hrm10e chap12

Human ResourceHuman ResourceManagementManagement

TENTH EDITONTENTH EDITON

© 2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentation

by Charlie Cook

PowerPoint Presentation

by Charlie Cook

Compensation StrategiesCompensation Strategiesand Practicesand Practices

Compensation StrategiesCompensation Strategiesand Practicesand Practices

Chapter 12Chapter 12

SECTION 4Compensating

Human Resources

SECTION 4Compensating

Human Resources

Robert L. Mathis Robert L. Mathis John H. Jackson John H. Jackson

© 2002 Southwestern College Publishing. All rights reserved. 12–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

After you have read this chapter, you should be able to:

– Identify two general types of compensation and the components of each.

– Give examples of two different compensation philosophies in organizations.

– Discuss four strategic compensation design issues.

– Describe three considerations affecting perceptions of pay fairness.

– Identify the basic provisions of the Fair Labor Standards Act (FLSA).


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

– Define job evaluation and discuss four methods for of performing it.

– Outline the process of building a wage and salary administration system.

– Discuss how to establish a pay-for-performance system.


Compensation Systems Compensation Systems Compensation Systems Compensation Systems

Objectives of an Effective Compensation System:– Legal compliance with all appropriate laws

and regulations– Cost effectiveness for the organization– Internal, external, and individual equity for

employees– Performance enhancement for the

organization


Nature of CompensationNature of CompensationNature of CompensationNature of Compensation

Types of Rewards– Intrinsic

• Intangible, psychological and social effects of compensation

– Extrinsic• Tangible, monetary and nonmonetary effects of

compensation


Components of A Compensation ProgramComponents of A Compensation ProgramComponents of A Compensation ProgramComponents of A Compensation Program

Figure 12–1


Direct CompensationDirect CompensationDirect CompensationDirect Compensation

Compensation Type

Base Pay The basic monetary compensation that an employee receives, usually as a wage or salary.

Wages Payments calculated on the amount of time worked.

Salary Consistent payments made each period regardless of the number of hours worked in the period.

Variable Pay Compensation linked to individual, team, or organizational performance.

Benefit An indirect reward given to an employee or group of employees as a part of organizational membership.


Typical Division of HR Responsibilities: Typical Division of HR Responsibilities: CompensationCompensation

Typical Division of HR Responsibilities: Typical Division of HR Responsibilities: CompensationCompensation

Figure 12–2


Continuum of Compensation PhilosophiesContinuum of Compensation PhilosophiesContinuum of Compensation PhilosophiesContinuum of Compensation Philosophies

Figure 12–3


Compensation ApproachesCompensation ApproachesCompensation ApproachesCompensation Approaches

Figure 12–4


Compensation Quartile StrategiesCompensation Quartile StrategiesCompensation Quartile StrategiesCompensation Quartile Strategies

Figure 12–5


Decisions About Compensation Levels Decisions About Compensation Levels Decisions About Compensation Levels Decisions About Compensation Levels

Compensation Strategies

Above-Market Paying for higher qualified, more productive workers.

Middle-Market Attempting to balance of employer costs and need to attract and retain employees.

Below-Market Paying all that the firm can afford Taking advantage of the abundant supply of potential employees in a loose labor market.


Competency-Based PayCompetency-Based PayCompetency-Based PayCompetency-Based Pay

Maintenance ofCompetencies

Maintenance ofCompetencies

Limitations(How many?)

Limitations(How many?)

PricingCompetencies

PricingCompetencies

TrainingTraining

Competency-Competency-Based Pay Based Pay SystemsSystemsKBP/SBPKBP/SBP

Competency-Competency-Based Pay Based Pay SystemsSystemsKBP/SBPKBP/SBP


Competency-Based Systems OutcomesCompetency-Based Systems OutcomesCompetency-Based Systems OutcomesCompetency-Based Systems Outcomes

Figure 12–6


Individual vs. Team RewardsIndividual vs. Team RewardsIndividual vs. Team RewardsIndividual vs. Team Rewards

Distribute variable rewards at the team levelDistribute variable rewards at the team levelDistribute variable rewards at the team levelDistribute variable rewards at the team level

Make system simple and understandable.Make system simple and understandable.Make system simple and understandable.Make system simple and understandable.

Using Team-Based Reward SystemsUsing Team-Based Reward SystemsUsing Team-Based Reward SystemsUsing Team-Based Reward Systems

Use skill-based pay for the base.Use skill-based pay for the base.Use skill-based pay for the base.Use skill-based pay for the base.

