the
  value of the job is expressed in monetary terms,
  and the method is applicable to a wide range of
  jobs.
• The methods disadvantages are that the pay
  points for each factor is based on subjective
  judgments.

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• Point Method
• The point method is an extension of the factor
  comparison method. Usually between eight and
  fourteen compensable factors (typically related
  to skill, effort, responsibility, and working
  conditions) are identified as determining the
  worth of jobs.
• Examples of compensable factors include
• education, experience, knowledge, physical
  demands, mental demands, responsibility for
  equipment work processes, responsibility for
  materials products, responsibility for safety,
  responsibility for the work of others,
  responsibility for financial resources, job
  hazards, etc.
• Factors are divided into degrees
• Points are assigned the degrees
• Benchmark jobs are compared to market rates

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Point Method continued The Hay Method

• Know-how
• Problem Solving
• Accountability

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Individual or Employee Equity

• Motivating performance

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JOB ATTRIBUTE RANKING
Please rank, from 1 to 10 in order of importance,
with 1 being the most important, the following
job attributes. In the first column indicate the
rank in terms of your own preferences and in the
second column indicate how you think others will
rank these same job attributes. Your
Ranking Others' Ranking Advancement _____ ___
__ Benefits _____ _____ Company _____
_____ Co-workers _____ _____ Hours _____
_____ Pay _____ _____ Job
Security _____ _____ Supervisor _____ _____
Type of Work _____ _____ Working
Conditions _____ _____
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JOB ATTRIBUTE RANKING
The following median rankings are based on the
responses of 39,788 job applicants (Minneapolis
Gas Company). MEN
WOMEN Self Others Self Others

Advancement 3.3 3.8 5.3
4.3

Benefits 6.8 5.2 8.0 5.9

Company 4.5 6.8 4.6 7.1

Co-workers 6.0 7.7 5.2 7.3


Hours 7.6 5.4 6.9 5.0

Pay 5.6 2.1 6.0 2.1

Job Security 2.5 3.6 4.9 5.4

Supervisor 6.3 7.4 5
.3 7.0
Type of
Work 3.3 4.9 1.5 3.5

Working Conditions 7.9 6.9 6.5 6.8
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What Do Workers Want From Their Jobs?
Supervisors Workers Good working
conditions 4 9 Feeling "in" on
things 10 2 Tactful
disciplining 7 10 Full appreciation
for work done 8 1 Management loyalty
to workers 6 8 Good wages
1 5 Promotion and growth with company
3 7 Sympathetic understanding of personal
problems 9 3 Job security
2 4 Interesting work 5 6 1
most important in job 10 least important in
job (From Lawrence Lindahl, " What Makes a Good
Job?", Personnel, (January 1949)
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What do new graduates value in jobs?
Company culture 6.2 Advancement
opportunities 6.0 Nature of work (e.g.,
challenging) 5.9 Training provided 5.7
Work/non-work balance 5.5 Monetary
compensation 5.3 Benefits 5.2 Location
5.0 Vacation time 4.6 Level of job
security 3.9 Size of company 3.7
International assignments 3.3
Rated on seven point scale (1 not important to
7 very important). Source Human Resource
Management (2003), 42, p. 23-37.
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What do applicants with college degrees want in
jobs?
1993 1978 Type of work 2.2 1.5
Advancement 4.6 3.6 Co-workers 5.1 5.2
Company 5.7 4.4 Security 5.8 5.5
Location 6.2 Supervisor 6.3 5.5 Pay 6.3
5.2 Working conditions 7.2 7.2 Benefits
7.4 7.9 Hours 9.3 8.0
1993 sample 623, 1978 sample 4,535 Source
Journal of Occupational Organizational
Psychology (2003) , 66, p. 71-81
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Individual or Employee Equity

• Motivating performance
• At the individual level
• Pluses and minuses
• Methods/techniques
• At the organization level
• Pluses and minuses
• Methods/techniques

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Compensation and the Legal Environment

• The Fair Labor Standards Act of 1938
• Minimum Wage
• Exempt vs. Non-exempt and overtime
• http//www.ewin.com/articles/exneot.htm
• http//www.dol.gov/elaws/esa/flsa/screen75.asp
• As of 2005, lt 23,660/year are guaranteed to be
  paid overtime and gt 23,660/year are exempt if
  they have some professional, administrative, or
  executive duties
• The Equal Pay Act of 1963

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Benefits

• The Cost of Benefits
• Mandatory
• Workers Compensation
• http//www.wvinsurance.gov/Default.aspx?tabid73
• Unemployment Insurance
• Family Medical Leave
• Social Security http//www.ssa.gov/
• Retirement income
• Disability income
• Medicare
• Survivor benefits
• 2010 rates
• Social security 6.2 on first 106,800
• Medicare 1.45 unlimited

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Benefits

• Non-mandatory
• Insurance
• Health
• Cost escalation
• COBRA
• HIPAA
• Types of health insurance
• Traditional indemnity plans
• HMO
• PPO
• Retirement
• ERISA (1974)
• Vesting
• Full vesting after 5 years
• 20 per year after 3 years
• Fiduciary standards
• Pension Benefit Guarantee Corporation
• Defined benefit
• Defined contribution

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Benefits continued

• Paid time off
• Employee services