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Human Resource Management

Human Resource Management. Compensation and Benefits. Compensation. Hot topics Compensation Management Benefits. Hot or Warm Topics. Executive compensation - Are corporate executives overpaid or underpaid? Sex discrimination and comparable worth Open vs. secret pay plans

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Human Resource Management

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  1. Human Resource Management • Compensation and Benefits

  2. Compensation • Hot topics • Compensation Management • Benefits

  3. Hot or Warm Topics • Executive compensation - Are corporate executives overpaid or underpaid? • Sex discrimination and comparable worth • Open vs. secret pay plans • Skill-based compensation plans • Team vs. individual pay

  4. Executive Compensation (2012) RankNameCompany Pay ($mil) 5-Yr Pay ($mil) • 1 John H HammergrenMcKesson 131.19 285.02 • 2 Ralph LaurenRalph Lauren 66.65 204.06 • 3 Michael D FascitelliVornado Realty 64.40 • 4 Richard D KinderKinder Morgan 60.94 60.94 • 5 David M CoteHoneywell 55.79 96.11 • 6 George PazExpress Scripts 51.525 100.21 • 7 Jeffery H BoydPriceline.com 50.185 90.3 • 8 Stephen J HemsleyUnitedHealth Group 48.835 169.3 • 9 Clarence P Cazalot JrMarathon Oil 43.71 67.23 • 10 John C MartinGilead Sciences 43.19 214.92 • 11 John D WrenOmnicom Group 42.625 110.41 • 12 James DimonJPMorgan Chase 41.995 140.92 • http://www.forbes.com/lists/2012/12/ceo-compensation-12_land.html

  5. Executive Compensation (2008) • Average compensation for 200 chief executives at America's largest public companies was $10.8 million • Sanjay Jha Motorola $104.4 million • Larry Ellison Oracle $84.6 million • Robert Iger Walt Disney $51.1 million • Kenneth Chenault American Express $42.8 million • Vikram Pandit Citigroup $38.2 million • Mark Hurd Hewlett-Packard $34.0 million • Jack Fusco Calpine $32.7 million • Rupert Murdoch News Corp. $30.1 million • David Cote Honeywell International $28.7 million • A.G. Lafley Procter & Gamble $25.6 million

  6. CEO Compensation Compared to Average Production Worker • 2011 380 to 1 • 2007 344 to 1 • 2006 364 to 1 • 2005 465 to 1 • 2004 431 to 1 • 2003 301 to 1 • 2001 525 to 1 • 1990 107 to 1 • 1982 42 to 1 • 1970 28 to 1 • Since 1990, if the minimum wage rate had risen at the same rate as CEO pay, minimum wage would now be $23.03 instead of $7.25. http://money.cnn.com/2012/04/19/news/economy/ceo-pay/index.htm/

  7. Europe's 25 Highest-Paid CEOs(2005) • 1. Lindsay Owen-Jones, L'Oreal (France), $28.3M2. John Browne, BP (Britain), $14.0M3. Arun Sarin, Vodaphone (Britain), $12.2M4. Henri De Castries, AXA (France), $9.1M5. Josef Ackermann, Deutsche Bank (Germany), $8.4M http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases/20050627H_europe.html (2013) Euros Martin Winterkorn Volkswagen (VW) 16,596,206 Joseph Jimenez Novartis 12,544,596 Alfredo Saenz Abad Bank of Santander 10,723,000 Bernard Arnault LVMH 10,696,670 Peter Voser Royal Dutch Shell 10,208,000 http://www.topafric.com/index.php/en/site-map/421-top-10-best-paid-ceos-in-europe.html

  8. % Change CEO Pay/ Relative to 1988-2005 Worker Pay (2005)*US CEO (2005) Australia 292% 15.6 33% Belgium 157 18 46 Canada 152 23.1 49 France 197 22.8 56 Germany 187 20.1 55 Italy 232 25.9 53 Japan 8 10.8 25 Netherlands118 17.8 40 New Zealand -- 24.9 18 Spain 98 17.2 32 Sweden 304 19.2 44 Switzerland172 19.3 64 UK 161 31.8 55 US 169 39 * Ratio of CEO compensation to the compensation of manufacturing production workers. Source: Authors’ analysis of Towers Perrin (1988, 2003, and 2005).