Use variable pay based on business entity performanceUse variable pay based on business entity performanceUse variable pay based on business entity performanceUse variable pay based on business entity performance

Maintain a high degree of employee involvementMaintain a high degree of employee involvementMaintain a high degree of employee involvementMaintain a high degree of employee involvement


Perceptions of Pay FairnessPerceptions of Pay FairnessPerceptions of Pay FairnessPerceptions of Pay Fairness

Equity The perceived fairness between what a person does (inputs) and what the person receives (outcomes).

Procedural Justice The perceived fairness of the process and procedures use to make decisions about employees

Distributive Justice The perceived fairness in the distribution of outcomes.

Pay Openness The degree of openness or secrecy that an organization allows regarding its pay system.

External Equity The perception that the organization provides employees with compensation that comparable to the compensation of employees with similar jobs in other organizations.


Equity Considerations in CompensationEquity Considerations in CompensationEquity Considerations in CompensationEquity Considerations in Compensation

Figure 12–7


Fair Labor Standards Act (FSLA) of 1938Fair Labor Standards Act (FSLA) of 1938Fair Labor Standards Act (FSLA) of 1938Fair Labor Standards Act (FSLA) of 1938

Provisions of the Act Provisions of the Act Provisions of the Act Provisions of the Act

Minimum wage requirement sets wage floorMinimum wage requirement sets wage floorMinimum wage requirement sets wage floorMinimum wage requirement sets wage floor

Child labor (under 14 years old) is prohibitedChild labor (under 14 years old) is prohibitedChild labor (under 14 years old) is prohibitedChild labor (under 14 years old) is prohibited

Requires overtime payments for non-exempt employeesRequires overtime payments for non-exempt employeesRequires overtime payments for non-exempt employeesRequires overtime payments for non-exempt employees

Exempts highly-paid computer workersExempts highly-paid computer workersExempts highly-paid computer workersExempts highly-paid computer workers

Requires overtime (1Requires overtime (1½) pay for hours over 40 hours½) pay for hours over 40 hoursRequires overtime (1Requires overtime (1½) pay for hours over 40 hours½) pay for hours over 40 hours

Requires compensatory time at overtime (1Requires compensatory time at overtime (1½) pay rates½) pay rates Requires compensatory time at overtime (1Requires compensatory time at overtime (1½) pay rates½) pay rates


Wage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards Act

Figure 12–8a



Figure 12–8b



Figure 12–8c


The IRS Test for Employees andThe IRS Test for Employees andIndependent ContractorsIndependent Contractors

The IRS Test for Employees andThe IRS Test for Employees andIndependent ContractorsIndependent Contractors

Figure 12–9Source: U.S. Internal Revenue Service.


Other Laws Affecting CompensationOther Laws Affecting CompensationOther Laws Affecting CompensationOther Laws Affecting Compensation

Davis-Bacon Act of 1931– Required payment of “prevailing wage” by

firms engaged in federal construction projects.

Walsh-Healy Public Contracts Act and the Service Contracts Act– Extended the payment of “prevailing wage”

to service contracts– Required overtime payment for any

employee hours worked over eight hours in one day; applies only to to federal contracts, not the private sector.


Pay and GenderPay and GenderPay and GenderPay and Gender

Equal Pay Act of 1963– Requires that men and women be paid the

same for performing substantially similar jobs with limited non-gender exceptions (e.g., merit and seniority).

Issue of Pay Equity– Similarity in pay for all jobs requiring

comparable level of knowledge, skills, and abilities, even if actual duties and market rates differ significantly.


Compensation Compensation Administration Administration

ProcessProcess

Compensation Compensation Administration Administration

ProcessProcess

Figure 12–10


Job EvaluationJob EvaluationJob EvaluationJob Evaluation

Job Evaluation– The systematic determination of the relative

worth of jobs within an organization. Benchmark Job

– A job found in many organizations and performed by several individuals who have similar duties that are relatively stable and require similar KSAs.



FactorFactorComparisonComparison

FactorFactorComparisonComparison

RankingRankingRankingRanking ClassificationClassificationClassificationClassification

PointPointMethodMethod

PointPointMethodMethod

Job Job Evaluation Evaluation MethodsMethods

Job Job Evaluation Evaluation MethodsMethods


Job Evaluation Point ChartJob Evaluation Point ChartJob Evaluation Point ChartJob Evaluation Point Chart

Figure 12–11


Legal Issues and Job EvaluationLegal Issues and Job EvaluationLegal Issues and Job EvaluationLegal Issues and Job Evaluation

