Determining Pay and Benefits

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Pay, Benefits, and Productivity
ImprovementPrograms
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Compensation and Competitive Advantage

• If effective, a firms compensation system can
• Improve cost efficiency
• Ensure legal compliance
• Enhance the success of recruitment efforts
• Reduce morale and turnover problems

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Equity Theory

• Equity theory
• People form equity beliefs based on two factors
• Inputs (I)
• Refer to the perceptions that people have
  concerning what they contribute to the job (e.g.,
  skill and effort)
• Outputs (O)
• Refer to the perceptions that people have
  regarding the returns they get (e.g., pay) for
  the work they perform
• Comparison person is referred to as ones
  referent other

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Equity Theory

• Inequity
• Occurs when the ratio of outputs to inputs is
  perceived to be unequal
• Equity
• Occurs when the ratio of outputs to inputs is
  perceived to be equal

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Equity Theory

• Impact of equity perceptions on employee behavior
• Responses to feeling underpaid
• Decrease inputs
• Escape the situation
• Responses to feeling overpaid
• Just as satisfying as equity
• Somewhat dissatisfying, but not nearly as
  dissatisfying as underpayment

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When is pay equitable?

• Internal consistency It is fair relative to the
  pay coworkers in the same organization receive.
• External competitiveness It is fair relative to
  the pay received by workers in other
  organizations who hold similar positions.
• Employee contributions It fairly reflects their
  input to the organization.

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Achieving Internal Consistency

• Job evaluation
• Systematic process for determining the worth of a
  job.
• Standards for job evaluation
• Consistency
• Freedom from bias
• Correctability
• Representativeness
• Accuracy of information

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Achieving External Competitiveness

• Collecting salary survey information
• Provides information on pay rates offered by a
  firms competitors for certain benchmark jobs
• Establishing a pay policy
• Stipulates how well a company will pay its
  employees relative to the market

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Recognizing Employee Contributions

• Equity is achieved when employees believe that
  their pay fairly reflects their contribution.
• An organization must establish a pay range for
  each pay grade.
• Each employee must then be placed within that
  range based on their contribution to the
  organization.

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Legal Constraints on Pay

• Minimum wage and overtime
• Fair Labor Standards Act (FLSA)
• Exempt employees
• Consist of those holding executive,
  administrative, professional, and outside sales
  jobs
• Nonexempt employees
• Consists of all employees not considered exempt
• If a states minimum wage level differs from the
  federal minimum wage level, the employer must pay
  the higher of the two rates.
• Overtime Applies to nonexempt employees who
  work in excess of 40 hours/week

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Pay and Discrimination

• Pay and discrimination
• The Equal Pay Act
• The gender pay gap
• The racial pay gap

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The Equal Pay Act 1963

• Prohibits sex discrimination in pay
• Unequal pay is allowed for equal work under
  circumstances that are based on differences in
• Seniority
• Productivity
• Merit
• Any factor other than sex

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The Gender Pay Gap

• Women only earn 0.72 for every 1 that men earn.
• Those who espouse the market factor of the pay
  gap attribute the differences to the following
  factors
• Many more women than men work part-time.
• Women tend to stay in the workforce for shorter
  periods of time.
• Women voluntarily choose to enter lower paying
  career fields.

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The Racial Pay Gap

• For every dollar that white males earn..
• White females 0.77
• African American males 0.74
• African American females 0.68
• Hispanic males 0.63
• Hispanic females 0.57

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Workers Compensation

• Designed to provide financial protection for
  individuals injured on the job
• Compensation is provided for
• Medical expenses
• Lost wages from the time of injury until their
  return to the job
• Death, dismemberment, or permanent disability

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Unemployment Compensation

• Provide income to unemployed individuals who have
  lost a job through no fault of their own
• Disqualifications for receiving benefits
• Quitting ones job without good cause
• Being discharged for misconduct connected with
  work
• Refusing suitable work while unemployed

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Health Insurance

• Basic health care plans cover hospitalization,
  physician care, and surgery
• Types of health insurance programs
• Traditional
• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• Point-of-service plans (POS)
• Self-insured medical coverage

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Life Insurance

• Plans cover 94 percent of all full-time
  employees.
• Premiums are usually paid by the employers.
• Employee contributions, if required, are
  typically a set amount per 1,000 coverage based
  on age.
• Employees are often given the opportunity to
  expand their coverage by purchasing additional
  insurance.

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Pensions

• Defined benefit plans
• Specify the amount of pension a worker will
  receive on retirement.
• Defined contribution plans
• Specify the rate of employer and employee
  contributions
• Employee Retirement Income Security Act of 1974
• Ensures that employees will receive the pension
  benefits due to them, even if the company goes
  bankrupt or merges with another firm.

