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Compensation

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Compensation Used to Serve Organizations Goals Enhance Employee Needs but Create Profits Relative Worth of Job Significant Part of HRM Formal Policy Essential ... – PowerPoint PPT presentation

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Title: Compensation


1
Compensation
2
Compensation
  • Used to Serve Organizations Goals
  • Enhance Employee Needs but Create Profits
  • Relative Worth of Job
  • Significant Part of HRM
  • Formal Policy Essential

3
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

4
Total Compensation
Direct Compensation
Indirect 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

5
Compensation Policy Concerns
  • Pay a Fair Base Pay Rate
  • Reward Enhanced Performance

6
Pay-for-Performance Standard
  • Standard by which managers tie compensation to
    employee effort and performance.

7
Pay-for-Performance Standard
  • Merit Pay
  • Cash Bonuses
  • Incentive Pay
  • Goal Increase Performance 15-35

8
Pay Equity
  • An employees perception that compensation
    received is equal to the value of the work
    performed.

9
Motivating Value of Compensation
  • Pay Equity (Perception of fair value)
  • Pay Expectancy (Rewards, Received Expected)
  • Pay Secrecy

10
Bases for Compensation
  • Hourly
  • Monthly
  • Daily
  • Annual
  • Piecework
  • Straight Commission

11
Hourly Work
  • Work paid on an hourly basis.

12
Piecework
  • Work paid according to the number of units
    produced.

13
FLSA Classification of Compensation
  • Exempt(Management/Professional)
  • Non-Exempt (hourly)
  • Pay 1.5 times hourly rate over 40 hrs/week

14
Exempt Employee
  • Employees not covered by the overtime provisions
    of the Fair Labor Standards Act.
  • Management

15
Nonexempt Employees
  • Employees covered by the overtime provisions of
    the Fair Labor Standards Act.
  • Labor

16
External and Internal Factors Affecting the Wage
Mix
  • Internal Factors
  • Worth of job
  • Employees
  • relative worth
  • Employers ability
  • to pay
  • External Factors
  • Conditions of the labor market
  • Area wage rates
  • Cost of living
  • Collective bargaining
  • Government Influence

Wage Mix
Wage Mix
17
External Influences on Wage Rates
  • Labor Market Conditions
  • Area Wage Rates (Surveys)
  • Cost of Living (CPI Adjustments)
  • Collective Bargaining
  • Government

18
Internal Influences on Wage Rates
  • Worth of the Job
  • Employee's Relative Worth (merit)
  • Employer's Ability to Pay (competitiveness)

19
Consumer Price Index (CPI)
  • Measure of the average change in prices over time
    in a fixed market basket of goods and services.
  • Inflation Influence

20
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.

21
Real Wages
  • Wage increases larger than rises in the consumer
    price index that is, the real earning power of
    wages.

22
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.

23
Job Evaluation
  • Determine "Relative" Worth of Jobs
  • Hierarchy of Jobs (ranking)
  • Assign Pay Rates
  • Purpose Establish Internal Equity

24
Four Basic Systems
  • Job Ranking
  • Job Grading
  • Point System
  • Factor Comparison

25
Job Ranking System
  • Simplest and oldest system of job evaluation by
    which jobs are arrayed on the basis of their
    relative worth.

26
Job Ranking System
  • Establish Committee
  • Define all Jobs
  • Identify Critical Factor (Responsibilities of
    Importance)
  • Rank Every Job by Critical Factors

27
Job Classification System
  • System of job evaluation by which jobs are
    classified and grouped according to a series of
    predetermined wage grades.

28
Job Grade System
  • Determine Number of Grades (e.g. 20)
  • Describe Each Grade
  • Review Each Job Description
  • Fit Job into Grade
  • Government

29
Point System
  • Quantitative job evaluation procedure that
    determines the relative value of a job by the
    total points assigned to it.

30
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

31
Hay Profile Method
  • Job evaluation technique using three factors
    knowledge, mental activity, and accountability
    to evaluate executive and managerial positions.

Knowledge Mental Activity Accountability
32
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 25
SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA. SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA. SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA. SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA. SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA. SOURCE Developed by the National Metal Trades Association. Reproduced with permission of the American Association of Industrial Management, Springfield, MA.
33
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.
34
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

35
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

36
Compensation Structure
  • Job Evaluation First
  • Assign a Wage Rate Second
  • Base Rate on Wage "Survey"
  • Geographical Area of Worker Draw

37
Components of the Wage Structure
Wage Classes
38
Wage andSalary Survey
  • Surveys of the wages paid to employees of other
    employers in the surveying organizations
    relevant labor market.

39
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.

40
Wage Curve
  • Curve in a scattergram representing the
    relationship between relative worth of jobs and
    wage rates.

41
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42
Survey Data
  • Government Statistical Survey
  • Employer Initiated Survey
  • By Job Classification
  • World Wide Web

43
Pay Grades
  • Groups of jobs within a particular class that are
    paid the same rate or rate range.

44
SINGLE RATE STRUCTURE
Organization wage curve
1
2
3
4
5
6
7
8
Wage Classes
45
Point Conversion Table
Wage Class Point Range Hourly Rate Range
1 101-150 14.25-15.50
2 151-200 15.25-16.50
3 201-250 16.25-17.50
4 251-300 17.25-18.50
5 301-350 18.25-19.50
6 351-400 19.25-20.50
7 401-450 20.25-21.50
8 450-500 21.25-22.50
46
Wage Structure withIncreasing Rate Ranges
47
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)

48
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

49
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.

50
Wage-Rate Compression
  • Compression of differentials between job classes,
    particularly the differential between hourly
    workers and their managers.

51
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

52
Straight Piecework
  • Incentive plan under which employees receive a
    certain rate for each unit produced.

53
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.

54
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.

55
Six Components ofEffective Incentive Plan
Administration
  1. Grant incentives based on performance
  2. Adequate financial resources to reward
    performance
  3. Clearly defined and accepted performance
    standards
  4. Easily understood payout formula
  5. Reasonable administrative costs
  6. Wide coverage of employees

56
Merit Guidelines
  • Guidelines for awarding merit raises that are
    ties to performance objectives.

57
Motivating ThroughMerit Raises
58
Bonus
  • Incentive payment that is supplemented to the
    base wage.

59
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.

60
Standard Hourly Plan
  • Incentive plan that sets rates based upon the
    completion of a job in a predetermined standard
    time.

61
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

62
Perquisites
  • Special benefits given to executives often
    referred to as perks.

63
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 childrens educational expense
  • Executive dining room
  • Estate planning

64
StraightCommissionPlan
  • Compensation plan based upon a percentage of
    sales.

65
Straight Salary Plan
  • Compensation plan that permits salespeople to be
    paid for performing various duties that are not
    reflected immediately in their sales volume.

66
Combined SalaryandCommission Plan
  • Compensation plan that includes a straight salary
    and a commission.

67
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.

68
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.

69
Relationship of CompensationManagement to Other
HRM Functions
70
Compensation Hot Links
  • Abbott, Langer, and Associates
  • ERI
  • Hewitt Associates
  • Office Team
  • Robert Half
  • Americas Job Bank
  • World at Work (Formerly ACA)

71
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