B2002

Human Resource Management

Lecture 6
A Conceptual Framework for the
Appraisal/Coaching Process (Unit 11)
Performance Appraisal (Unit 12)
Wages & Salaries (Unit 13)
Wages & Salaries Administration (Unit 14)
Lecturer: Dr. Stephen Or (Email: stephen.or@elitemass.com)
1 B2002 HRM Lecture 6

A Conceptual Framework for

Appraisal/Coaching Process
• To get improved performance from appraisal and
coaching, a continuous process is necessary.
The Basis for Appraisal
• significant job segment
• standards of performance

On-the-Job Coaching The The Appraisal

• Coaching approaches & Continuous • The appraisal process
techniques • Preparing for the appraisal
Cycle of interview
Performance • Conductingg the appraisal
pp
interview
Review
The Performance
Improvement Plan
• Preparing an effective plan
2 B2002 HRM Lecture 6

1
 Definitions
• Significant Job Segments
– The most important parts of a job
– Describe what should be done
– The word “significant” is a subjective term
– Each organisation should determine what are
significant in its jobs
• Standards of Performance
– Standards that explain how well a job should be done
• On
On-the-job
the job Coaching
– The type of coaching that is a direct follow-up after
the performance appraisal interview
– To ensure that the agreed performance improvement
plan is carried out
3 B2002 HRM Lecture 6

What is Performance?
• Definition
– Performance can be defined in terms of 3 areas:
• Attitudes & Traits
– Loyal
– Dependable
D d bl
– Decisive
• Achievement of goals & outcomes. Examples:
– Reduce drafting time of a report by 10%
– Decrease unexcused absenteeism by 25%
• Behaviors. Examples
– Smiles when answering questions from the public
– Comes to work late at least 3 times per month
• Features
– Performance depends on the job and position
– Performance affect the ability of employees to:
• accurately measure performance
• provide effective performance feedback
• bring about change in performance
4 B2002 HRM Lecture 6

2
What is his/her
Performance? (1)
Factory Worker:
• __________________
• __________________
• __________________
• __________________
Teacher:
„ ___________________

„ ___________________

„ ___________________

„ ___________________
5 B2002 HRM Lecture 6

What is his/her
Performance? (2)
Doctor:
• __________________
• __________________
• __________________
• __________________
Judge:
„ ___________________

„ ___________________

„ ___________________

„ ___________________
6 B2002 HRM Lecture 6

3
 Performance Appraisal
(PA)

7 B2002 HRM Lecture 6

Discussion –
Performance Appraisal
• 1. There are three basic reasons why organizations have performance appraisal
programs. They are:
– To provide information for salary administration
– To provide information for promotion
– To improve performance on the present jobjob.
Discuss and elaborate on these three basic reasons. [25]

• 2. Performance appraisal could be described as a process that monitors the

performance of employees through formalized and regular interviews conducted
between supervisors and their subordinates.
There are three basic reasons why organization organizations have performance
appraisal programs. They are:
– To provide information for salary administration
– To provide information for promotion
– To improve performance on the present jobjob.
Discuss and elaborate on these three basic reasons. [25]

• 3 (a) Explain and discuss the advantages a manager could expect to achieve by
regularly appraising the performance of his subordinates. [15]
3 (b) Performance appraisal schemes occasionally run into difficulties due to poor
systems design, evaluator bias and bias on the part of staff being evaluated. Explain
why this is so. Evaluate on these weaknesses. [10]
8 B2002 HRM Lecture 6

