Managing Compensation

1. Managing Compensation The Challenges of Human Resources Management

2. Aid or impair recruitment Recruitment Supply of applicants affects wage rates Selection Selection standards affect level of pay required Pay rates affect selectivity Pay can motivate training Training and Development Increased knowledge leads to higher pay Training and development may lead to higher pay Compensation Management A basis for determining employee’s rate of pay Labor Relations Pay rates determined through negotiation Low pay encourages unionization Compensation Management and Other HRM Functions

3. Compensation • Pay is a statement of an employee’s worth by an employer. • Pay is a perception of worth by an employee.

4. What Determines Pay & Benefits?

5. Common Strategic Compensation Goals • To reward employees’ past performance • To remain competitive in the labor market • To maintain salary equity among employees • To mesh employees’ future performance with organizational goals • To control the compensation budget • To attract new employees • To reduce unnecessary turnover

6. Total Compensation Direct Indirect • Time Not Worked • Vacations • Breaks • Holidays Wages / Salaries Commissions • Insurance Plans • Medical • Dental • Life Bonuses Gainsharing • Security Plans • Pensions • Employee Services • Educational assistance • Recreational programs

7. Salary and Wage Web Sites • NACE Salary Guide - Research salaries in your area of interest • NACE Salary Calculator - Research salaries for your area of interest and location • Career Guide to Industries – Provided by the U.S. Department of Labor, Bureau of Labor Statistics • Occupational Employment & Wage Estimates – From the U.S. Department of Labor, Bureau of Labor Statistics • Salary.com – Comprehensive site offering salary and compensation information • SalaryExpert.com – Offers salary information for a variety of careers • JobSearchIntelligence.com - Precise Salary Calculator and Salary Comparison Program for Job Seekers

8. Salary and Wage Web Sites (cont’d) • Payscale.com – Salary information based on profession, location, education, etc. • Indeed.com – Excellent job search engine with integrated salary search engine • Cbsalary.com – Salary search engine offered by CareerBuilder • GlassDoor.com – Great site offering information on company salaries, employee reviews, and specific interview information • Economic Research Institute – Offering salary information & cost of living comparisons • Cost of Living Calculator – Beneficial if you’re planning a move. Offers the cost of living in other cities around the country

9. Legal Considerations in Compensation Davis-Bacon Act (1931) Equal Pay Act (1963) Walsh-Healey Public Contract Act (1936) Employee Retirement Income Security Act of 1974 Employee Compensation Title VII of the 1964 Civil Rights Act Age Discrimination in Employment Act of 1967 Fair Labor Standards Act (1938) Americans with Disabilities Act The Family and Medical Leave Act The Social Security Act of 1935 (as amended) National Labor Relations Act of 1935 (Wagner Act) Workers’ Compensation

10. Government Regulation of Compensation Davis-Bacon Act (1931) Required minimum wage, prevailing wage rates, 1½ overtime premium payments by federal contractors. Walsh-Healy Act (1936) Requires companies with federal supply contracts > $10K to pay prevailing wages. Also, requires overtime payments after 8 daily or 40 regular work hours for federal contract workers. Fair Labor Standards Act (FLSA) 1938(as Amended) The most significant law affecting compensation. The purpose of the FLSA is to establish minimum labor standards on a national basis and to eliminate low wages and long working hours. It established minimum wage and overtime pay.

11. Government Regulation of Compensation (cont’d) • National Labor Relations Act of 1935 (Wagner Act) Most important law enacted in U.S. history. It made the federal government the arbiter of employer-employee relations thru the NLRB. • Employee Retirement Income Security Act of 1974 (ERISA) Provides a comprehensive federal scheme for the regulation of employee pension and welfare benefit plans offered by private-sector employers. Age Discrimination in Employment Act of 1967 The ADEA only forbids age discrimination against people who are age 40 or older. It does not protect workers under the age of 40, although some states do have laws that protect younger workers from age discrimination.

12. Compliance Assistance - Wages and the Fair Labor Standards Act (FLSA) http://www.dol.gov/whd/flsa/

13. The Bases for Compensation (cont.) • Nonexempt Employees • Employees covered by the overtime provisions of the Fair Labor Standards Act. • They must be paid time and one-half their regular pay for all work performed after forty regular hours of work in a workweek. • Exempt Employees • Employees who not covered in the overtime provisions of the Fair Labor Standards Act. • Managers, supervisors, and white-collar professional employees are exempted on the basis of their exercise of independent judgment and other criteria.

