Total Strategic Compensation

1. Total Strategic Compensation Human Resource Management

2. Intrinsic rewards Satisfaction with the job and work Challenge Skill variety Task significance Responsibility Pride in work Extrinsic rewards Financial Nonfinancial Positive relationships Pleasant working conditions Activities provided by the company Teams Social events Camaraderie What is “Total Strategic Compensation”?

3. Direct compensation All monetary compensation Base salary Incentives, bonuses Indirect compensation Benefits Protection programs Pay for time not worked Employee services and perquisites Recognition programs Service awards Others What is “Total Strategic Compensation”?

4. Total Compensation Program Objectives • Motivate employees • Attract them to the organization • Retain competent and better performers • Encourage low performers to leave • Motivate other key behaviors that support organizational goals

5. Individual performance Group/team performance Organizational performance Creativity Dependability Problem solving Flexibility Entrepreneurism Conformity Cooperation Sales Supervision Management Performance of undesirable work Others Which Key Behaviors?

6. Total Compensation Program Objectives • Support the organization • Attaining strategic goals • Supporting cultural change • Managing highly flexible environments • Supporting new management strategies • Meeting organizational needs as well as those of the individual business unit

7. Total Compensation Program Objectives • Administratively sound • Flexibility in rewarding diverse job and work types • Easily communicated to a variety of employees • Complies with legislation and regulations • Adaptable when components change, such as benefits

8. Total Compensation Program Objectives • Cost effectiveness • Trend to lower fixed costs of compensation • Tie increases in compensation to achievement of organizational goals • Tie increases to profitability • Maximize tax savings • Many benefit expenditures are tax-deductible • Section 125 and 401(k) plans allow tax savings for the employee

9. Base compensation Traditional salary grades Broadbanding “All-salaried workforce” “Hierarchical” versus “egalitarian” “Nontraditional” pay plans Individual incentives/bonuses Group/team incentives/bonuses Organization-wide incentives/bonuses “Pay at risk” Skill-based pay Ownership plans (ESOPs) Competency-based pay Pay: Direct Compensation

10. Base Compensation Components • External competitiveness • Market analysis • Internal equity • Job evaluation • Individual equity • Well-designed incentive or merit programs • Administrative policies and procedures

11. External Competitiveness • Establishes the value of the job on the market • Must understand the job • Accurate job analysis • Job description • Must define the relevant labor market • “Who is the competition for incumbents for this job?” • Salary data are gathered accordingly

12. Internal Equity • Established through job evaluation • Measures the relative value of the job to the organization, based on its values • Measures the worth of the job, not the incumbent • Necessary when market data are not available for all jobs • Communicates management’s intention to be fair

13. Job Evaluation • Many different types • Slotting • Point-factor job evaluation • Currently there is a trend toward less emphasis on point-factor job evaluation • Increased emphasis on competitiveness • New management strategies de-emphasize status and hierarchy

14. “Compensable factors” are identified By top management Based on strategy, goals, mission and climate of the organization Older systems used 8 to 10; now more often 4 to 6 Factors are weighted based on their relative value A measuring device using these factors is created Jobs are analyzed and compared to this “yardstick” Thorough “quality control” is done End product is an array of jobs, from the most to least important in value Point Factor Job Evaluation

15. Individual Equity • Am I being rewarded fairly for • The amount of job-related education I have • The number of years of job-related experience I have • My level of performance relative to others • How hard I work • The value of what I believe my services to the organization to be • Other issues that may be relevant

16. Individual Equity • Established through • Fair and accurate performance appraisal systems that link performance to pay • Well-designed incentive systems that link accomplishment of goals and performance to bonuses, stock options, profit sharing, etc. • Critical for motivation • To remain with the organization • To perform at high capacity

17. Administrative Policies • Ensure that compensation pays people for what we want them to do • Allocate resources fairly and consistently • Consist of • Salary policy stating the total compensation policy • Salary structure • Policies about how pay is changed

18. Salary Structures • Consider • External value (market analysis results) • Internal value (job evaluation results) • Establishes “grades” and “ranges” that jobs are placed in • Represent the organization’s policies of the value of jobs

19. Types of Pay Increases • Cost of living allowances (COLA’s) • Promotional increases • Pay increases within the range: • Merit pay • “Pay for performance” • Step pay • Pay for seniority

20. Traditional Merit Pay Program • Rewards employees for performance • Provides the mechanism to increase base salary • Usually combines performance level and position within the grade to determine the salary increase • Can be quite effective if designed and implemented properly • Very difficult to implement properly • Often the problem is measuring performance

21. New Ways to Pay People • Broadbanding • Skill- or knowledge-based pay • Competency-based pay • Bonuses and other incentives • Individual • Group or team • Entire organization

22. Broadbanding • Collapses many grades into fewer “broad bands” • Useful when there are few management levels • Useful for dual-career tracks • More flexibility in paying individuals within bands • More flexibility in matching individuals to market rates • Can be combined with a traditional system

23. Skill or Knowledge -Based Pay • Usually about ten skill or knowledge “units” • Encourages diversification, reduces specialization • Flexibility to change product or service emphasis • Increased work force stability, greater job security • More satisfying jobs, fewer absences, reduced labor costs (?) • More costly in compensation and training; can lead to above-market pay

24. Competencies: The set of key skills, abilities, knowledge or personal characteristics that the organization requires for it to accomplish its strategic goals. All individuals within the organization, to at least some extent, will be successful only to the degree that they have adequate levels of these competencies Competency performance data are used for development, pay, promotions and training decisions Competency-Based Pay