4
Performance Appraisal
(PA) - Definition
• Definition
– The system that appraises how an employee performs in relation to
agreed performance standards as spelled out in the job description &
work objectives as set out by his/her supervisor & his/her organization
– A formal system of review & evaluation of individual or team task
performance (Mondy & Noe, 2005, P.232.)
– A system of orderly and subjective methods of evaluating the present
and potential usefulness of employees to the organization.
– Also called “merit rating” in some organizations
• Features
– The appraisal interview between the employee & immediate supervisor is a
formal affair held usually once a year
– PA serves to provide information that serves as a basis for confirmation of:
• Performance
• Adjustment of future salary/wage
• Training needs & interventions
• Future career prospects of employee
– Good PA practices would involve appraising all employees of the
organization
– The PA process would identify any surplus or shortfall of skills for now &
the future
9 B2002 HRM Lecture 6

3 Reasons for
Having PA Program
• 1. To provide information for salary administration
– Employee’s performance
– Amount of improvement in performance since last salary increase
– Minimum & maximum salary y range
g of jjob
– Where the employee’ s salary is presently located in the range
– Comparison of employee’s performance with the performance of others doing
similar jobs
– Comparison of the employee’s performance with the performance of others
performing the same or similar jobs
– Length of service
– Education
– Rate of inflation since last salary increase
• 2. To provide information for promotion
– Boss to consider past performance as indication of employee’s potential
– Desire, intelligence, personality, emotional stability, leadership skill
• 3. To improve performance on the present job
• To achieve the above three, past performance is reviewed & steps are taken to
improve future performance
10 B2002 HRM Lecture 6

5
6 Objectives of PA (1)
• Primary goal: to improve individual & organizational
performance
• 1. To provide an accurate & timely description of the
profile of competencies of the organization
– At the same time, it evaluates & assesses how well the
organization’s skills set would be able to meet current &
future business needs
• 2. To settle disputes & grievances with management
– Sources of grievances:
• Between staff & staff
• Between staff & supervisor
• Between
B t staff
t ff & company
– The PA system provides staff with a platform to:
• Speak up
• Air his views, concerns, and unhappiness
– The PA system would usually provide some sort of
resolution & closure to the grievance of staff
11 B2002 HRM Lecture 6

6 Objectives of PA (2)
• 3. To improve job performance
– When PA is properly practiced, it would reward good performance &
penalize poor performance
– This serves to:
• Motivate the good performers (appraises) to even higher standards and
• Spur the under-performers (monitors) to improve & meet expectations
• 4. To increase analytical ability of supervisors
– PA system drills supervisors to assess their staff objectively & make
sounder judgment of their staff
• 5. To reveal areas where training is required
– During the PA, actual performance of an appraisee is compared with his/her
job description & job requirements
– If the staff is under-performing, there is a knowledge or skill gap
– If the staff is over
over-performing
performing, there might be case for promotion or fast
tracking
– This would usually call for further training to prepare staff for new challenges
• 6. To promote a principled-based, structured, orderly, equitable, and
transparent basis for promotions & development of staff’s career
– Under a well-designed & efficiently operated PA system, the reward &
punishment systems would be expected to be transparent, objective, and
fair
12 B2002 HRM Lecture 6

6
Performance Appraisal
(PA) –Advantages
• 1. Provides an accurate & timely evaluation of the capability of an
organisation to have correct HR with a forward look to future needs.
• 2. Enable the management to determine the employees who will be entitled
to merit increases.
• 3. Enables the management to identify those promising employees who can
be promoted as supervisors and for that purpose given due training.
• 4. Helps the management to settle grievances.
• 5. A good performance rating system improves job performance.
• 6. Increases analytical ability of supervisors.
• 7. Reveals areas where training is required.
• 8. Gives supervisors a record of progress or difficulties which they can
discuss with these employees, commending work or pointing out
deficiencies and suggesting possibilities for improvement.
• 9. Increase daily contact of a good supervisor with his/her employees.
• 10. Provides comparable information that can be used as a basis for
selecting employees for promotion or for individual merit wage or salary
increase.
13 B2002 HRM Lecture 6

