gp9 ch19 final
TRANSCRIPT
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BY:APARNA ALAPATI GITIKA BHATLANICKY KUMARISAKSHI KHARBANDAVANSHIKA AHUJA
Management: Making it Work
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Management: Making It Work
Pay management issues• Managing Labor costs• Understanding embedded controls• Analyzing value-added returns• Communication• Designing the compensation department
Contract system – decentralized decision making Compensation system- objectives in pay model Answers to basic questions
• What is the impact• Does it help• How
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Managing Labor Costs
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Exhibit 18.2: Staffing Analysis Identifies Reasons for Pay Variances
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Reducing Headcount
Often used to cut labor costs Cuts take form of layoffs or exit incentives Advantages of Reduction in Force (RIF)
Reduces benefit costs Opportunity to re-shape workforce and create
positive sorting effects Layoffs- short term and long term effects
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Core and Contingent Employees
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Segmented Supplies- St. Luke’s Labor Cost Model
Source: © George T. Milkovich.
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Hours
Hours of work is used to define employment Firms examine overtime costs versus hiring
costs to manage labor costs Three factors in the labor cost model are not
independent Employment Cash compensation Benefit costs
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Controlling Average Cash Compensation
Average cash compensation includes average salary level plus variable compensation payments
The variable component will rise and fall in line with business performance
Adjustments to average cash compensation level can be made in two ways Top down Bottom up
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Control Salary Level: Top Down
Factors influencing decision on the increase of the average pay level for the next period:
Current year’s rise Ability to pay Competitive market pressures Turnover effects Cost of living
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Current year’s rise
Ability to pay – Financially healthy/troubled employers
Competitive market pressures Turnover effects (churn/slippage) – annual
turnover*planned average increase
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Cost of living CPI Changes in prices in the product and service markets Changes in wages in labor markets
Rolling it all together
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Control Salary Level : Bottom Up
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Ethics: Managing or Manipulating?
Managing compensation ethically is increasingly complicated for several reasons Pay really matters The fierce pressure to achieve results
Use of pay for performance –adds to the pressure
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Cont….
Performance-based pay is not the only reason that presents ethical dilemmas
A starting point to judge our ethical behavior may be our compensation model presented with the advice: Strive to achieve both efficiency and
fairness.
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Embedded Controls
Controls on managers’ pay decisions come from two different aspects of the compensation process Controls that are inherent in the design of
the techniques The formal budgeting process
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Range maximums and minimums
Range set the maximum and minimum pay for the work
If employees are paid above the range maximum, these rates are called red circle rates
Pay below minimum is used for trainees, and may occur if outstanding employees receive a number of rapid promotions and pay increases have not kept up
Broad bands are used to offer managers greater flexibility compared to a grade-range design
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Compa-ratio
Assessing how managers pay employees in relation to the midpoint
Compa-ratio is calculated: It can be calculated for individual
employees, for organization units, for each range etc
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Cont….
Variable pay- it must be re-earned each period Analyzing costs- its done prior to recommending
pay increase Analyzing value added: here there is a shift in how
compensation is viewed Compensation becomes an investment as well as an expense Decisions are based on analysis of the return on this
investment
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Communication: Managing the Message
It signals what is important and what is not ?Employee’s understanding of the pay system is shaped:
Indirectly through the paychecks they receive Directly via formal communication
Reasons for communicating pay information Employees misperceive system and differentials are
underestimated. Considerable resources are used in designing a fair and
equitable system, it is imp to gain an accurate view of the system
World atWork recommended a 6 stage process of communication
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Compensation communication cycle
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Conducting formal communication sessions for various audiences
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• Avoid formal communication if pay system is not based on work related or business related.
• Few employers use open book approach as it results in high commitment, improves employee attitudes and performance.
• How employees process information and make decisions, the figure below offers some ideas when contemplating compensation communications:
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Pay as change agent
Compensation plays a role when organisations restructure.
Strategic changes in business strategy means that compensation strategy must be realigned as well.
Pay changes play two roles in any restructuring Leading catalyst for change Follower of change
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Structuring the compensation function
• Centralization – decentralization• Flexibility within corporate-wide principles• Reengineering and outsourcing