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Mana 4325 - Compensation Administration Fall Semester, 2002

Mana 4325 - Compensation Administration Fall Semester, 2002. Dr. Ray Gullett. Types of Returns to Employees in Exchange for Work. Financial Compensation Relational Forms of Return. Compensation As Exchange.

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Mana 4325 - Compensation Administration Fall Semester, 2002

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  1. Mana 4325 - Compensation AdministrationFall Semester, 2002 Dr. Ray Gullett

  2. Types of Returns to Employees in Exchange for Work Financial Compensation Relational Forms of Return

  3. Compensation As Exchange Is a Part of What the Employee Receives for His or Her Services to the Organization

  4. Total Returns in Exchangefor Work • TOTAL COMPENSATION FORMS • Direct: Cash • Indirect: Benefits & Services RELATIONAL FORMS Recognition & Status Employment Security Learning Opportunities Challenging Work

  5. Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

  6. Compensation - What Do We Include? • Base pay - should reflect the “worth” of the job itself or the skill levels of workers • May include “cost of living” adjustments • Merit pay - rewards the individual for past performance - as increments to base pay

  7. Compensation - What Do We Include? • Incentive pay - pay tied to current performance; Formula specified in advance • Services & benefits - sometimes called “fringes” (today averages 42% of total payroll costs)

  8. Total Compensation Forms DIRECT • Base pay • Merit pay • Incentives • Cost of living adjustments INDIRECT • Protection programs • Paid time away from work • Employee services and allowances

  9. Compensation Model - 3 Parts • Objectives • Strategic issues (policy areas) • Techniques

  10. Objectives • Efficiency - control of costs, high quality, customer driven • Equity - fairness of pay, both procedural & outcome • Compliance - obeying governmental regulations regarding compensation

  11. Strategic Issues (Policies) -Guidance for Achieving the Objectives • Internal consistency - does pay reflect relative job worth? • External competitiveness - how does our pay compare to that of other organizations?

  12. Strategic Issues (Policies) -Guidance for Achieving the Objectives • Employee contributions - are individuals recognized through pay for differences in performance? • Administration - how well is the pay system managed?

  13. Compensation Techniques - Implementation for Policies • Job (or work) analysis, descriptions, & specifications • Job evaluation • Pay surveys • Pay structure design • Merit pay systems • Incentive plans • Design of supplementary compensation

  14. Pay Systems and Strategies: The “Best Fit” or Contingency View • Warning! Techniques should not be used in a vacuum! • The human resources &/or compensation department should tailor the compensation plan to the organization’s strategic direction

  15. Compensation Message – “Best Fit” or Contingency View • No single best approach • No best application of techniques • Different compensation approaches fit: • Different organization strategies • Different external opportunities & threats • Different workforce characteristics • Different organization cultures

  16. Other Closely Related Issues in Compensation Design • Organizational culture & values • Other HR programs • External environmental forces • Economic factors • Political pressures • Societal expectations • Employee preferences/union expectations

  17. Key Steps to Formulate aCompensation Strategy 1. Assess Total Compensation Implications Culture and Values Social, Economic, and Political Context Global Competitive Pressure Employee / Union Needs Other HR Systems 4. Reassess the Fit Realign as Conditions Change Realign as Strategy Changes 2. Fit Policy Decisions to Strategy Objectives Contributions Consistency Administration Competitiveness 3. Implement Strategy Design System to Translate Strategy into Action Choose Techniques to Fit Strategy

  18. Alternative Perspective - Best Practices • A “one best way” view of compensation • Two commonly cited best practice options • “The New Pay” • “High Commitment”

  19. Any Evidence That Pay Systems Are Developing This Way? • In many industries, new employees with scarce skills are entering with pay levels above more senior people • Signing bonuses & other perks have been common • Less marketable employees have been given small pay adjustments to keep the average down

  20. Growth in Real Hourly Compensation • Declining since mid – 1998 • Less than 2% today

  21. Incentive Pay • About 4% of all workers in 1991 • Approximately 10% of all workers today • Stock options & bonuses available to some workers in 70% of firms surveyed

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