  9. http://www.pay-equity.org/info-time.html

  10. Median Annual Earnings of Full-time Workers (Bureau of Labor Statistics, 2000 census) Male Female Physicians, surgeons $140,000 88,000 Lawyers 90,000 66,000 Judges, magistrates 88,000 50,000 Actuaries 80,000 56,000 Pharmacists 70,000 63,000 Teacher assistants 20,000 15,000 Cooks 17.000 15,000 http://gblakely.com/BADM553/censr-15.pdf

  11. Compensation Goals • Attracting good employees • Retaining good employees • Motivating employees • Complying with the law • Having a cost effective compensation system

  12. Compensation and theThree Equities • External Equity • Attracting good employees • Internal Equity • Retaining good employees • Individual or Employee Equity • Motivating employees

  13. External Equity • Attracting good employees • Labor Market Model • Market Surveys • http://www.bls.gov/emp/ep_data_occupational_data.htm • http://www.bls.gov/oes/current/oes_nat.htm • http://swz.salary.com/ • Pay strategy/policies

  14. Internal Equity • Retaining good employees • Job Evaluation • General Basis • Skill • Effort • Responsibility • Working Conditions

  15. Internal Equity • Job Evaluation Techniques • Ranking • Jobs are compared to each other based on their overall worth to the company. The ‘worth’ of a job is usually measured by judgments of skill, effort, responsibility, and working conditions. • The advantage of the ranking method is that it is simple. • The disadvantages, similar to the ranking method of performance appraisal, are that the intervals between the ranks are assumed to be equal, the judgments are global, and as the number of jobs for evaluation increases it becomes increasingly difficult. Also, the evaluators must have knowledge of all jobs.

  16. Classification method • Jobs are classified into a grade/category structure. Each tier of the structure has a description and associated job titles. For example, the Westinghouse system had: • Grade 1 Unskilled ex. File clerk • Grade 2 Skilled ex. Typist, lathe operator • Grade 3 Interpretive ex. Chief clerk • Grade 4 Creative ex. Engineers, sales reps • Grade 5 Executive ex. Department heads • Grade 6 Administrative ex. Chief engineer, Director of R&D • Grade 7 Policy ex. Vice-president of Marketing • Each job is assigned to the grade/category providing the closest match to the job. Standards are developed mainly along occupational lines. The standards help identify and describe key characteristics of occupations that are important for distinguishing different levels of work. • Pay ranges are then assigned to grades. • See http://www.opm.gov/oca/08tables/html/gs.asp • The advantages of this method are that it is simple and has been in use for many years. • Its disadvantages include the fact that classification judgments are subjective, and the standard used for comparison may have built-in biases. Also, some jobs may fit into more than one grade/category or their descriptions are so broad that they do not relate to specific jobs.

  17. Factor Comparison • Select benchmark jobs. • Sets of compensable factors are identified as determining the worth of jobs. The number of factors is usually four or five and typically relate to skill, responsibility, effort and working conditions. • Jobs are then ranked on each factor. • Wages are then allocated to the factors. The organization’s other jobs are then compared to the benchmark jobs and rates of pay for each of the other jobs. • Factor comparison has the advantage that the value of the job is expressed in monetary terms, and the method is applicable to a wide range of jobs. • The method’s disadvantages are that the pay points for each factor is based on subjective judgments.

  18. Point Method • The point method is an extension of the factor comparison method. Usually between eight and fourteen compensable factors (typically related to skill, effort, responsibility, and working conditions) are identified as determining the worth of jobs. • Examples of compensable factors include • education, experience, knowledge, physical demands, mental demands, responsibility for equipment & work processes, responsibility for materials & products, responsibility for safety, responsibility for the work of others, responsibility for financial resources, job hazards, etc. • Factors are divided into degrees • Points are assigned the degrees • Benchmark jobs are compared to market rates