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Perquisites and Services

• Employee perquisites
• Reimbursement for educational expenses
• Discount on company products or services
• Employee services
• Wellness programs
• Employee assistance programs
• Executive perquisites
• Stock options
• Company cars

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Negotiating Starting Salaries

• Understand that applicants will typically wait
  for you to make the first offer
• The initial salary offer you make should be based
  on two considerations
• Candidate qualifications
• Salary histories
• Offer should be about 10 to 30 percent greater
  than the applicants previous salary to entice
  the candidate to accept the offer.

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Implementing Productivity Improvement Programs
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Goal of Productivity Improvement Plans

• Improving productivity through employee
  motivation
• Extrinsic rewards
• Rewards given to employees by someone else (e.g.,
  the employer)
• Examplespay raises and bonuses
• Intrinsic rewards
• Rewards that come from within
• Examplesa good feeling one gets from
  successfully completing an assignment

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Expectancy Theory

• Workers make conscious decisions about how hard
  they are going to work to achieve organizational
  goals.
• Employees will be highly motivated when they
  perceive
• Their efforts will lead to successful job
  performance.
• Their successful job performance will lead to
  outcomes or rewards they value.

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Pay-for-performance

• Link financial rewards to successful job
  performance provide extrinsic rewards
• Rationale
• Employees should be rewarded for good
  performance.
• Exceptional performers should earn greater
  rewards.
• Expectancy theory workers have little incentive
  for performing well if their efforts are
  unrewarded.

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Merit Pay Plans

• Grant employees annual pay raises based on their
  levels of job performance.
• Job performance is usually measured on an
  appraisal instrument completed by the supervisor.

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Merit Pay
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Merit Pay

• Merit pay planstrengths
• Establish effort-performance link
• Establish performance-reward link when publicized
• Merit pay planweaknesses
• May impede the effort-performance link
• Time lag between behavior and reward
• Not very cost-effective

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Gainsharing Plans

• Offer employees a cash award for meeting or
  exceeding goals based on the collaborative
  performance of a team of employees.
• Most gainsharing plans feature the following
• Organization has productivity goals that can be
  achieved through effective teamwork.
• Employees receive cash bonuses if those goals are
  met.
• Productivity is measured by an explicit formula
  with objective measures.

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Gainsharing Plans

• Strengths
• Effort-performance and performance-reward links
  are strong
• Link performance with the organizations mission
• Promote teamwork
• Cost-effective

• Weaknesses
• Employees may perceive rewards as being unfairly
  distributed
• Employee suggestions for improving efficiency may
  dwindle over time
• May suffer if payout formulas are inflexible

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Profit-sharing Plans

• Similar to gainsharing in the sense that they
  reward group, rather than individual,
  performance.
• The payout is based on profits rather than gains.
  

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Types of Profit-Sharing Plans

• Deferred plans An individuals profit-sharing
  earnings are distributed at retirement.
• Distribution plans The company fully distributes
  each periods earnings as soon as the
  profit-sharing pool is calculated.
• Combination plans Employees receive a portion of
  each periods earnings immediately the remainder
  awaits future distribution.

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Profit-Sharing Plans

• Strengths
• Improves productivity by making employees
  interests compatible with employers goals
• Employees may gain a greater sense of ownership.

• Weaknesses
• Only marginally address effort-performance-rewards
  links
• Not always cost efficient
• Rewards are not timely for deferred plans

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Employee Empowerment Programs

• Designed to make work itself more rewarding by
  making the work more interesting and challenging
  and by giving employees a voice in work decision
• Center on intrinsic rewards
• Benefits
• Strengthen motivation
• Increase productivity through better decisions

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Informal Participative Decision-Making Programs

• Managers and subordinates make joint decisions on
  a day-to-day basis.
• Strengths
• Have a positive impact on productivity
• Weaknesses
• Success hinges on whether employees want to
  participate in decision making

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Self-Managed Work Teams

• Teams consist of 6 to 18 employees
• Employees are from different departments who work
  together
• Produce a well-defined segment of finished work
• Team members are given responsibilities usually
  held by supervisors

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Reinforcement Theory

• Stipulates that worker behavior can be shaped,
  modified, or changed by manipulating the system
  of rewards given or withheld for the relevant
  behavior.
• The theory hinges on three basic assumptions
• Behavior that leads to positive consequences
  tends to be repeated.
• Behavior that leads to negative consequences
  tends not to be repeated.
• By manipulating consequences, you can shape a
  persons behavior.

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Intrinsic Rewards as Motivation

• Provide them with stimulating job assignments
• According to McClellands need-achievement
  theory, all individuals are primarily motivated
  by one of three needs.
• Need for affiliation
• Need for achievement
• Need for power
• To motivate employees, one should try to assign
  work activities that help employees satisfy their
  most important need.