Use of PA (1)
• 1. HR Planning
– A well-designed PA system provides a profile of the organization’s
HR strengths & weaknesses to support this effort
• 2. Recruitment & Selection
– Performance
P f evaluation
l ti ratings
ti may be
b hhelpful
l f l iin:
• Predicting the performance of job applicants
• Providing benchmarks for evaluating applicant responses
obtained from behaviors interviews
• Comparing test scores of job applicants during the validating
selection tests
• 3. Training & Development
– PA point out an employees’ specific needs for training &
development
• 4. Career Planning & Development
– PA data are essential in:
• Assessing an employee’s strengths & Weaknesses
• Determining the person’s potential
• Guiding managers to counsel his/her subordinates & assist
them in developing & implementing their career plans
14 B2002 HRM Lecture 6

7
Use of PA (2)
• 5. Compensation Programs
– PA results provide a basis for rational decisions regarding pay
adjustments
– Therefore, behaviors that are necessary for accomplishing
organizational
i ti l objectives
bj ti are rewarded,
d d tto fit with
ith th
the fifirm’s
’
strategic plan
• 6. Internal Employee Relations
– PA data are used for decisions in several areas of internal
employee relations, including:
• Promotion
• Demotion
• Termination
• Layoff
• Transfer
• 7. Assessment of Employee Potential
– PA data are used to assess employee potential (future oriented)
– Past behaviors in one job may not accurately indicate future
performance in a higher-level or different position
15 B2002 HRM Lecture 6

The PA Process (1)

Political Force External Environment Economic Force
• Plan the Performance
• Identify Performance Goals
• Communicate Goals
• Establish Performance Criteria

Determine:
• Responsibility for Appraisal Anticipate & Consider:
• Appraisal Period • Problems in PA
• Appraisal Method(s) • Effective PA Systems
• Computer Software

Examine Work Performed • Management Support

• Coaching and T&D

Appraise the Results

• Conduct Appraisal Interview

• Discuss Goals for Next Period
Internal Environment
Social Force (Source: HRM (9th Technological Force
16 B2002ed.)
HRM, Mondy
Lecture& Noe,
6
2005, Pearson/Prentice Hall, P.256.)

8
The PA Process (2)
• 1. Identify performance goals
• 2. Communicate the goals to those concerned &
establishinggpperformance criteria
• 3. Decide:
– Who would be responsible for the appraisal
– The appraisal period
– Appraisal method(s) to be used
– Role of computer software (if applicable)
• 4. Observe the employee’s work
• 5. Appraise the performance of employees
• 6. Discuss the appraisal with the employee, set
tentative goals, and the cycle repeats
17 B2002 HRM Lecture 6

Responsibility for
Appraisal (1)
• 1. Immediate Supervisors
– Pros
• They observe the employee’s job performance closely
• They are responsible for managing a particular unit
– Cons
• May emphasize certain aspects of employee performance & neglect others
• Manipulate evaluations to adjust pay increases & promotions
• 2. Subordinates
– Pros
• They are in excellent positions to view their superiors’ managerial
effectiveness
– Cons
• Caught up in a popularity contest
• Subordinates may be fearful of reprisal
• 3 Self-appraisal
3. S lf i l
– Pros
• One know one’s job well and know what needed to be improved
• Self-criticism is objective
• Appraisal of own performance may become more highly motivated
– Cons
• Some employees may attribute good performance to their own efforts and
poor performance to someone else
18 B2002 HRM Lecture 6

9
Responsibility for
Appraisal (2)
• 4. Peers
– They work closely with the evaluated employee, may have an
undistorted perspective on typical performance
– Pros of Evaluation by Team Members
• More accurate evaluation – team members know each others’
performance well
• Peer pressure is a power motivator for team members
• Increased commitment & productivity
– Cons of Evaluation by Team Members
• Reluctance to criticize each other
• Unfair evaluation due personal conflicts
• Lack of information needed to make an accurate assessment
• 5. Customer Appraisal
– Purpose
• To demonstrate a commitment to the customer
• To hold the employees accountable
• To foster change
19 B2002 HRM Lecture 6

