mgto 231 human resources management compensation ii dr. kin fai ellick wong

MGTO 231Human Resources ManagementCompensation II

Dr. Kin Fai Ellick WONG

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

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

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

Egalitarianism vs. Elitism

Egalitarian pay systemA pay plan in which most employees are

part of the same compensation systemReduces barriers between people as the

hierarchy is relatively fuzzy

Elitist pay systemA 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

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

Trade-off between attractiveness and costs A possible solution

Above-market compensation for important posts

Below-market compensation for less important posts

拉下補上 (make an average)

Monetary vs. non-monetary rewards

Monetary rewardsMoney, 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

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

Open vs. secret pay

Open paySalary can be accessed by public (or most of

the employees in the same firm)Civil servants, professors, etc.

Secret paySalary of each employee should not be

disclosedThose who break this rule may be fired

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

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

Centralized vs. decentralized

Centralized systemPay 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

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

Disadvantages of centralized

The issue of external equity (that’s why a specialist is so important)

It lacks flexibility, department cannot offer a more attractive package for an excellent candidate

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

Job-based compensation plans

Achieving internal equity Achieving external equity Achieving individual equity

Achieving internal equity

Job evaluation by job analysisJob description and job specifications

Rate worth of all jobsUsing a predetermined systemCompensable factors: work-related criteria

that an organization considers most important in assessing the relative value of different jobs

Knowledge, effort, responsibility, job conditions

Create a job hierarchy Classify jobs by grade levels

Achieving external equity

Do market survey薪酬調查趨勢報告 (salary trend index)

Identifying benchmark or key jobsJobs that are similar or comparable in content

across firms Establishing a pay policy

A firm’s decision to pay above, below, or the market rate for its jobs

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 job’s salary has achieved both internal and external equity, then individual equity will also be achieved

Skill-based compensation plans

It is more costly and more limited in use Three dimensions are paid

淵 Depth of skills (learning more about a specialized area)

博 horizontal or breadth of skills (learning more about more areas)

自身 vertical skills (self-management)

Depth of skillsTypist

100 wpm vs. 120 wpm

Basketball player Field goal percentage

45% vs. 20%

Programmer Knowledge in C++

Breadth of skillsTypist

Typing + accounting + photocopy machine maintenance

Basketball player Free-throw + 3-point + assistant …

Programmer C++ + Java + Visual Basic + Pascal…

mgto 231 human resources management compensation ii dr. kin fai ellick wong

Documents

market compensationmonetary

elitismbelow market

compensation systeminternal

nonmonetary rewardsopen

secret paycentralized

external equityfixed

variable payperformance

individual payegalitarianism