Chapter 11 Establishing Rewards and Pay Plans

1. Chapter 11 Establishing Rewards and Pay Plans

2. Introduction • What is your biggest motivator at work? • Promotions • Great work assignments • Recognition • Control over your own work? • Pay – covered in this chapter Fundamentals of Human Resource Management 11e

3. Extrinsic Intrinsic Financial Non-financial participation in decision making assigned parking space Implied membership-based Explicit membership-based Performance based greater job freedom preferred assignments protection Program cost of living increase bonuses more responsibility business cards pay for time not worked labor market adjustment piecework opportunities for growth own secretary services/ perks profit sharing commission diversity of activities incentive plans impressive title time-in-rank increase merit pay plans Rewards Review Fundamentals of Human Resource Management 11e

4. Intrinsic versus Extrinsic Rewards Fundamentals of Human Resource Management 11e

5. Types of Reward Plans • Financial rewards • Wages • Bonuses • Profit sharing • Pension plans • Paid leaves • Purchase discounts • Nonfinancial rewards • Make life on the job more attractive • Employees vary on the rewards they prefer Fundamentals of Human Resource Management 11e

6. Performance-based versus Membership-Based Rewards • Performance-based rewards are tied to specific job performance criteria • Commissions • Piecework pay plans • Incentive systems • Group bonuses • Merit pay • Membership-based rewards are offered to all employees • Cost-of-living increases • Benefits • Salary increases Fundamentals of Human Resource Management 11e

7. Compensation Administration Both employees and employers can research compensation facts and issues at www.salary.com http://salary.nytimes.com/ http://www.salaryexpert.com/ Companies derive their compensation programs from job evaluation, which defines the appropriate worth of each job. An effective, fair compensation program attracts, motivates and retains competent employees Fundamentals of Human Resource Management 11e

8. Compensation Administration The Fair Labor Standards Act is administrated by the Wage and Hour Division of the U.S. Department of Labor Click here to see the website • The Fair Labor Standards Act (FSLA) requires: • Minimum wage • Overtime pay • Record-keeping • Child labor restrictions • Exempt employees • Include professional and managerial employees not covered under FSLA overtime provisions • Exempt employees • Include professional and managerial employees not covered under FSLA overtime provisions Fundamentals of Human Resource Management 11e

9. Compensation Administration Equal Pay Act of 1963 requires that men and women hired for the same job be paid the same.   • Civil Rights Act: • Broader than Equal Pay Act • Prohibits discrimination on the basis of gender • Used to support comparable worth concept • Salaries established based on skill, responsibility, effort, and working conditions Fundamentals of Human Resource Management 11e

10. Job Evaluation and the Pay Structure Research wage information at the Bureau of Labor Statistics http://www.bls.gov/bls/blswage.htm Job evaluation helps set pay structure. • Job analysis information determines the relative value, or rank, of each job in the organization. • Other pay structure factors: • Labor market conditions • Collective bargaining • Individual skill differences Fundamentals of Human Resource Management 11e

11. Job Evaluation and the Pay Structure Fundamentals of Human Resource Management 11e

12. Job Evaluation and the Pay Structure Establishing the Pay Structure • Compensation Surveys • Used to gather factual data on pay rates for other organizations. Information is often collected on associated employee benefits as well. • Wage Curves • Drawn by plotting job evaluation data (such as job points or grades) against pay rates (actual or from survey data). • Indicates whether pay structure is logical. • Wage Structure • Designates pay ranges for jobs of similar value. Results in a logical hierarchy of wages, in overlapping ranges. Fundamentals of Human Resource Management 11e

13. Job Evaluation and the Pay Structure External factors also influence pay structure Geographic differences (local supply and demand) Labor supply (low supply = higher wages and vice versa) Competition (HR can match, lead, or lag) Cost of living as determined by the CPI Collective bargaining (unions) Fundamentals of Human Resource Management 11e