Performance Appraisal

Method

20 B2002 HRM Lecture 6

10
PA Methods (1)
• The PA method being used depends on its purpose
• General Guidelines
– If the p
purpose
p is to select p
people
p for p
promotion,,
training, and merit pay increases, a traditional method
(e.g. rating scales) may be used
– If the purpose is to help employees to become more
effective, collaborate methods (including input from
the employees themselves) may be more suitable
• 5 Common PA Methods
– Appraisal Interview
– Self-appraisal
– Rating Scales/Categories
– 360-Degree Feedback Evaluation
– Forced Distribution
21 B2002 HRM Lecture 6

PA Methods (2) –
Appraisal Interview
• 1. Appraisal Interview
– The purpose of the appraisal interview is to discuss performance, not
personality.
– Emphasis should be on what the subordinate will do in the future and
not on what has been done in the past.
– However, a discussion of past performance is essential as the basis for
the future.
– Guidelines
• Establish & maintain rapport
• Clearly explain the purpose of the interview
• Encourage the subordinate to talk
• Listen & do not interrupt
• Avoid confrontation & argument
• Focus on future, not the past
• Focus on performance, not personality
• Emphasis strengths as well as areas to improve
• Terminate the interview when advisable
• Conclude on a positive note
22 B2002 HRM Lecture 6

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PA Methods (3) –
Appraisal Interview
• Objectives
– 1. To reach agreement on the performance of
the subordinate.
subordinate
– 2. To identify strengths.
– 3. To identify performance areas that need to
be improved.
– 4. To agree on a performance improvement
plan for one area needing improvement
improvement.
– 5. To agree on what’s expected (that is,
significant job segments and standard of
performance) for the next appraisal period.
23 B2002 HRM Lecture 6

PA Methods (4) –
Appraisal Interview
• Preparation by Boss
• 1. Decide on the best time
– The best time is when both parties are able to spend time together without interruption.
• 2. Decide on the best place
– A private
i t office
ffi is
i th
the b
bestt place.
l
– It should be a comfortable place where both parities can relax.
• 3. Prepare the facilities
– Perhaps the chairs should be side by side instead of across the desk from each other.
• 4. Gather information and materials
– Have the forms and information on hand so that they are readily available during the
interview.
• 5. Plan the opening
– Decide whether to talk about a current event – such as sports, or weather – or to begin
by stating the purpose of the interview.
• 6. Plan the approach
– Begin with strengths and then discuss jobs segments needing improvement.
– Go straight through the form, give your appraisal, and discuss one item at a time to get
agreement before going ahead to the next item.
• 7. Give the subordinate appropriate advance notice
– The subordinate should have enough time to prepare for the interview.

24 B2002 HRM Lecture 6

12
PA Methods (5) – 2.
Self Appraisal
• Self-appraisal is required in some PA programmes
• If the subordinate completes a self-appraisal,
preferably on the same form the boss uses, the
subordinate and the boss can sit side by side and
compare their appraisals.
• Considerations for administration of self-appraisal:
– 1. Subordinates should be given enough advance notice so that a
fair self-appraisal can be made.
– 2. Subordinates should be told the reasons for the self-appraisal
and how it will be used in the interview.
– 3. Specific instructions should be given to subordinates on the
form to use and what to do do.
– 4. Subordinates should be urged to make an objective appraisal
and not to be overly aggressive (rating themselves higher than
justified) or shy (rating themselves lower than justified).
– 5. Managers should assure subordinates that the self-appraisal
would be used to help arrive at a fair appraisal.
25 B2002 HRM Lecture 6

