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MGTO 231 Human Resources Management

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MGTO 231 Human Resources Management Compensation II Dr. Kin Fai Ellick WONG Outline Designing a compensation system Egalitarianism vs. elitism Below market vs. above ... – PowerPoint PPT presentation

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Title: MGTO 231 Human Resources Management


1
MGTO 231Human Resources Management
  • Compensation II
  • Dr. Kin Fai Ellick WONG

2
Outline
  • Designing a compensation system
  • Egalitarianism vs. elitism
  • Below market vs. above market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decision
  • Compensation tools
  • Job-based compensation plans
  • Skill-based compensation plans

3
Outline
  • Designing a compensation system
  • Egalitarianism vs. elitism
  • Below market vs. above market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decision
  • Compensation tools
  • Job-based compensation plans
  • Skill-based compensation plans

4
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

5
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

6
Egalitarianism vs. Elitism
  • Egalitarian pay system
  • A pay plan in which most employees are part of
    the same compensation system
  • Reduces barriers between people as the hierarchy
    is relatively fuzzy

7
  • Elitist pay system
  • A pay plan in which different compensations are
    established for employees or groups at different
    organizational levels
  • Different pay systems may create a sense of
    hierarchy
  • Encourage employees to move upward

8
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

9
Below-market vs. above-market compensation
  • Below market
  • Less expensive
  • Low job satisfaction and high turnover
  • Employees with high ability will not stay long,
    or even will not apply
  • Above market
  • More expensive
  • Employees are relatively stable
  • Can attract competent candidates

10
  • Trade-off between attractiveness and costs
  • A possible solution
  • Above-market compensation for important posts
  • Below-market compensation for less important
    posts
  • ???? (make an average)

11
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

12
Monetary vs. non-monetary rewards
  • Monetary rewards
  • Money, cash, or payment that can be converted
    into cash in the future (stocks, retirement plan)
  • Non-monetary rewards
  • Interesting work, challenging assignments, public
    recognition, degree of freedom

13
  • Extrinsic vs. intrinsic motivation
  • Extrinsic motivation
  • Behaviors are motivated in order to get external
    rewards, e.g., cash
  • Low in job satisfaction
  • Intrinsic motivation
  • Behaviors are motivated in order to get
    self-fulfillment
  • High in job satisfaction
  • A story about a professor vs. a band

14
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

15
Open vs. secret pay
  • Open pay
  • Salary can be accessed by public (or most of the
    employees in the same firm)
  • Civil servants, professors, etc.
  • Secret pay
  • Salary of each employee should not be disclosed
  • Those who break this rule may be fired

16
Advantages of open pay
  • Increase employees satisfaction as they tend to
    overestimate others salaries
  • Open pay is perceived to be more fair as it is
    perceived that no hidden decision occurs

17
Disadvantages of open pay
  • It forces the managers or supervisors to expend
    more resources (time, writing report) to justify
    their decisions
  • The cost of mistake in decision increases
  • This system tends to minimize salary differences
    across employees ? increases turnover rate and
    decreases job satisfaction for those who have
    best performances

18
Nine criteria for developing a compensation system
  • Internal vs. external equity
  • Fixed vs. variable pay
  • Performance vs. membership
  • Job vs. individual pay
  • Egalitarianism vs. elitism
  • Below-market vs. above-market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decisions

19
Centralized vs. decentralized
  • Centralized system
  • Pay decisions are tightly controlled in a central
    location, normally the HR department
  • Decentralized system
  • Pay decisions are delegated deep down into the
    firm, normally to managers of each unit

20
Centralized system is more appropriate when
  • It is cost effective and efficient to hire
    compensation specialists, who are responsible for
    salary surveys, benefits administration, and
    recordkeeping.
  • There are frequent legal challenges
  • The company wants to have more control on expenses

21
Disadvantages of centralized
  • The issue of external equity (thats why a
    specialist is so important)
  • It lacks flexibility, department cannot offer a
    more attractive package for an excellent candidate

22
Outline
  • Designing a compensation system
  • Egalitarianism vs. elitism
  • Below market vs. above market compensation
  • Monetary vs. non-monetary rewards
  • Open vs. secret pay
  • Centralized vs. decentralized of pay decision
  • Compensation tools
  • Job-based compensation plans
  • Skill-based compensation plans

23
Job-based compensation plans
  • Achieving internal equity
  • Achieving external equity
  • Achieving individual equity

24
Achieving internal equity
  • Job evaluation by job analysis
  • Job description and job specifications
  • Rate worth of all jobs
  • Using a predetermined system
  • Compensable factors work-related criteria that
    an organization considers most important in
    assessing the relative value of different jobs
  • Knowledge, effort, responsibility, job conditions

25
  • Create a job hierarchy
  • Classify jobs by grade levels

26
Achieving external equity
  • Do market survey
  • ???????? (salary trend index)
  • Identifying benchmark or key jobs
  • Jobs that are similar or comparable in content
    across firms
  • Establishing a pay policy
  • A firms decision to pay above, below, or the
    market rate for its jobs

27
Achieving individual equity
  • Individual equity
  • The perceived fairness of individual pay
    decisions
  • Simply assign each employee a pay rate within the
    range established for his or her job
  • Assuming that this jobs salary has achieved both
    internal and external equity, then individual
    equity will also be achieved

28
Skill-based compensation plans
  • It is more costly and more limited in use
  • Three dimensions are paid
  • ?Depth of skills (learning more about a
    specialized area)
  • ?horizontal or breadth of skills (learning more
    about more areas)
  • ??vertical skills (self-management)

29
  • Depth of skills
  • Typist
  • 100 wpm vs. 120 wpm
  • Basketball player
  • Field goal percentage
  • 45 vs. 20
  • Programmer
  • Knowledge in C

30
  • Breadth of skills
  • Typist
  • Typing accounting photocopy machine
    maintenance
  • Basketball player
  • Free-throw 3-point assistant
  • Programmer
  • C Java Visual Basic Pascal
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