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TRANSCRIPT
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
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McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
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Compensation: An Compensation: An OverviewOverviewCompensation: An Compensation: An OverviewOverview
chapterchapter
10
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CompensationCompensation
Deals with every type of reward individuals receive in exchange for performing organizational tasks
Major cost of doing businessChief reason why most individuals seek
employmentAn exchange relationship
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Financial CompensationFinancial Compensation
Direct Financial CompensationConsists of the pay an employee
receives in the form of:wagessalariesbonusescommissions
Indirect Financial CompensationConsists of all financial rewards
not included in direct financial compensation – i.e., benefits:pensionsinsurancepaid time offemployee services
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Objective of CompensationObjective of Compensation
To create a system of rewards that is equitable to the employer and employee alike
The desired outcome is an employee who is:Attracted to the workMotivated to do a good job for the employer
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A Compensation system should
be:(* focus of this chapter)
Adequate*Equitable*
Balanced
Cost-effective
Secure
Incentive-providing*
Acceptable to the employee
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Labor Market Economy
Government Unions
External Influences on CompensationExternal Influences on Compensation
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Compensation and an International Labor Compensation and an International Labor ForceForce
Issues that affect the compensation strategies of organizations competing in a global market:Global wage differentials verging on the extremeMoving American employees to foreign locationsEmploying local (foreign) managers and workersMoving foreign workers to the United States for
training or work assignments
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Government Influences: Wage ControlsGovernment Influences: Wage Controlsand Guidelines:and Guidelines: (1 of 2)(1 of 2)
Wage Stabilization Act (1942)
Defense Production Act (1950)
Economic Stabilization Act (1970)
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Government Influences: Wage ControlsGovernment Influences: Wage Controlsand Guidelines: and Guidelines: (2 of 2)(2 of 2)
Wage freezes – forbid wage increases
Wage controls – limit the size of wage increases
Wage guidelines – voluntary limits on wage increases
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Government Influences: Wage and Hour Government Influences: Wage and Hour RegulationsRegulations
Fair Labor Standards Act (FLSA) of 1938minimum wageovertime
exempt workersnonexempt workers
child laborrecordkeeping requirementsEqual Pay Act of 1963
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Equal Pay Act of 1963Equal Pay Act of 1963
Established the concept of equal pay for equal work
Prohibits wage differentials based on gender between men and women performing essentially the same work in organizationsskilleffortresponsibilityworking conditions
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Comparable Worth
Attempts to prove that employers systematically discriminate by paying women less than their work is intrinsically worth, versus what they pay men who work in comparable (equally valuable) positions – and to remedy this situation.
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Civil Rights Act(1964)
AgeDiscrimination
Act (1967)
Federal WageGarnishment
Act (1970)
Davis-BaconAct (1931)
Service ContractAct (1965)
Walsh-HealyAct (1936)
Government Influence: Other Pay LegislationGovernment Influence: Other Pay Legislation
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Internal Influences on CompensationInternal Influences on Compensation
OrganizationSize
OrganizationAge
LaborBudget
Who MakesCompensation
Decisions
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Pay and MotivationPay and Motivation
Motivation – set of attitudes and values that predisposes a person to act in a specific, goal-directed manner:the direction of behavior (working to reach a goal)the strength of behavior (how hard or strongly the
individual will work)
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SocialComparison
Theories
ExpectancyTheory
ReinforcementTheories
NeedsTheories
Herzberg’sTwo-Factor
Theory
Theories of MotivationTheories of Motivation
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Pay and Employees’ SatisfactionPay and Employees’ Satisfaction
Pay Satisfaction – refers to an employee’s liking for or dislike of the employer’s compensation package (including pay and benefits)
Lawler’s Model – the distinction between the amount employees receive and the amount they think others are receiving is the immediate cause of pay satisfaction or dissatisfaction
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Pay dissatisfaction is a function of six Pay dissatisfaction is a function of six important judgments:important judgments:
1. A discrepancy between what employees want and what they receive
2. A discrepancy between a comparison outcome and what they get
