Chapter 9 Determining Pay and Benefits

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Chapter 9Determining Pay and Benefits
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HRM and Competitive Advantage
HR Planning Job Analysis
Recruitment Selection
Output Retention Legal Compliance Company Image
Competence Motivation Work Attitudes
Cost Leadership Product Differentiation
Training/Develop. Performance App. Compensation Pr
oductivity Imp.
Workplace Justice Unions Safety
Health International
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Total Compensation
Base pay add-ons merit pay incentives benefits
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Linking Compensation Practices to Competitive
Advantage
Improve Cost Efficiency
Effective Compensation Practices
Competitive Advantage
Achieve Legal Compliance
Improve Recruitment And Morale Reduce Turnover
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Equity Theory Predictions
Person B
Person A
Outputs Inputs
Outputs Inputs
Under-reward
lt
Outputs Inputs
Outputs Inputs
Equity

Outputs Inputs
Outputs Inputs
Over-reward
gt
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Referent Others
P1
P2
P
focal person
P
P6
P
P3
P1, P2, etc. possible referents
P5
P4
Organization A
Organization B
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Employee Responses to Under-Reward

• Decrease their inputs
• Attempt to increase their outcomes
• Distort their perceptions
• Attempt to change others
• Choose a new referent other
• Escape the situation

most likely responses
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Employee Responses to Over-Reward

• As satisfying as equity
• Somewhat dissatisfying
• Not nearly as dissatisfying as underpayment!!

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Conditions Necessary for Perceptions of Pay
Fairness

• Internal consistency
• External competitiveness
• Employee contributions

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Different Perspectives on Pay Fairness
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Achieving Internal Consistency

• Job evaluation
• Assigning jobs to pay grades

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Job Evaluation vs. Performance Appraisal
Job Evaluation
Focus on job requirements
Performance Appraisal
Focus on performance of individual job holder
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Standards for Conducting Job Evaluations
Consistency
Freedom from bias
Correctability
Representativeness
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How to Conduct Effective Job Evaluations

• Train evaluators
• Provide complete, accurate, up-to-date job
  descriptions

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Point Factor Method Steps

• Select and define compensable factors.
• Determine number of degrees for each factor.
• Define each degree level.
• Weight compensable factors.
• Assign point values to degrees.

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Pay Grades
4
3
Point Grade Min Max Range 100-200
1 15 20 201-300 2
18 23 301-400 3 21 26 401-500
4 24 29
2

1
Points
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Achieving External Competitiveness

• Collecting salary survey information
• Establishing a pay policy
• Establishing pay rates

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Three Pay Policies
Pay Policy Attract Retain Motivate Control
Costs Lead ?
? Match ? Lag
- ? ?
Source adapted from Compensation (5th ed.) by
G.T. Milkovich J.M. Newman (1996) Irwin.
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Pay Policy Lines
Market Pay
Lead Policy
Market Rate
Lag Policy
Job Evaluation Points
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Recognizing Employee Contributions
maximum
High Performers
midpoint
Competent Performers
New Employees
minimum
Pay Grade
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Job-Based vs. Skill-Based Pay

• Pay for tasks and KSAs of a single job
• Pay for job, not person
• Bureaucracy, routine technology, stable conditions

Job- Based Pay
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Job-Based vs. Skill-Based Pay

• Pay for skills that can be used for many tasks
  across multiple jobs
• Pay for skills, not jobs
• Flatter structure, decentralized, self-managed
  work teams, workplace flexibility

Skill- Based Pay
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Implementing a Skill-Based Pay System

• Identify needed tasks.
• Determine needed skills.
• Develop skill tests/measures.
• Price each skill.
• Communicate plan to employees.

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Skill-Based Pay Plans

• Strengths
• Incentive to improve skills
• Improved employee competence
• Staffing flexibility
• Employees see big picture

• Weaknesses
• Adds to labor costs
• May lead to inequity perceptions
• Not cost effective if skills are not used
• Problems determining skill differences among
  employees

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Legal Constraints on Pay Practices

• Minimum wage and overtime
• The Equal Pay Act
• Other EEO laws

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Exempt vs. Nonexempt Employees

• Executive
• Administrative
• Professional
• Outside Sales

Pay and overtime regulated by FLSA
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Fair Labor Standards Act
Minimum Wage 5.15/hour 4.25/hour training wage
Overtime gt40 hours/week ³1.5 times regular rate
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The Equal Pay Act

• Males and females must be paid the same if
• Work is substantially equal.
• Jobs require equal level of skill, effort, and
  responsibility, and are performed
  under similar working conditions.

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The Equal Pay Act

• Men and women may be paid differently for the
  same work if the differences are due to
• Seniority.
• Productivity.
• Merit.
• Any factor other than sex.

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The Gender Pay Gap
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Equal Pay vs. Comparable Worth
Job A
Job B
Job B
Job A
Equal Pay
Comparable Worth
Job A and Job B are substantially equal
Job A and Job B may be different, but are worth
the same to the employer
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Mandatory Employee Benefits

• Workers compensation
• Unemployment compensation
• Social Security
• Continuation of health benefits

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Workers Compensation

• Compensation provided for
• Medical expenses
• Lost wages
• Death

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Unemployment Compensation

• Provide income to unemployed individuals who have
  lost their jobs through no fault of their own
• Eligible workers receive weekly stipends for 26
  weeks

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Unemployment CompensationDisqualifications

• Quitting ones job without good cause
• Being discharged for misconduct connected with
  work
• Refusing suitable work while unemployed

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Social Security

• Monthly benefits to retired workers 62 years of
  age and older, disabled workers, and their
  eligible spouses
• Financed by employer and employee contributions

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COBRA

• Consolidated Omnibus Budget Reconciliation Act
  (1984)
• Provides for continuation of health insurance
  coverage for up to three years for employees who
  leave a company through no fault of their own
• Employee pays premium at group rate

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Insurance Benefit Options

• Health insurance
• Long-term disability (LTD) insurance
• Life insurance

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Types of Health Insurance

• Traditional
• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• Self-insured medical coverage

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Long-Term Disability Insurance

• Provides replacement income for employee who
  cannot come to work for an extended period due to
  illness or injury
• May be temporary or permanent
• Benefits set at 50-67 of employees income

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Life Insurance

• Premiums usually paid by employer
• Employee contributions, if required, typically a
  set amount per 1,000 coverage based on age
• Employees can expand their coverage

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Pension Plans

• Defined benefit
• Specifies the amount worker will receive upon
  retirement
• Defined contribution
• Specifies the rate of employer and employee
  monthly contributions
• ERISA
• Law requiring employers to follow certain rules

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Flexible Benefit Plans

• Advantages
• Employee choice
• Increases awareness of costs
• Can lower total compensation costs
• Can lower employer and employee taxes

• Disadvantages
• Administrative burden
• Can lead to increased insurance premiums

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Employer Cost Containment Strategies

• Scrutinize workers comp claims
• Delete or reduce some benefits
• Implement a utilization review program
• Choose the right health insurance carrier
• Increase the attractiveness of benefits

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Line Managers and Compensation

• Evaluate the worth of jobs.
• Negotiate starting salaries.
• Recommend pay raises and promotions.
• Comply with FLSA.
• Notify HRM department of job changes.

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Line Managers and Benefits

• Communicate benefit information clearly.
• Deal with employees on workers compensation
  leave.
• Help to contain unemployment compensation costs.

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The HRM Department and Compensation

• Establish rates of pay.
• Oversee job evaluation process.
• Conduct salary surveys.
• Establish procedures for administering pay plans.
• Ensure compliance with antidiscrimination laws.
• Communicate benefits information .