PA Methods (6) –
Rating Scales
• 3. Rating Scales
– A widely used PA method that rates employees according to defined factors
– Examples of Factors Chosen
• Job-related
• Personal Characteristics
– Behaviors
» Interpersonal skills
» Developing Others
» Customer service
» Teamwork
– Traits
» Adaptability
» Judgment
» Appearance
» Attitude
» Initiative
– Scales used
• Normally
N ll 5 tto 7 iin numbers
b
– 5 = Excellent (outstanding)
– 4 = Good (above expectation)
– 3 = Fair (meets expectation)
– 2 = Bad (Below expectation)
– 1 = Worst (Needs improvement)
– Pros
• Simple
• Permits quick evaluations of many employees
26 B2002 HRM Lecture 6

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PA Methods (7) - Appraisal Form

27 B2002 HRM Lecture 6

PA Methods (8) –
360-Degree Feedback Evaluation
• 4. 360-Degreee Feedback Evaluation
– Data Sources:
Boss
• Work Unit Results
• Financial
• Operational
• Leader Behaviors

Peers/Suppliers Customers
• Behaviors Employee • Work Unit Results
- Cooperation • Work Unit • Leader Behaviors
- Planning
- Teamwork

Subordinates
• Leader Behaviors

28 B2002 HRM Lecture 6

14
PA Methods (9) –
Forced Distribution
• 5. Forced Distribution Method
– A PA method which requires the rater to
assign individuals in a work group to a limited
number of categories similar to a normal
frequency distribution
Best 10% of Next 20% of Middle 40% Next 20% of Worst 10% of
Subordinates Subordinates of Subordinates Subordinates
Subordinates

Wong David
Wong, Chan Betty
Chan, Chan Peter
Chan, Hui Connie
Hui, Lee Derek
Lee,

Tam, Mary Cheung, Dora Ng, Winnie

Tsang, Judy
Law, Paul
29 B2002 HRM Lecture 6

Factors for Successful

Implementation of PA System
• 1. The company must have a well-defined PA process based on:
– (a) carefully identified & articulated jobs, duties, and
responsibilities, and
– ((b)) well-defined set of competencies
p ((skills,, knowledge,
g ,
experience, education background, etc.) required to perform
those tasks & activities
• 2. Supervisors must be trained on how to:
– (a) maintain & update performance logs & records, provide
written & verbal feedbacks to
– (b) employees in a timely, accurate, and supportive manner, and
– (c) Assist employees in improving their performance by
developing performance improvement plans
• 3. Employees must understand:
– (a) their responsibilities & job objectives to do well & succeed in
their jobs
– (b) consequences of not performing, and
– (c) what resources are available to help them improve
performance
30 B2002 HRM Lecture 6

15
 Problems/Errors of PA (1)
• Measure wrong things
• Low appraiser motivation
• Possible errors:
– 1. Leniency Errors
• The desire to err on the generous side to avoid controversy by giving each ratee the benefit
of the doubt
• Raters tend to give everyone relatively high ratings
– 2. Severity Errors
• Raters tend to give everyone relatively low ratings
– 3. Central Tendency Errors
• The inclination to rate all or more qualities and the ratees close to the average or middle of
the range
• Raters lump everyone together around the average or middle
– 4. Recency Errors
• Raters allow recent events to exercise undue influence on ratings
– 5. Personal Bias Errors
• Raters let ppersonal biases,, such as stereotypes,
yp , undulyy influence the ratings
g
– 6. Varying standards
• Raters tend to apply varying standards. This itself might become very difficult to combine or
co-relate the raters.
– 7. Systematic error or constant error
• This is a consistent tendency to over-value or under-value ratees on a given characteristic
– 8. Appraisals as opinions
• A basic limitation of appraisals is that it is a method of obtaining opinions and is not a
method of measuring performance; even at its best, the results should be considered as
reflecting opinions and should be used as such.
31 B2002 HRM Lecture 6