14. Special Cases of Compensation individual organization-wide group Incentive Compensation Plans Incentives can be added to the basic pay structure to provide rewards for performance Fundamentals of Human Resource Management 11e

15. Special Cases of Compensation Individual Incentives • Merit pay plans(annual increase, based on performance) • Piecework plans(pay based on number of units produced typically in a specified time period) • Time-savings bonuses and commissions These work best where clear objectives are set and tasks are independent Fundamentals of Human Resource Management 11e

16. Special Cases of Compensation Group Incentives Incentives can be offered to groups, rather than individuals, when employees' tasks are interdependent and require cooperation. Fundamentals of Human Resource Management 11e

17. Special Cases of Compensation Organization-wide Incentives • Direct employee efforts toward organizational goals (such as cost reduction) • Scanlon Plan - supervisor and employee committees suggest labor-saving improvements. • See http://www.scanlon.org/ • IMPROSHARE - formula is used to determine bonuses based on labor cost savings. • See http://www.qualitydigest.com/jul/gainshre.html Fundamentals of Human Resource Management 11e

18. Special Cases of Compensation Paying for performance • Competency-based compensation • Rewarded for skills, knowledge and behaviors • Leadership • Problem solving • Decision making • Strategic planning • Broad-banding • Pre-set pay levels that determine what people are paid based on their type and level of competency. Fundamentals of Human Resource Management 11e

19. Special Cases of Compensation Team-Based Compensation • Incentives for empowered work teams to exceed established goals and share equally in rewards • Depends on: • Clarity of team purpose and goals • Ability of the team to obtain needed resources • Effective team communication skills and trust Fundamentals of Human Resource Management 11e

20. Executive Compensation Programs Salaries of Top Managers Executive pay can run 400 times higher than that of the average worker Competition for executive talent raises the price of hiring an executive High salaries can be a motivator for executives and lower-level managers Click here to see some of the highest paid executives Fundamentals of Human Resource Management 11e

21. Executive Compensation Programs Supplemental Financial Compensation • Deferred bonuses • Paid to executives over extended time periods, to encourage them to stay with the company • Stock options • Allow executives to purchase stock in the future at a fixed price • Hiring bonuses • Compensate for the deferred compensation lost when leaving a former company Fundamentals of Human Resource Management 11e

22. paid life insurance free financial, legal and tax counseling supplemental retirement accounts interest-free loans perks may include postretirement consulting contracts mortgage assistance expense accounts supplemental disability insurance company cars Executive Compensation Program Supplemental Nonfinancial Compensation Perquisites club memberships Fundamentals of Human Resource Management 11e

23. Executive Compensation Programs Supplemental Nonfinancial Compensation Perks • Golden parachutes • Protect executives when a merger or hostile takeover occurs by providing severance pay or a guaranteed position • Click here for a list of some of the most expensive golden parachutes awarded Fundamentals of Human Resource Management 11e

24. International Compensation HR needs to understand the statutory requirements of each country International compensation packages generally utilize the “balance-sheet approach,” using these four factors: • Base pay • Pay of employees in comparable jobs at home • Differentials • Compensation given to offset higher costs of living abroad • Incentives • Inducements given to encourage employees to accept overseas assignments • Assistance programs • Payment for expenses involved in moving a family abroad and in providing some services overseas Fundamentals of Human Resource Management 11e

25. Fill-in-the-blanks 1. _________ rewards come from the job itself; _________ rewards come from outside the job. Intrinsic; extrinsic 2. Wages, bonuses, and pension plans are examples of _________ rewards. financial 3. The _________ is the source of companies’ compensation programs. job evaluation 4. Scanlon and IMPROSHARE are examples of ________ incentives. organization-wide 5. Using pre-set pay levels that determine what people are paid based on their type and level of competency is called _______. Broad-banding 6. _______protect executives when a merger or hostile takeover occurs by providing severance pay or a guaranteed position. Golden parachutes Fundamentals of Human Resource Management 11e