  19. Point Method continued – The Hay Method • Know-how • Problem Solving • Accountability

  20. Individual or Employee Equity • Motivating performance

  21. JOB ATTRIBUTE RANKING Please rank, from 1 to 10 in order of importance, with 1 being the most important, the following job attributes. In the first column indicate the rank in terms of your own preferences and in the second column indicate how you think others will rank these same job attributes. Your RankingOthers' Ranking Advancement _____ _____ Benefits _____ _____ Company _____ _____ Co-workers _____ _____ Hours _____ _____ Pay _____ _____ Job Security _____ _____ Supervisor _____ _____ Type of Work _____ _____ Working Conditions _____ _____

  22. JOB ATTRIBUTE RANKING The following median rankings are based on the responses of 39,788 job applicants (Minneapolis Gas Company). MEN WOMEN SelfOthersSelfOthers Advancement 3.3 3.8 5.3 4.3 Benefits 6.8 5.2 8.0 5.9 Company 4.5 6.8 4.6 7.1 Co-workers 6.0 7.7 5.2 7.3 Hours 7.6 5.4 6.9 5.0 Pay 5.6 2.1 6.0 2.1 Job Security 2.5 3.6 4.9 5.4 Supervisor 6.3 7.4 5.3 7.0 Type of Work 3.3 4.9 1.5 3.5 Working Conditions 7.9 6.9 6.5 6.8

  23. What Do Workers Want From Their Jobs? Supervisors Workers Good working conditions 4 9 Feeling "in" on things 10 2 Tactful disciplining 7 10 Full appreciation for work done 8 1 Management loyalty to workers 6 8 Good wages 1 5 Promotion and growth with company 3 7 Sympathetic understanding of personal problems 9 3 Job security 2 4 Interesting work 5 6 1 = most important in job 10 = least important in job (From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)

  24. What do new graduates value in jobs? Company culture 6.2 Advancement opportunities 6.0 Nature of work (e.g., challenging) 5.9 Training provided 5.7 Work/non-work balance 5.5 Monetary compensation 5.3 Benefits 5.2 Location 5.0 Vacation time 4.6 Level of job security 3.9 Size of company 3.7 International assignments 3.3 Rated on seven point scale (1 = not important to 7 = very important). Source: Human Resource Management (2003), 42, p. 23-37.

  25. What do applicants with college degrees want in jobs? 19931978 Type of work 2.2 1.5 Advancement 4.6 3.6 Co-workers 5.1 5.2 Company 5.7 4.4 Security 5.8 5.5 Location 6.2 Supervisor 6.3 5.5 Pay 6.3 5.2 Working conditions 7.2 7.2 Benefits 7.4 7.9 Hours 9.3 8.0 1993 sample = 623, 1978 sample = 4,535 Source: Journal of Occupational & Organizational Psychology (2003) , 66, p. 71-81

  26. Individual or Employee Equity • Motivating performance • At the individual level • Pluses and minuses • Methods/techniques • At the organization level • Pluses and minuses • Methods/techniques

  27. Compensation and the Legal Environment • The Fair Labor Standards Act of 1938 • Minimum Wage • Exempt vs. Non-exempt and overtime • http://www.ewin.com/articles/exneot.htm • http://www.dol.gov/elaws/esa/flsa/screen75.asp • As of 2005, < $23,660/year are guaranteed to be paid overtime and > $23,660/year are exempt if they have some “professional, administrative, or executive duties” • The Equal Pay Act of 1963

  28. Benefits • The Cost of Benefits • Mandatory • Workers’ Compensation • http://www.wvinsurance.gov/Default.aspx?tabid=73 • Unemployment Insurance • Family Medical Leave • Social Security http://www.ssa.gov/ • Retirement income • Disability income • Medicare • Survivor benefits • 2010 rates • Social security 6.2% on first $106,800 • Medicare 1.45% unlimited

  29. Benefits • Non-mandatory • Insurance • Health • Cost escalation • COBRA • HIPAA • Types of health insurance • Traditional indemnity plans • HMO • PPO • Retirement • ERISA (1974) • Vesting • Full vesting after 5 years • 20% per year after 3 years • Fiduciary standards • Pension Benefit Guarantee Corporation • Defined benefit • Defined contribution • 401(k), 403(b) • http://invest-faq.com/articles/ret-plan-401k.html • IRA • SEP • Keogh • http://www.dallasfed.org/ca/wealth/3.html • http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

  30. Benefits continued • Paid time off • Employee services

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