HRM Chap12

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Human ResourceHuman Resource

ManagementManagementTENTH EDITONTENTH EDITON

2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentationby Charlie CookPowerPoint Presentationby Charlie Cook

Compensation StrategiesCompensation Strategies

and Practicesand Practices

Chapter 12Chapter 12

SECTION 4Compensating

HumanResources

SECTION 4Compensating

HumanResources

Robert L. MathisRobert L. Mathis John H. JacksonJohn H. Jackson

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2002 Southwestern College Publishing. All rights reserved. 122

Learning ObjectivesLearning Objectives

After you have read this chapter, you should beable to:

Identify two general types of compensation and thecomponents of each.

Give examples of two different compensationphilosophies in organizations.

Discuss four strategic compensation design issues.

Describe three considerations affecting perceptionsof pay fairness.

Identify the basic provisions of the Fair LaborStandards Act (FLSA).

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Learning Objectives (contd)Learning Objectives (contd)

Define job evaluation and discuss four methods forof performing it.

Outline the process of building a wage and salaryadministration system.

Discuss how to establish a pay-for-performancesystem.

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Compensation SystemsCompensation Systems

Objectives of an Effective CompensationSystem:

Legal compliance with all appropriate laws andregulations

Cost effectiveness for the organization

Internal, external, and individual equity foremployees

Performance enhancement for the organization

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Nature of CompensationNature of Compensation

Types of Rewards Intrinsic

Intangible, psychological and social effects of

compensation

Extrinsic Tangible, monetary and nonmonetary effects of

compensation

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Components of A Compensation ProgramComponents of A Compensation Program

Figure 121

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

CompensationCompensation

Figure 122

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Continuum of Compensation PhilosophiesContinuum of Compensation Philosophies

Figure 123

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Compensation ApproachesCompensation Approaches

Figure 124

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Compensation Quartile StrategiesCompensation Quartile Strategies

Figure 125

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Decisions About Compensation LevelsDecisions About Compensation Levels

Compensation trate ies

Above-Market a in for i er qualifie , more pro uctiveorkers.

Mi le-Market Attemptin to balance of emplo er costs an

nee to attract an retain emplo ees.

Belo -Market a in all t at t e firm can affor

akin a vanta e of t e abun ant suppl of potential emplo ees in a loose labor market.

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CompetencyCompetency-- ased Payased Pay

Maintenance ofCompetencies

Limitations

(How many?)Pricing

Competencies

Training

CompetencyCompetency--

Based PayBased PaySystemsSystemsKBP/SBPKBP/SBP

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CompetencyCompetency--Based Systems OutcomesBased Systems Outcomes

Figure 126

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Individual vs. Team RewardsIndividual vs. Team Rewards

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

a e system simple and understandable.a e system simple and understandable.

Using TeamUsing Team-- ased Reward Systemsased Reward Systems

Use s illUse s ill--based pay for the base.based pay for the base.

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

aintain a high degree of employee involvementaintain a high degree of employee involvement

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Perceptions of Pay FairnessPerceptions of Pay Fairness

E uity The perceived fairness between what a persondoes (inputs) and what the person receives(outcomes).

Procedural Justice The perceived fairness of the process andprocedures use to ma e decisions aboutemployees

Distributive Justice The perceived fairness in the distribution ofoutcomes.

Pay Openness The degree of openness or secrecy that an

organization allows regarding its pay system.

External E uity The perception that the organization providesemployees with compensation that comparableto the compensation of employees with similar

jobs in other organizations.

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EquityConsiderations in CompensationEquityConsiderations in Compensation

Figure 127

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FairLabor Standards Act (FSLA) of 1938FairLabor Standards Act (FSLA) of 1938

Provisionsofthe ActProvisionsofthe Act

Minimum wage requirement sets wage floorMinimum wage requirement sets wage floor

Childlabor (under 14 yearsold)is prohibitedChildlabor (under 14 yearsold)is prohibited

Requiresovertime paymentsfornonRequiresovertime paymentsfornon--exempt employeesexempt employees

Exempts highlyExempts highly--paid computer workerspaid computer workers

Requiresovertime (1Requiresovertime (1) pay for hoursover 40 hours) pay for hoursover 40 hours

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

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

Figure 128a

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Figure 128b

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Figure 128c

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The IRSTest forEmployees andThe IRSTest forEmployees and

Independent ContractorsIndependent Contractors

Figure 129Source: U.S. Internal Revenue Service.

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OtherLaws Affecting CompensationOtherLaws 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 toto federal contracts, not the private sector.

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Pay and GenderPay and Gender

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

for performing substantially similar jobs with limitednon-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 ifactual duties and market rates differ significantly.

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CompensationCompensation

AdministrationAdministration

ProcessProcess

Figure 1210

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Job 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 performedby several individuals who have similar duties thatare relatively stable and require similar KSAs.

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F

actorF

actorComparisonComparison

RankingRanking ClassificationClassification

PointPointMethodMethod

JobJobEvaluationEvaluationMethodsMethods

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Job Evaluation Point ChartJob Evaluation Point Chart

Figure 1211

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Legal Issues and Job EvaluationLegal Issues and Job Evaluation

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

physical demands as essentialphysical demands as essential

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

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


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Developing Pay SurveysDeveloping Pay Surveys

Select Employers with Comparable JobsSelect Employers with Comparable Jobs

Determine Jobs to be SurveyedDetermine Jobs to be Surveyed

Decide hat Information Is NeededDecide hat Information Is Needed

Conduct SurveyConduct Survey

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Pay StructuresPay Structures

Market Line The line on a graph showing the relationship

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

Common Pay Structures Hourly and salaried

Office, plant, technical, professional, managerial

Clerical, information technology, professional,

supervisory, management, and executive

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Pay Structures (contd)Pay Structures (contd)

Pay Grades A grouping of individual jobs having approximately

the same job worth.

Broadbanding

The practice of using fewer pay grades havingbroader 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

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Traditional PayStructure vs. BroadbandingTraditional PayStructure vs. Broadbanding

Figure 1213

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PayScattergramPayScattergram

Figure 1214

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Typical PayRange WidthsTypical PayRange Widths

Figure 1215

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Example ofExample of

PayGradesPayGrades

and Payand Pay

RangesRanges

Figure 1216

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Pay 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 amongindividuals with different levels of experience andperformance in the organization becomes small.

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Issues Involving Pay IncreasesIssues Involving Pay Increases

Seniority Time spent in an organization or on a particular job.

Used to determine eligibility for organizationalrewards 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.

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Issues 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 aperiod of economic inflation.

Adjustments are tied to changes in an economicmeasure (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

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PayAdjustment MatrixPayAdjustment Matrix

Figure 1217

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CompaCompa--Ratio ExampleRatio Example

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

range.

110ratio-Compa100(midpoint)15.00

pay)(current$16.50Employee !pv!R

87ratio-Compa100(midpoint)15.00

pay)(current$13.05Employee !pv!J

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