Objectives

1. Objectives • Understand the scope of “Compensation” • Appreciate the legal framework surrounding compensation decisions in the U.S. • Understand how legal compliance is an important aspect of compensation administration • Consider competing models of best practices in pay system design • Understand the elements of both direct pay and indirect pay • Learn the strategic options of designing compensation as a job-based versus a skill-based system • Understand the three forms of equity necessary for successful compensation systems • Be sensitive to the intangible elements of pay as well as the more frequently assessed tangible elements

2. Compensation “...an exchange for effort & ideas” “...all forms of financial returns & tangible services & benefits employees receive as part of an employment relationship” “...a return for services rendered” Compensation can include both non-financial & psychological returns

3. Forms of Pay Base Wages Merit Incentives Services & Benefits

4. Elements of Total Compensation Total Compensation Intrinsic Rewards System (Self Administered Psychological Rewards) Teamwork * Challenge Empowerment * Recognition * Security Extrinsic Rewards System (Administered by Others) Financial Indirect Compensation (Benefits) Direct Compensation (Paycheck Pay) • Public Protection • (Legally Required) • Social Security • Unemployment • Disability • Paid Leave--Off Job • Vacations • Sick Day • Bereavement • Personal Leave • Holidays • Miscellaneous • Benefits • Legal Advice • Eldercare • Daycare • Wellness • Perquisites • Moving • Financial • Counseling Basic Salary • Performance-Based • Pay • Bonuses/Variable • Pay • Merit Pay • Incentive Pay • Private Protection • Pensions • Saving • Supplemental • unemployment • Insurance • Paid Leave--On Job • Training Work • Breaks • Rest Periods

5. Protection Programs

6. Strategic Compensation Objectives • Reflect the organization strategy • Mirror the organization culture and values • Support the business strategy • Champion the human resource management strategy • “Fit” environmental and regulatory pressures Compensation objectives need to be tied to corporate objectives

7. Strategic Compensation Policies Internal consistency External competitiveness Employee contributions Administration Techniques that make up the compensation systemtranslate strategic policy into practice

8. Compensation Objectives • Efficiency • performance driven • total quality • customer focus • cost control • Equity • Compliance

9. External market-sensitive-based pay Variable performance-based pay Risk-sharing partnership Flexible opportunities to contribute; not jobs Teams High wages Guarantee employment security Apply incentives; share gains not risks Employee ownership Participation & empowerment Teams Best Practices Options The New Pay • High Commitment Milkovich & Newman

10. Internal Consistency and Job Analysis

11. Internal Consistency Job Analysis Job Descriptions Summary of Lecture

12. Internal Consistency (or Equity): Refers to the relationship between the pay structure and the design of the organization. • To achieve Internal Consistency, the Pay Structure must: • support organization’s workflow • ensure fairness to all employees • direct employee behaviors towards organizational objectives

13. Results of Internal Consistency • Reduces turnover • Reduces pay-related grievances • Reduces pay-related work stoppages • Undertake training (and increase experience) • Facilitates career/job progression • Facilitates performance

14. Pay Structures and the Pay Model Pay structures are the the array of pay rates for different jobs within an organization. • Pay structures vary upon three dimensions: • the levels of work (i.e., Senior, Specialist) • the pay differentials between these levels • the criteria used to determine the levels and pay differentials • Job-based or Person-based

15. Factors Influencing Pay Structures • Nature of the Organization and its work • Size and Age of the Organization • Technology in the workplace • HR Policies • Employee Acceptance • Economic Pressures • Societal Customs

16. Employee Acceptance: A Key Test • Distributive Justice • Pay Differences • Number of Levels • Structural Criteria: are decisions based on the job or on the KSA’s of the person? • Procedural Justice • Fairness of Design & Administration

17. Consequences of Internal Pay Structures • Efficiency: Pay structure can be a Competitive Advantage used to attract and retain best employees • Equity: Ensures fairness and satisfaction amongst employees • Compliance: Meets legal requirements

18. Process of Building an Internal Job Structure Two Basic Methods: • Job-Based Structures • Person-Based Structures • Skills • Competencies

19. Job Analysis The systematic process of collecting relevant, work-related information related to the nature of a specific job.

20. Many Reasons for Job Analysis • Machine Design and Changes • Test Development • Safety Engineering • Hiring Specifications • Training • Skill Inventory • Internal Consistency • Wage Setting • Job Evaluation • Standardizing Job Titles • Transfers and Promotions • Merit Rating • Adjustment of Grievances • Legal Defense in EEO or ADA suits • Almost all HR decisions are based on job information

21. Job Title Describe Job job content and worker characteristics Task Data describes actual work performed and the purpose of these tasks Behavioral Data behaviors expected of workers Essential Job Duties What Data to Collect?

22. Narrative Questionnaires Standardized Questionnaires Interviews Observation (Time and Motion Studies) Diary/Log How can Data be Collected?

23. Who Collects the Data? Usually a new employee However, should be an experienced employee familiar with the company and its jobs. Who Provides the Data? Job holders, Supervisors, Subordinates, Peers, Analyst Who is Involved?

24. The Job Description: The Result of Job Analysis General Format of a Job Description • Job Title • Fair Labor Standards Act (FLSA) Exemption Status • General Summary of Job • Essential Job Duties and Responsibilities • Knowledge, Skills, and Abilities Required • Working Conditions • Dates and Approvals • Disclaimer Statement

25. Tips on Writing Job Descriptions • Avoid jargon and “inflationary” adjectives • Use the most descriptive verb possible to describe job tasks and activities. • Knowledge, skills and abilities listed must be specific, realistic, and justifiable. • Indicate the intensity, frequency and duration for physical or mental effort. • Include the FLSA Code • All JD’s should include a disclaimer statement to ensure flexibility in the administration of a pay program. • Accurate, legally defensible JD’s are a necessity!