3. Past expectations of receiving more rewards4. Low expectations for the future5. A feeling of deserving or being entitled to more than
they are getting6. A feeling that they are not personally responsible for
poor results
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Pay and Employees’ ProductivityPay and Employees’ Productivity
Studies indicate that if pay is tied to performance, the employee produces a higher quality and quantity of work
The key to making compensation systems more effective is to be sure that they are directly connected to expected behaviors
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Compensation Decisions Compensation Decisions (1 of 3)(1 of 3)
Pay-Level DecisionExamines pay relative to employees working on
similar jobs in other organizationsObjective is to keep the organization competitive
in the labor marketPay survey is the major tool used in this decision
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Compensation Decisions Compensation Decisions (2 of 3)(2 of 3)
Pay-Structure DecisionExamines pay relative to employees working on
different jobs within the organizationInvolves setting a value on each job within the
organization relative to all other jobsJob evaluation is the approach used
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Compensation Decisions Compensation Decisions (3 of 3)(3 of 3)
Individual Pay DeterminationExamines pay relative to employees working on
the same job within the organization
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Pay-Level StrategiesPay-Level Strategies
High-Pay Strategy
Low-Pay Strategy
Comparable-Pay Strategy
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Factors Affecting the Choice of Pay StrategyFactors Affecting the Choice of Pay Strategy
The motivation and attitudes held by management
The ethical and moral attitude of managementThe degree to which an organization can
attract and retain personnelThe organization’s ability to pay
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Pay SurveysPay Surveys
Techniques and instruments used to collect data about compensation paid to employees in:a geographic areaan industryan occupational group
Obtaining valid, reliable information about pay is critical to creating a compensation system that supports corporate goals
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GovernmentSources
Professional andTrade
Organizations
Surveys Conductedby Other
Organizations
Surveys byJournals
Sources of Pay SurveysSources of Pay Surveys
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Critical Issues Determining the Usefulness Critical Issues Determining the Usefulness of Pay Surveys:of Pay Surveys:
1. The jobs covered
2. Who will be surveyed
3. The method used
4. The information gathered
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Pay Structure DecisionPay Structure Decision
An internal pay hierarchyBased on a systematic comparison between the
worth of one job and the worth of another
Job Evaluation – the formal process by which the relative worth of various jobs in the organization is determined for pay purposes
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Comparison of Job Evaluation SystemsComparison of Job Evaluation Systems
Comparison Basis Non-Quantitative Comparison
(Job as Whole)
Quantitative Comparison (Parts of Factors of Jobs)
Job versus job Job ranking Factor comparison
Job versus scale Job grading or classification
Point system
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Job Factor
Weight
1
2
3
4
5
1. Education 50% 50 100 150 200 250
2. Experience 25% 25 50 75 100 125
3. Complexity of job
12% 12 24 36 48 60
4. Relationships with others
8% 8 24 40
5. Working conditions
5% 10 15 20 25
Degrees of Factor
Example of Evaluation Points for Insurance Example of Evaluation Points for Insurance Clerical Job (500-point system)Clerical Job (500-point system)
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PAY
Job Evaluation Points
100 150 200 250 300 350
monthlysalary(000)
8
7
6
5
4
3
2
1
I II III IV VPay Classes
Pay Curve
Pay Classes and Pay CurvePay Classes and Pay Curve
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PAY
Job Evaluation Points
80 120 160 200 240 280 320
monthlysalary($000)
8
7
6
5
4
3
2
1
40 I II III IV V VI VIIPay Classes
Pay Class Graph with Range of PayPay Class Graph with Range of Pay
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Delayering and BroadbandingDelayering and Broadbanding
DelayeringA reduction of the total
number of jobsResults in a flatter job
structureCan increase flexibilityEmployees can move among
a wider range of jobs without adjusting pay with each move
BroadbandingCollapses multiple salary
grades and ranges into a few wide bands
The number of salary ranges is significantly reduced
Creates a smaller number of broad salary ranges
Places more emphasis on basing salary increases on individual performance
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Summary Summary (1 of 2)(1 of 2)
The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike
Compensation should be adequate, equitable, cost-effective, secure, incentive-providing, and acceptable to the employee
The pay-structure decision involves comparing jobs within the organization to determine their relative worth
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Summary Summary (2 of 2)(2 of 2)
Determining the worth of a job is difficult because it involves measurement and subjective decisions
Using systematic job evaluation procedures is one way to determine net worth