Compensation and Benefits PHR 19% - SPHR 13%
Total Rewards: Financial & Non Financial
Inducements: Rewards for Work Financial Compensation Non-financial Compensation Incentives Merit Pay Piece-Rate Incentives Bonuses Group Incentives Gain Sharing Profit Sharing Executive Incentives Job Content Interesting duties Responsibilities Achievement Recognition Challenge Advancement Direct Pay Wages Salary Benefits Health Care Accident Insurance Pay for Time Not Worked Workers’ Compensation Social Security Pensions Employee Services Job Environment Comfortable Working Conditions Friendly Co-workers Considerate Supervision Status and Position Fair Company Policies Compatible Work Schedule
Strategic Objectives of Compensation Compensation has a strong influence on job satisfaction, productivity, labor turnover, and other organizational processes.
Pay & benefits can attract or discourage potential employees in the recruiting, selecting, & hiring process. Staffing Availability of potential employees & labor market conditions influence pay & benefits. Pay incentives influence performance levels & wage levels can bias the evaluation process. Performance Evaluation Compensation System Performance evaluation should be a significant determinant of individual compensation. Training & Development Pay incentives can stimulate interest in training & reinforce the development of new skills. Higher skill levels should lead to higher levels of pay. Inadequate or inequitable compensation systems create employee dissatisfaction, union organizing, & labor grievances. Employee Relations Pay rates & benefits may be negotiated with employee groups or a labor union.
Discussion Question: What are the objectives of a compensation system? What happens if all of these objectives are not considered simultaneously?
Cost/benefit effective Legal Secure Compensation Motivating Equitable Adequate Strategic Objectives of Compensation
Determinants of Pay • Many factors besides the job market influence pay levels, and these factors need to be considered as a whole. • What are the major factors that influence pay?
Wage Decisions • Wage-level decision • Wage-structure decision • Individual wage decision
The Wage-level Decision
Discussion Question: What would be the consequences of a wage-level decision that pays wages that are significantly higher than the market rate?
Establishing the Wage Level • To attract an adequate supply of labor. • To keep present employees reasonably satisfied with their compensation. • To avoid costly turnover.
Factors Influencing the Wage Level Most significant factors influencing wage levels: • Organizational Size • Unionization • Productivity (Ability to Pay)
Wage Surveys What four conditions must be met for do-it-yourself wage surveys to be useful?
Discussion Question: What are the major limitations of information gained from wage surveys?
Job Evaluation Methods
Wage-Structure Decision How much each job should be paid relative to other jobs in the organization.
Job Evaluation The systematic approach of determining the relative worth or value of each job in an organization.
Ranking Method The simplest method of developing a wage structure is to have the job-evaluation committee rank the jobs from highest to lowest in value. What are the advantages and disadvantages of the ranking method?
Classification/Grading Method Job descriptions for each job are compared with a classification scheme that ranks the jobs in a hierarchy of job worth.
Point Method The compensable factors of key jobs are used to develop the wage curve. Points are assigned to each factor, and the total points are associated with a specific pay level.
Illustration of a Wage Curve Using the Point Method of Job Evaluation Wage curve passes through the midpoint of each pay grade $ Points
Discussion Question: In developing a wage curve, why is it so important for the key jobs to be equitably paid jobs?
X Pay $ Y Points Wage Curve Based on 15 Key Jobs
Factor Comparison Method • Identify key (benchmark) jobs • Identify job factors • Rank jobs • Assign monetary amounts to each job on each factor • Compare unique jobs with key jobs
Guide Chart-Profile Method A job evaluation system that is basically a factor comparison system, although it is also very similar to the point method since it uses points.
Job Pricing and Pay Rate Administration
Job Pricing The process of placing a dollar value on the worth of a job is referred to as job pricing.
Pay Grades Constructed Along the Wage Curve Maximum Hourly wage Red circle rate Trend line Maximum for labor grade 2 Minimum limit line Starting wage for labor grade 2 Pay range
Two Pay Ranges 10% $ 20% Points
Discussion Question: What are compa-ratios and how can they be used?
Discussion Question: What are red circle rates? What alternative methods does a company have for handling red circle rates?
Adjustments for Inflation • Administrative problems may arise when the wage structure has to be adjusted due to inflation or internal changes within the organization, such as job redesign. • What are the consequences of adjusting the wage curve?
Individual Pay Rate Determination The relative pay of individuals who perform similar jobs in the same company.
Pay Decisions Pay decisions are controlled by two basic processes. • The design of the wage structure • The formal budgeting process
Economic Factors Affecting Compensation
Economic Factors Affect Compensation • Inflation • Interest rates • Industry competition • Foreign competition • Economic growth • Demographic trends
Demographic Trends The labor market is primarily influenced by five demographic forces: • birthrates • participation rates • immigration • Education • unemployment How can demographic trends in the labor market impact wages?
Discussion Question: How does an increase or decrease in unemployment rates influence a company's compensation system?
Incentive Compensation Systems
Money & Motivation Theories How is money viewed in the following theories? • Need Theory • Self-determination Theory • Expectancy Theory • Equity Theory • Goal Setting Theory
Discussion Question: According to Expectancy Theory, what should a supervisor do to motivate an employee?
Efforts to Reduce Inequity Inequity can exist when people are either overpaid or underpaid. Both conditions or inequity motivate individuals to establish a more equitable exchange. What methods do individuals use to reduce inequity?
Incentive Compensation Plays a strategic role in increasing organizational effectiveness.
Straight piecework: 25 cents/unit $ Taylor’s differential piece-rate plan: 22 cents/unit if less than standard; 27 cents/unit if more than standard Standard Number of units produced A Comparison of Straight Piecework & F.W. Taylor’s Differential Piece-Rate Plan
The Standard Hour Plan Workers are paid an hourly wage, but the hour is measured in units produced rather than in minutes.
The Halsey Premium Plan • Workers receive a guaranteed hourly wage plus a percentage (33 percent was recommended) of the wage for any time saved. • The actual production standards are determined by past performance rather than by time-and-motion studies.