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Compensation. Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition. What does compensation (what you receive for your services) mean to you?. A Definition . . . All forms of financial return, tangible services and benefits

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Compensation l.jpg

Compensation

Cash, Bonuses, Insurance,

Vacation, Holidays

Perks, Recognition



A definition l.jpg
A Definition . . . mean to you?

  • All forms of

    • financial return,

    • tangible services and

    • benefits

  • that employees receive as part of their employment relationship


Components of a total compensation program 1 l.jpg
Components of a Total Compensation Program - 1 mean to you?

  • Financial

  • Direct

    • wages, salaries, commissions, bonuses

  • Indirect

    • insurance plans

      • life, health, dental, disability

    • social assistance benefits

      • retirement plans, social security, workers’ comp

    • paid absences

      • vacations, holidays, sick leave


Components of a total compensation program 2 l.jpg
Components of a Total Compensation Program - 2 mean to you?

  • Non-Financial

  • The Job

    • interesting, challenging, responsible

    • opportunity for recognition, advancement

    • feeling of achievement

  • Job Environment

    • policies, supervision, co-workers, status symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs


Factors that influence wage levels l.jpg
Factors that Influence Wage Levels mean to you?

Conditions of

Labor Market

Compensation

Policy of

Organization

Area Wage

Rates

WAGE

MIX

Worth of

Job

Cost of

Living

Employee’s

Relative Worth

Collective

Bargaining

Employer’s

Ability to Pay

Legal

Requirements


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Designing a Compensation System mean to you?

Steps in the Decision Process


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Step 1 - Establish General Wage Level for Organization mean to you?

  • Factors to consider:

  • Other firm’s rates

  • Union demands

  • Cost-of-living changes

  • Firm’s ability to pay


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Step 2 - Establish Wage Structure (The Pay for Each Job) mean to you?

  • Employ a job evaluation system

    • Ranking

    • Job Classification

    • Point System

    • Factor Comparison

  • Results:

    • pay grades

    • rate ranges


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Step 3 - Establish Pay for Each Individual on Each Job mean to you?

  • Inputs:

  • Performance appraisal information

  • Seniority system


A pay model 3 basic components l.jpg
A Pay Model -- 3 Basic Components mean to you?

  • I. Compensation Objectives

  • II. Foundation Concepts

  • III. Techniques for Management


A pay model i compensation objectives 1 l.jpg
A Pay Model mean to you?I. Compensation Objectives - 1

  • Organization Performance

  • Labor Costs

  • Attitudes and Behaviors

  • Laws and Regulations


A pay model i compensation objectives 2 l.jpg
A Pay Model mean to you?I. Compensation Objectives - 2

  • Influence forms & procedures

  • For example:

    • if objective is pay for performance, emphasize incentives, merit pay plans

    • if objective is stable, experienced workforce, emphasize seniority-based pay


A pay model ii foundation concepts l.jpg
A Pay Model mean to you?II. Foundation Concepts

  • Equity

  • External Equity

  • Comparison: outside organization

  • Internal Equity

  • Comparison: inside organization, among jobs

  • Employee Equity

  • Comparison: individuals doing same job for same organization


Equity theory l.jpg
Equity Theory mean to you?

Equity

Op/Ip = Oo/Io

Under-reward Inequity

Op/Ip < Oo/Io

Over-reward Inequity

Op/Ip > Oo/Io

p = personal, o= comparison other

I = Inputs

effort, ability, experience

O = Outcomes

pay, benefits, perks


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Why does Equity Matter? mean to you?What Behaviors are Likely to Occur when Inequity is Felt?


A pay model iii techniques for management l.jpg
A Pay Model mean to you?III. Techniques for Management

  • A. Pay Level

  • B. Pay Structure

  • C. Individual Pay Rates


A pay model iii techniques for management a pay level l.jpg
A Pay Model mean to you?III. Techniques for ManagementA. Pay Level

  • Defined: average rates paid by employer

  • Applicable concept: External Equity

  • 3 Pure Alternatives

    • lead competition

    • match competition

    • lag competition

  • Mechanism used: Market Wage Survey


Market wage and salary surveys l.jpg
Market Wage and Salary Surveys mean to you?