14. Minimum Wage Laws in the States - January 1, 2013 http://www.dol.gov/whd/minwage/america.htm

15. Family and Medical Leave Act (FMLA) • The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. • http://www.dol.gov/whd/fmla/

16. Intermittent FMLA Leave • Handling the tricky questions in FMLA intermittent leave • When FMLA Intermittent Leave Leads to Suspicious Attendance Patterns • Curbing Abuse Of "Intermittent" FMLA Leave

17. Some Considerations forDeveloping a Compensation Plan

18. Factors Affecting the Pay Mix

19. The Traditional Approach to Compensation

20. How Employers Establish Pay Rates • Conduct the salary survey (external) • Determine the worth of each job (job evaluation; internal) • Ranking • Classification • Point method • Group similar jobs into pay grades • Price each pay grade (wage curves) • Develop rate ranges

21. Uses for Salary Surveys To market-price wages for jobs To make decisions about benefits To price benchmark jobs Step1: The Salary Survey

22. Conducting a Wage/Salary Survey

23. Conducting a Wage/Salary Survey • Personal interview • Most reliable and most expensive method • Mailed questionnaires • Probably used most frequently • Used only to survey jobs having uniform meaning all over industry • Can be answered by someone not fully familiar with wage structure

24. Conducting a Wage/Salary Survey (cont’d) • Telephone method • Quick but yields incomplete information • May be used to clarify responses to mailed questionnaires • Internet • Inexpensive and quick • All companies are not reachable on Internet

25. Sources of Pay Surveys

26. Possible Topics in a Wage Survey

27. Step 2: Job Evaluation • Job Evaluation • The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization. • It is the part of the process in which the organization finally decides the relative internal worth relationships of jobs.

28. Methods for Evaluating Jobs Job classification Point method Ranking Factor comparison How to Evaluate Jobs

29. Job Evaluation Methods: Ranking • Ranking each job relative to all other jobs, usually based on some overall factor. • Steps in job ranking: • Obtain job information. • Select and group jobs. • Select compensable factors. • Rank jobs. • Combine ratings.

30. Job Ranking by Olympia Health Care

31. Job Evaluation Systems (cont.) • Job Ranking System • Oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth. • Disadvantages • Does not provide a precise measure of each job’s worth. • Final job rankings indicate the relative importance of jobs, not the extent of differences between jobs. • Method can used to consider only a reasonably small number of jobs.

32. Job Evaluation Methods: Job Classification • Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes. • Classes contain similar jobs. • Administrative assistants • Grades are jobs similar in difficulty but otherwise different. • Mechanics, welders, electricians, and machinists • Jobs are classed by the amount or level of compensable factors they contain.

33. Job Evaluation Systems (cont.) • Job Classification system • A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades. • Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.

34. Job Classification System

35. Example of a Grade Level Definition This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart.

36. Federal Government Pay Tables • Salary Table 2013-GS • Other pay tables • General Schedule (GS; white collar) • Federal Wage System (WS; blue collar) • Law Enforcement Officer (LEO) • Executive and Senior Level Employees

37. Job Evaluation Methods: Point Method • A quantitative technique that involves: • Identifying the degree to which each compensable factor is present in the job. • Awarding points for each degree of each factor. • Calculating a total point value for the job by adding up the corresponding points for each factor.

38. Point System • Point System • A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it. • Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors—that constitute the job. • The Point Manual • A handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs.

39. Identifying Compensable Factors Effort Responsibility Skills Working conditions Job Evaluation: Point System

40. CompensableFactors Paid-for, measurable qualities, features, requirements, and/or constructs that are common to many different kinds of jobs.

41. Compensable Factors The Universal Compensable Factors identified In the Equal Pay Act and subsequently adopted by the government are: • SKILL - The experience, training, education, etc, required to perform the job under consideration. • EFFORT - measure of the physical and mental exertion needed to perform the job.

42. Compensable Factors (cont’d) • RESPONSIBILITY - The extent to which the employer depends on the employee to perform the job as expected. • WORKING CONDITIONS - The physical surroundings and hazards of a job.

43. Degrees Of Compensable Factors • Degrees Or Levels Provide a yardstick, or measurement scale, that assist in identifying the specific amount of the factor required to perform the job.

44. Compensable Factor

45. Sample Point Values (1000 point system)

46. A Typical Point Plan (500 point)

47. Prairie View A&M University • Has 8 compensable factors • Different numbers of levels for each factor • Not a 500 or 1000 point system • http://www.pvamu.edu/pages/2085.asp

48. Job Evaluation forManagement Positions • Hay Profile Method • Job evaluation technique using three factors—know-how, problem solving, and accountability—to evaluate executive and managerial positions.

49. Major Factors of the Hay Plan

50. Point Method Grouping Similar Jobs into Pay Grades Ranking Method Classification Methods Step 3: Grouping Jobs