COMPENSATING EMPLOYEES

1. COMPENSATING EMPLOYEES

2. SEMESTER RECAP • Context • SHRM • Legal environment • International • Procuring • Planning • Recruiting • Selection • Utilizing & Maximizing • Training • Appraisal

3. Compensation Defined • The package of quantifiable rewards an employee receives for his/her labors. • Three components: • Base compensation • Pay incentives • Indirect compensation

4. TODAY’S TOPIC • Compensation

5. EQUITY THEORY • People compare their outcome/input ratio to that of others • Conclusions • Ratios are equal (equity exists) • Ratios are unequal (inequity exists)

6. RESPONSES TO EQUITY/INEQUITY • Equity: Maintenance

7. RESPONSES TO EQUITY/INEQUITY • Equity: Maintenance • Inequity: • Change Inputs • Change Outcomes • Quit

8. Traditional Approach to Compensation • Objective of traditional approaches to compensation is to achieve both internal & external equity • Internal equity is accomplished through job evaluation • Systematic process of assessing the value of each job in relation to other jobs in the organization • Results in a hierarchy of jobs ranked in order of their relative worth • External equity through market analysis

9. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job Rating Survey Conduct Create Job Survey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

10. Three Job Rating Methods Method Procedure Advantages Disadvantages Ranking (paired comparison) Rank-order whole Simplest method; -Subjective jobs for worth or inexpensive, easily -not very reliable compare pairs of understandable. -doesn’t measure jobs. differences between jobs.

11. Three Job Rating Methods Method Procedure Advantages Disadvantages Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of jobs for worth or inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. Classification Compare job de- Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions. ber of jobs; one rating scale.

12. Job Classification for Restaurant

13. Job Classification for Restaurant

14. Three Job Rating Methods Method Procedure Advantages Disadvantages Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of jobs for worth of inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. Classification Compare job de- Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions. ber of jobs; one rating scale.

15. Three Job Rating Methods Method Procedure Advantages Disadvantages Ranking (paired comparison) Rank-order whole Simplest method; Only general rating of jobs for worth of inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. Classification Compare job de- Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions. ber of jobs; one rating scale. Point factor Reduce general More specific and Time-consuming process factors to sub- larger number of more difficult to under- factors: give each factors; off-the- stand; greater opportun- factor weights and shelf plans available ity to disagree. points; use points more precise to determine measurements. grades.

16. Point Factor Method • Identify specific characteristics (factors) of jobs that will be measured

17. Major Factors of the Hay Plan Know-How Problem Solving Accountability Sum total of every kind Original, “self-starting” thinking Answerability for action kind of skill, however required by the job for analyzing, and for the consequen- acquired, required for evaluating, creating, reasoning. ces of the action; the acceptable job perfor- Problem solving has two sub- measured effect of the mance. Know-how has factors: the job. Accountability three subfactors: has three subfactors: (1) Practical procedures, (1) The thinking environment (1) Freedom to act specialized techni- in which problems are (personal control). ques. solved. (2) Ability to integrate (2) The thinking challenge of (2) The impact of the and harmonize the the problem. job on end results diversified functions (direct, indirect). of management. (3) Interpersonal skills. (3) Magnitude - general dollar size of areas most affected by job.

18. Point Factor Method • Identify specific characteristics (factors) of jobs that will be measured • Weigh the factors • Score each job on each factor using factor scales and degree statements • Statement of the degree to which the factor is present in the job • Scoring system

19. Degree Statements for the Factor “Physical Requirements”” Factor: Physical Requirements This factor appraises the physical effort required by a job, including its intensity and degree of continuity. Analysis of this factor may be incorrect unless a sufficiently broad view of the work is considered. Degree 1. Light work involving a minimum of physical effort. Requires only intermittent sitting, standing, and walking. 2. Repetitive work of a mechanical nature. Small amount of lifting and carrying. Occasional difficult working positions. Almost continuous sitting or considerable moving around. 3. Continuous standing or walking, or difficult working positions. Working with average weight or heavy materials and supplies. Fast manipulative skill in almost continuous use of machine or office equipment on paced work.

20. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job Rating Survey Conduct Create Job Survey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

21. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job Rating Survey Conduct Create Job Survey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

22. Market Pricing • Identify benchmark positions • What type? • Select information sources • Public • Consulting firm • Self-administered survey • Choose comparators • What are your options? • How do you choose?

23. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job Rating Survey Conduct Create Job Survey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

24. Develop Pay Structure • Pay level relative to market • Performance vs. membership? • Single rate • Time progression • Time progression and merit • Productivity • Salary Range • Job vs. Individual • Pay Mix • Fixed vs. variable

25. Emerging Approaches to Compensation • Broadbanding • replaces traditional narrow salary ranges to fewer wider bands • +consistent w/flatter organizations, empowerment, teamwork • -cost control is difficult • most appropriate for higher level positions • Team based pay • Advantages? • Disadvantages? • Skill-based pay

26. Skill-based Pay • Advantages? • motivation, flexibility, reduced absenteeism and turnover costs (can cover), flatter • Disadvantages? • Labor costs; Rusty skills, loss of labor specialization • When? • Expertise and innovation are sources of CA • Technology changes frequently • Upward mobility is limited • Developmental opportunities are present