Total Rewards and Compensation

1. Total Rewards and Compensation CHAPTER 11 14e

2. Nature Of Total Rewards and Compensation • Total rewards: Monetary and non-monetary rewards provided to attract, motivate, and retain employees • Strategic decisions that guide the design of compensation practices: • Legal compliance with all applicable laws and regulations • Cost-effectiveness for the organization • Internal and external equity for employees

3. Nature Of Total Rewards and Compensation • Optimal mix of compensation components • Performance enhancement for the organization • Performance recognition and talent management for employees • Enhanced recruitment, involvement, and retention of employees

4. Figure 11.2 - Elements of Total Rewards Source: Adapted from WorldatWork (http://www.worldatwork.org).

5. Components of Compensation

6. Fair Labor Standards Act (FSLA) Child laborprovisions Exempt and non-exempt statuses Minimum wage Overtime pay Legal Constraints On Pay Systems

7. Figure 11.3 - Determining Exempt Status under the FLSA

8. Compensatory time off Incentives for non-exempts Common Overtime Issues Training time Travel time Donning and doffing time Common Overtime Issues

9. Compensation and the Law Independent contractor regulations& garnishment Equal Pay Act of 1963 Lilly Ledbetter Fair Pay Act Pay Equity Laws Acts and Legislation Affecting Compensation

10. Additional Laws Affecting Compensation • Prevailing wage: An hourly wage determined by a formula that considers the rate paid for a job by majority of the employers in the appropriate geographic area • Garnishment: A court order that directs an employer to set aside a portion of an employee’s wages to pay a debt owed to a creditor

11. Identifying Criteria for Independent Contractors Type of Relationship Financial Control Behavioral Control Independent Contractor Regulations

12. Figure 11.6 - HR Metrics for Compensation

13. Compensation Fairness and Equity Internal EquityProcedural JusticeDistributive Justice External equity Pay Secrecy vs. Openness Compensation Fairness and Equity

14. Figure 11.7 - Expectancy Theory

15. Figure11.8 - Equity Theory Source: Adams, 1965.* *Adapted from John Stacey Adams, J. S. (1965). “Inequity in social exchange.” Advances in Experimental Social Psychology. Volume 62, 1965, 335–343.

16. Figure 11.9 - Compensation Quartile Strategies

17. Market Competitiveness and Compensation Match-the-market strategy Lag-the-marketstrategy Lead-the-market strategy Market Competitive Compensation

18. Competency-Based Pay • Rewards individuals for the capabilities they demonstrate and acquire • In knowledge-based pay (KBP) or skill-based pay (SBP) systems employees: • Start at a base level of pay • Receive increases as they learn to do other jobs • Gain additional skills and knowledge • Become more valuable to the employer

19. Individual versus Team Rewards Team Individual How to develop compensation programs that support the team concept How to compensate individuals whose performance may be a result of team efforts and achievements Compensation System Design Issues

20. Compensating Expatriates

21. Figure 11.12 - Compensation Administration Process

22. Valuing Jobs with Job Evaluation Methods • Job evaluation: Formal, systematic means used to identify the relative worth of jobs within an organization • Compensable factor: Job value commonly present throughout a group of jobs within an organization • Derived from job analysis • Reflect the nature of different types of work performed in the organization

23. Job Evaluation Methods Factor-Comparison Method Ranking Method Point factor Method Classification Method Job Evaluation Methods

24. Advantages Disadvantages • Ties organizational pay levels to the external job market, without internal job evaluation distortion • Communicates to employees that the compensation system is market linked • Relies on market survey data • A specific job may differ from a matching job in the survey • Market data’s scope is a concern • Tying pay levels to market data can lead to wide fluctuations Job Evaluation Methods

25. Using Pay Surveys Broad-based Participants Survey Data Relevance and Validity Timeliness Methodology Job matches Details provided

26. Pay Surveys and Legal Issues • Organizations are permitted to participate in surveys only if they meet the following conditions: • Must be administered by a third party • Data must be more than three months old • Minimum of five employers must participate in the survey • No single employer’s data may be worth more than 25 percent of the total • All data must be aggregated and stripped of any identifying information

27. Pay Grades • Groupings of individual jobs having approximately the same job worth • Market line: Graph line that shows the relationship between: • Job value as determined by job evaluation points • Job value as determined pay survey rates • Market banding: Grouping jobs into pay grades based on similar market survey amounts

28. Pay Ranges • Each pay grade pay level can be determined by making the market line the midpoint line of the new pay structure • Broadbanding: Practice of using fewer pay grades with much broader pay ranges than in traditional compensation systems

29. Individual Pay • Red-circled employees: Current jobholder who is paid above the range set for the job • Green-circled employees: Incumbent who is paid below the range set for the job • Pay compression: Situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small

30. Standardized Pay Increases Cost-of-Living Adjustments(COLA) Across-the-Board Increases Lump-Sum Increases(LSI) Seniority Standardized Pay Adjustments