Compensation

1. Compensation

2. Compensation • Used to Serve Organizations Goals • Enhance Employee Needs but Create Profits • Relative Worth of Job • Significant Part of HRM • Formal Policy Essential

3. Compensation Policy Objectives • To Reward Past Performance • To Remain Competitive in Marketplace • To Maintain Equity Among Employees • To Motivate Future Performance • To Maintain a Realistic Budget • To Attract New Employees • To Reduce Turnover

4. Base Pay Wages Salary Incentives Commissions Piece rate Bonuses Stock Options Profit Sharing Gainsharing Pay for Time Not Worked Vacations Breaks Holidays Sick Days Jury Duty Insurance Plans Medical Hospital Dental Life Surgical Total Compensation Direct Compensation Indirect Compensation • Security Plans • Pension • Social Security • Disability Insurance • Employee Services • Educational Assistance • Recreational Programs • Food Services

5. Compensation Policy Concerns • Pay a Fair Base Pay Rate • Reward Enhanced Performance

6. Pay-for-Performance Standard Standard by which managers tie compensation to employee effort and performance.

7. Pay-for-Performance Standard • Merit Pay • Cash Bonuses • Incentive Pay • Goal: Increase Performance 15-35%

8. Pay Equity An employee’s perception that compensation received is equal to the value of the work performed.

9. Motivating Value of Compensation • Pay Equity (Perception of fair value) • Pay Expectancy (Rewards, Received = Expected) • Pay Secrecy

10. Bases for Compensation • Hourly • Monthly • Daily • Annual • Piecework • Straight Commission

11. HOUR Hourly Work • Work paid on an hourly basis.

12. Piecework Work paid according to the number of units produced.

13. FLSA Classification of Compensation • Exempt(Management/Professional) • Non-Exempt (hourly) • Pay: 1.5 times hourly rate over 40 hrs/week

14. Exempt Employee Employees not covered by the overtime provisions of the Fair Labor Standards Act. “Management”

15. Nonexempt Employees Employees covered by the overtime provisions of the Fair Labor Standards Act. “Labor”

16. External Factors Conditions of the labor market Area wage rates Cost of living Collective bargaining Government Influence Internal Factors Worth of job Employee’s relative worth Employer’s ability to pay External and Internal Factors Affecting the Wage Mix Wage Mix Wage Mix

17. External Influences on Wage Rates • Labor Market Conditions • Area Wage Rates (Surveys) • Cost of Living (CPI Adjustments) • Collective Bargaining • Government

18. Internal Influences on Wage Rates • Worth of the Job • Employee's Relative Worth (merit) • Employer's Ability to Pay (competitiveness)

19. Consumer Price Index (CPI) • Measure of the average change in prices over time in a fixed “market basket” of goods and services. “Inflation Influence”

20. Escalator Clauses • Clauses in labor agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments upon changes in the consumer price index.

21. Real Wages • Wage increases larger than rises in the consumer price index; that is, the real earning power of wages.

22. Job Evaluation Systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

23. Job Evaluation • Determine "Relative" Worth of Jobs • Hierarchy of Jobs (ranking) • Assign Pay Rates • Purpose: Establish Internal Equity

24. Four Basic Systems • Job Ranking • Job Grading • Point System • Factor Comparison

25. Job Ranking System • Simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.

26. Job Ranking System • Establish Committee • Define all Jobs • Identify Critical Factor (Responsibilities of Importance) • Rank Every Job by Critical Factors

27. Job Classification System • System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades.

28. Job Grade System • Determine Number of Grades (e.g. 20) • Describe Each Grade • Review Each Job Description • Fit Job into Grade “Government”

29. Point System • Quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.

30. Point System (Quantitative) • Identify Compensatable Factors (e.g.) • Skill • Responsibility • Effort • Environment • Establish Degree Within each Factor (e.g. 1-9) • Create a Point Manual • Defines Factors (3-9) • Definitive Degrees (1-9) • Analyze each Job • Assign Points • Rank by Points

31. Hay Profile Method • Job evaluation technique using three factors – knowledge, mental activity, and accountability – to evaluate executive and managerial positions. Knowledge Mental Activity Accountability

32. Point Values for Job Factors of the National Metal Trades Association

33. Description of Knowledge Factors and Degrees of the National Metal Trades Association

34. Factor Comparison System • Similar to Point System • Distinguished by "Key Jobs" • Compensatable Factors • Skill • Responsibility • Mental Effort • Working Conditions • Physical Effort • Assign & Value to Factor • Each Job is Assigned a Factor • Add up Values to get Wage Rate

35. Characteristics of Key Jobs • Have importance to employees and organizations • Vary in terms of job requirements • Possess relatively stable job content • Are used as important jobs in salary surveys

36. Compensation Structure • Job Evaluation First • Assign a Wage Rate Second • Base Rate on Wage "Survey" • Geographical Area of Worker Draw

37. Midpoint of Range Range Overlap Rate Range Range Steps Components of the Wage Structure Wage Classes

38. Wage andSalary Survey • Surveys of the wages paid to employees of other employers in the surveying organization’s relevant labor market.

39. Wage and Salary Surveys • Select key jobs. • Determine relevant labor market. • Select organizations. • Decide on information to collect: wages/benefits/pay policies. • Compile data received. • Determine wages and benefits to pay.

40. Wage Curve • Curve in a scattergram representing the relationship between relative worth of jobs and wage rates.

41. Wage Rates Point Value of Jobs

42. Survey Data • Government Statistical Survey • Employer Initiated Survey • By Job Classification • World Wide Web

43. Pay Grades Groups of jobs within a particular class that are paid the same rate or rate range.

44. SINGLE RATE STRUCTURE 15.00 14.00 13.00 12.00 Wage Rates 11.00 10.00 9.00 8.00 150 200 250 300 350 400 450 Evaluated Points Organization wage curve 1 2 3 4 5 6 7 8 Wage Classes

45. Point Conversion Table

46. Wage Structure withIncreasing Rate Ranges

47. Issues in Rate Structures • Wage Rate Compression • Narrow Difference from Job to Job • White-Grey-Blue Collar Impact • Low Morale/Turnover/Behavior • Two Tier Wage Systems • A/B Scales • Time of Employment • Grandfathering • Cost of Living Comparison (COLA)

48. Government Regulations • Overtime Mandate (1 1/2 times over 40 hours) • Pay Prevailing Rates in Area • Minimum Wages • Child Labor (16-19 yrs) • Equal Rights for All

49. Comparable Worth • The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same.

50. Wage-Rate Compression • Compression of differentials between job classes, particularly the differential between hourly workers and their managers.