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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

Compensation

Cash, Bonuses, Insurance,

Vacation, Holidays

Perks, Recognition

a definition
A Definition . . .
  • 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
Components of a Total Compensation Program - 1
  • 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
Components of a Total Compensation Program - 2
  • 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
Factors that Influence Wage Levels

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

designing a compensation system

Designing a Compensation System

Steps in the Decision Process

step 1 establish general wage level for organization
Step 1 - Establish General Wage Level for Organization
  • Factors to consider:
  • Other firm’s rates
  • Union demands
  • Cost-of-living changes
  • Firm’s ability to pay
step 2 establish wage structure the pay for each job
Step 2 - Establish Wage Structure (The Pay for Each Job)
  • Employ a job evaluation system
    • Ranking
    • Job Classification
    • Point System
    • Factor Comparison
  • Results:
    • pay grades
    • rate ranges
step 3 establish pay for each individual on each job
Step 3 - Establish Pay for Each Individual on Each Job
  • Inputs:
  • Performance appraisal information
  • Seniority system
a pay model 3 basic components
A Pay Model -- 3 Basic Components
  • I. Compensation Objectives
  • II. Foundation Concepts
  • III. Techniques for Management
a pay model i compensation objectives 1
A Pay Model I. Compensation Objectives - 1
  • Organization Performance
  • Labor Costs
  • Attitudes and Behaviors
  • Laws and Regulations
a pay model i compensation objectives 2
A Pay Model 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
A Pay Model 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
Equity Theory

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

a pay model iii techniques for management
A Pay ModelIII. Techniques for Management
  • A. Pay Level
  • B. Pay Structure
  • C. Individual Pay Rates
a pay model iii techniques for management a pay level
A Pay ModelIII. 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
Market Wage and Salary Surveys
  • 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
Market Wage Levels

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
A Pay ModelIII. 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
Job Evaluation
  • 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
Job Ranking System

Simplest and oldest system of job

evaluation by which jobs are arrayed

on the basis of their relative worth

job classification system
Job Classification System

System of job evaluation by which jobs

are classified and grouped according

to a series of predetermined wage grades

point system
Point System

Quantitative job evaluation procedure

that determines the relative value of a job

by the total points assigned to it

factor comparison system
Factor Comparison System

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
Hay Profile Method

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
A Pay ModelIII. 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
Wage Curve

Curve in a scattergram representing

the relationship between relative worth

of jobs and wage rates

pay grades
Pay Grades

Groups of jobs within a particular class

that are paid the same rate or rate range

common pay grade ranges
Common Pay Grade Ranges
  • Laborers & Trades, up to 20%
  • Clerical, Technical, Para-professional, 15-49%
  • First Level Supervisors, Professionals 30-50%
  • Middle and Senior Level Management, 40-100%
monitoring compensation costs
Monitoring Compensation Costs
  • Compra-Ratio
  • Formula:
  • A compra ratio < 1 indicates lag
  • A compra-ratio > indicates excess

Actual Average Pay for Grade

Midpoint Pay for Grade

how would you handle outliers
How Would You Handle Outliers?

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

federal wage laws
Davis-Beacon Act of 1931

Walsh-Healy Act of 1936

Fair Labor Standards Act of 1938

Federal Wage Laws
nonexempt employees
Nonexempt Employees

Employees covered by the overtime

provisions of the Fair Labor Standards Act

exempt employees
Exempt Employees

Employees not covered by the overtime

provisions of the Fair Labor Standards Act

comparable worth
Comparable Worth

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

wage rate compression
Wage-Rate Compression

Compression of differentials between

job classes, particularly the differential

between hourly workers and their managers

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