  • 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.


Market wage levels l.jpg
Market Wage Levels mean to you?

Company A’s Wage Level

Market Wage Level

Company B’s Wage Level

  • Which company is leading the market?

  • Which company is lagging the market?

  • What would the wage level line look like for a company that was meeting/matching the market?


A pay model iii techniques for management b pay structure l.jpg
A Pay Model mean to you?III. Techniques for ManagementB. Pay Structure

  • Defined: pay rates for different jobs within a single organization

  • Applicable concept: Internal Equity

  • Pay more for jobs with

    • greater qualifications

    • less desirable working conditions

    • more valuable output

  • Mechanism used: Job Analysis & Job Evaluation


Job evaluation l.jpg
Job Evaluation mean to you?

  • defined: the systematic evaluation of job descriptions

  • outcome: a hierarchy of organizational jobs according to their content and value to the organization

  • Methods:

    • ranking

    • classification

    • factor comparison

    • point method


Job ranking system l.jpg
Job Ranking System mean to you?

Simplest and oldest system of job

evaluation by which jobs are arrayed

on the basis of their relative worth


Job classification system l.jpg
Job Classification System mean to you?

System of job evaluation by which jobs

are classified and grouped according

to a series of predetermined wage grades


Point system l.jpg
Point System mean to you?

Quantitative job evaluation procedure

that determines the relative value of a job

by the total points assigned to it


Factor comparison system l.jpg
Factor Comparison System mean to you?

Job evaluation system that permits the

evaluation process to be accomplished

on a factor-by-factor basis by developing

a factor comparison scale


Hay profile method l.jpg
Hay Profile Method mean to you?

Job evaluation technique using three

factors – knowledge, mental activity,

and accountability – to evaluate

executive and managerial positions


A pay model iii techniques for management c individual pay rates l.jpg
A Pay Model mean to you?III. Techniques for ManagementC. Individual Pay Rates

  • Defined: pay rates for different individuals doing the same job within an organization

  • Applicable concept: Employee Equity

  • 2 Techniques

    • Flat Rate

    • Pay Ranges

  • Mechanisms used: Performance or Seniority


Wage curve l.jpg
Wage Curve mean to you?

Curve in a scattergram representing

the relationship between relative worth

of jobs and wage rates



Pay grades l.jpg
Pay Grades mean to you?

Groups of jobs within a particular class

that are paid the same rate or rate range



Common pay grade ranges l.jpg
Common Pay Grade Ranges mean to you?

  • Laborers & Trades, up to 20%

  • Clerical, Technical, Para-professional, 15-49%

  • First Level Supervisors, Professionals 30-50%

  • Middle and Senior Level Management, 40-100%


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Monitoring Compensation Costs mean to you?

  • Compra-Ratio

  • Formula:

  • A compra ratio < 1 indicates lag

  • A compra-ratio > indicates excess

Actual Average Pay for Grade

Midpoint Pay for Grade


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How Would You Handle Outliers? mean to you?

An individual whose current pay is beyond the maximum of the pay grade for his/her job

An individual whose current pay is below the minimum of the pay grade for his/her job


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Davis-Beacon Act of 1931 mean to you?

Walsh-Healy Act of 1936

Fair Labor Standards Act of 1938

Federal Wage Laws


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Nonexempt Employees mean to you?

Employees covered by the overtime

provisions of the Fair Labor Standards Act


Exempt employees l.jpg
Exempt Employees mean to you?

Employees not covered by the overtime

provisions of the Fair Labor Standards Act


Comparable worth l.jpg
Comparable Worth mean to you?

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


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Wage-Rate Compression mean to you?

Compression of differentials between

job classes, particularly the differential

between hourly workers and their managers


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