Establishing Strategic Pay Plans Pay for Performance and Financial Incentives

1. Establishing Strategic Pay PlansPay for Performance and Financial Incentives BA 31 - Chapter 11 & 12

2. Direct Financial compensation Indirect financial compensation Expectance Theory Based on Equity when speaking of money earned. Equity: External – comparable to workers who perform similar jobs Equity: Internal – received $ according to value placed on the worker. Terminology…

3. Does the person Does the person think MOTIVATED Yes Yes want the outcome? the outcome is likely? NOT MOTIVATED NOT MOTIVATED Expectancy Theory Vroom’s theory is based on the idea that motivation depends on how much people want something and how likely they think they are to get it. Figure 11.5

4. E x I x V = Motivation E = Expectancy – PROBABILITY I = Instrumentality – THE CONNECTION BETWEEN PERFORMANCE AND REWARDS V = Valence – PERCEIVED VALUE ATTACHED TO THE REWARD Note: if E, I or V is equal to zero the equation will not work!

5. Rates and Ranges… What’s the going rate for X?

6. http://www.iaap-hq.org/ResearchTrends/Salaries2005.htm

7. What determines Ranges?

8. 1 2 3 4 5 Establishing Pay Rates Steps in Establishing Pay Rates Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). Determine the worth of each job in your organization through job evaluation (to ensure internal equity). Group similar jobs into pay grades. Price each pay grade by using wave curves. Fine-tune pay rates.

9. Ranges Determined by… • Company Earnings… • Competition, market rates or “Going Rates”, and Pay Leaders • Wage/Hour Surveys and Report findings • Job Titles • Compensation Policy set by the company • Government owned entities have “Tier-step” salaries tied to performance and length of service • Unions Contracts

10. Green Line /Red Line • Minimum – bottom of the scale is determined by: • Education • Experience • Unions Green Circles are those who are paid under the minimum for the range. This typically happens, for example, when someone is promoted from a much lower position and managers don’t want to give a huge raise of say, 20 percent or 30 percent.

11. FIGURE 11–5Plotting a Wage Curve

12. Red Lined/(or “Circled”) • When an individual is “red lined” it means that they are at the top of the scale and can go no further within the job position. What does this mean? • No more raises • No more incentives • The individual more than likely needs to move to a new position. • SEE PAGE 300

13. Redline/Greenline Article

14. Redlining: Redlining Article

15. FIGURE 11–6Wage Structure

16. OTHER FORMS OF COMPENSATION….

17. Performance-Based Pay • Merit Pay • Bonus/Incentive pay • Piecework

18. Skill-Based Pay • Benefits for Individuals and Organizations – Skills obtained through further education • Level of Skill and expertise

19. Competency-Based Pay • Seniority • Experience • Outside connections or Membership to industry organizations • Potential • Political Clout

20. LEGISLATION AND REGULATIONS Laws you need to know….

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

22. Legislation You need to know… • Davis-Bacon Act of 1931 – • National law dealing with minimum wage. Mandates a wage for all federally financed or assisted construction projects exceeding $2000. • Secretary of Labor sets the prevailing wage at the union wage, regardless of what the average wage is in the affected locality.

23. Walsh-Healy Act of 1936 • Requires federal supply contracts exceeding $10,000 to pay prevailing wages. • Overtime laws and “time and a half”

24. Fair Labor Standards Act of 1938 • FLSA established minimum wage standards on a national basis to eliminate low wages and long working hours. • Overtime and “time and a half”

25. http://www.dol.gov/esa/minwage/america.htm

26. Equal Pay Act of 1963 • Prohibits an employer from paying an employee of one gender less money than an employee of the opposite gender, if both employees do work that is substantially the same.

27. Lilly Ledbetter Act of 2009 – Obama Administration http://www.youtube.com/watch?v=V-fEdJRJk90

28. Other forms of Compensation…

29. Herzberg’s Theory

30. Motivation and Incentives • Herzberg’s Hygiene–Motivator theory • Hygienes (extrinsic job factors) • Inadequate working conditions, salary, and incentive pay can cause dissatisfaction and prevent satisfaction. • Motivators (intrinsic job factors) • Job enrichment (challenging job, feedback, and recognition) addresses higher-level (achievement, self-actualization) needs. • The best way to motivate someone is to organize the job so that doing it helps satisfy the person’s higher-level needs.

31. TABLE 12–1 Lump-Sum Award Determination Matrix (an Example) To determine the dollar value of each employee’s incentive award: (1) multiply the employee’s annual, straight-time wage or salary as of June 30 times his or her maximum incentive award and (2) 89multiply the resultant product by the appropriate percentage figure from this table.Example: if an employee had an annual salary of $20,000 on June 30 and a maximum incentive award of 7% and if her performance and the organization’s performance were both “excellent,” the employee’s award would be $1,120 ($20,000 × 0.07 × 0.80 = $1,120).

32. Christmas Bonus Ranking System:

33. Employee Preferences for Noncash Incentives

34. Incentive Pay Stock Options Company Credit Card Travel Parking Bonuses Season tickets to games… Club Memberships Use of corporate jet… (get real…) Other forms of compensation

35. This template is on MS Word

36. Establishing Strategic Pay PlansPay for Performance and Financial Incentives BA 31 - Chapter 11 & 12