Americans with Disabilities ActAmericans with Disabilities ActJob evaluations may not identify job functions related Job evaluations may not identify job functions related

to physical demands as essential to physical demands as essential

Americans with Disabilities ActAmericans with Disabilities ActJob evaluations may not identify job functions related Job evaluations may not identify job functions related

to physical demands as essential to physical demands as essential

Gender IssuesGender IssuesTraditional job evaluations place less weight on Traditional job evaluations place less weight on

knowledge, skills, and working conditions for female-knowledge, skills, and working conditions for female-dominated jobsdominated jobs

Gender IssuesGender IssuesTraditional job evaluations place less weight on Traditional job evaluations place less weight on

knowledge, skills, and working conditions for female-knowledge, skills, and working conditions for female-dominated jobsdominated jobs



Developing Pay SurveysDeveloping Pay SurveysDeveloping Pay SurveysDeveloping Pay Surveys

Select Employers with Comparable JobsSelect Employers with Comparable JobsSelect Employers with Comparable JobsSelect Employers with Comparable Jobs

Determine Jobs to be SurveyedDetermine Jobs to be SurveyedDetermine Jobs to be SurveyedDetermine Jobs to be Surveyed

Decide What Information Is NeededDecide What Information Is NeededDecide What Information Is NeededDecide What Information Is Needed

Conduct SurveyConduct SurveyConduct SurveyConduct Survey


Pay StructuresPay StructuresPay StructuresPay Structures

Market Line– The line on a graph showing the relationship

between the job value, as determined by job evaluation points, and pay survey rates.

Common Pay Structures– Hourly and salaried– Office, plant, technical, professional,

managerial– Clerical, information technology,

professional, supervisory, management, and executive


Establishing Establishing Pay Pay

StructuresStructures

Establishing Establishing Pay Pay

StructuresStructures

Figure 12–12


Pay Structures (cont’d)Pay Structures (cont’d)Pay Structures (cont’d)Pay Structures (cont’d)

Pay Grades– A grouping of individual jobs having

approximately the same job worth. Broadbanding

– The practice of using fewer pay grades having broader pay ranges that in traditional systems.

– Benefits• Encourages horizontal movement of employees• Is consistent with trend towards flatter organizations• Creates a more flexible organization• Encourages competency development• Emphasizes career development


Traditional Pay Structure vs. BroadbandingTraditional Pay Structure vs. BroadbandingTraditional Pay Structure vs. BroadbandingTraditional Pay Structure vs. Broadbanding

Figure 12–13


Pay ScattergramPay ScattergramPay ScattergramPay Scattergram

Figure 12–14


Typical Pay Range WidthsTypical Pay Range WidthsTypical Pay Range WidthsTypical Pay Range Widths

Figure 12–15


Example of Example of Pay Grades Pay Grades

and Pay and Pay RangesRanges

Example of Example of Pay Grades Pay Grades

and Pay and Pay RangesRanges

Figure 12–16


Pay Rate IssuesPay Rate IssuesPay Rate IssuesPay Rate Issues

Rates Out of Range– Red-Circled Employees

• An incumbent (current jobholder) who is paid above the range set for the job.

– Green-Circled Employees• An incumbent who is paid below the range set for the

job.

Pay Compression– A situation in which pay differences among

individuals with different levels of experience and performance in the organization becomes small.


Issues Involving Pay IncreasesIssues Involving Pay IncreasesIssues Involving Pay IncreasesIssues Involving Pay Increases

Seniority– Time spent in an organization or on a

particular job.– Used to determine eligibility for

organizational rewards and benefits. Maturity Curve

– A curve that depicts the relationship between experience and pay rates.

– Assumption is that as experience increases, proficiency and performance increase.


Issues Involving Pay IncreasesIssues Involving Pay IncreasesIssues Involving Pay IncreasesIssues Involving Pay Increases

Cost-of-Living Adjustments (COLA)– A percentage increase in wages that allows

employees to maintain the same real wages in a period of economic inflation.

– Adjustments are tied to changes in an economic measure (e.g., the Consumer Price Index).

Lump-Sum Increases (LSI)– A one-time payment of all or part of a yearly

pay increase.– Lump-sum payments do not increase base

wages


Pay Adjustment MatrixPay Adjustment MatrixPay Adjustment MatrixPay Adjustment Matrix

Figure 12–17


Compa-Ratio ExampleCompa-Ratio ExampleCompa-Ratio ExampleCompa-Ratio Example

Compa-ratio– The pay level divided by the midpoint of the

pay range.

110 ratio-Compa 100(midpoint) 15.00

pay)(current $16.50 Employee R

87 ratio-Compa 100(midpoint) 15.00

pay)(current $13.05 Employee J

hrm10e chap12

Documents

compensation figure

pay structures figure

variable pay

compensation program

compensation approaches

pay surveys

compensation levels

direct compensation