Problems/Errors of PA (2)
• 9. The Halo Effect
– The halo effect is the tendency of the boss to overrate a favoured
employee.
– (a) Effect of past record
• Because the person has done good work in the distant pastpast,
performance is assumed to be O.K. in the recent past too.
– (b) Compatibility
• There is a tendency to rate people whom we find pleasing of manner
and personality more highly than they deserve.
– (c) The One-Asset Person
• The glib talker (person who speaks fluently but not trustworthy), the
person with an impressive appearance gets a more favourable rating
than the person lacking these often irrelevant attributes.
– (d) The Blind-Spot Effect
• This is the case where the boss does not see certain types of defects
because they are just like his own.
– (e) The No-Complaints Bias
• The appraiser treats no news as good news.
• The subordinate who has no complaints and says that everything is
terrific is likely to go over well.
32 B2002 HRM Lecture 6

16
Problems/Errors of PA (3)
• 10. The Horns Effects
– The reverse of halo effect - the tendency to rate a person lower than the
circumstances justify.
– (a) The boss is a perfectionist
• Because the expectations of the boss are so high, he/she is more
often disappointed and rates a subordinate lower than deserved.
– (b) The subordinate is contrary (obstinately refusing to help/obey)
• Here the boss vents (provides outlet for) private-irritation with the
subordinate’s tendency to disagree too often on too many issues.
– (c ) The Oddball effect
• The oddball, the nonconformist, gets low ratings simply because of
being different.
– (d) Membership in a weak team
• A good player on a weak team ends up with lower ratings than he/she
would have received if playing on a winning one.
– (e) The dramatic-incident effect
• A recent goof (stupid error) can wipe out the effect of months of good
work and give a person a lower rating than deserved.
33 B2002 HRM Lecture 6

Compensation:

- A Total Program
- Keyy Components
p

34 B2002 HRM Lecture 6

17
Discussion –
Compensation (1)
• 1(a). Briefly define and distinguish wages and salaries. [10]
1(b). In addition to basic wages and salaries, employees will
often receive other payments. What are the most common
examples of these payments
payments. [15]

• 2(a). Briefly define and distinguish wages and salaries. [10]

2(b). The key components of a compensation package would
include:
– Base Salary
– Benefits
– Allowances
Describe and elaborate on these three components of a
compensation package. Cite suitable examples of the various
components of the compensation package in your answer.
[15]
35 B2002 HRM Lecture 6

Discussion –
Compensation (2)
• 3. Explain the following terms commonly used in employment
contracts:
– overtime pay
– shift pay
p y
– special allowances
– cost of living allowance
– Bonuses [25]
• 4. Discuss the following factors that affect wage and salary
structure:
– government legislation and public policy
– going wages and salaries
– union
i d demandsd
– productivity
– labour costs [25]
• 5. What are the factors involved in the structuring of an
organization’s wage, salary and compensation structure?
Support your answer with suitable examples. [25]
36 B2002 HRM Lecture 6

18
 Compensation: A Total Program Perspective (1)
External Environment
Internal Environment
Financial Non-financial
Direct Indirect (Benefits) The Job Job Environment
• Wages Legally Required Benefits • Skill variety • Sound policies
• Salaries • Social security • Task identify • Competent employees
• • Unemployment compensation • Task • Congenial Co-workers
Commissions • Worker’s compensation significance • Appropriate status
• Bonuses • Family & medical leave • Autonomy symbols
• Feedback • Working conditions
Voluntary Benefits Working Flexibility
• Payment for time not worked • Flexitime
• Health
H lth care • Compressed
C d workweek
k k
• Life insurance • Job sharing
• Retirement plans • Flexible compensation
• Employee stock option plans • Telecommunicating
• Supplemental unemployment • Part-time work
benefits • Modified retirement
• Employee services (Source: Adapted from Human Resource Management
37 • Premium pay (9th ed.) , 6
B2002 HRM Lecture Mondy & Noe, 2005, Pearson/Prentice Hall,
• Unique benefits P. 285.)

Compensation: A Total
Program Perspective (2)
• Types of Compensation
– Financial Compensation
• Direct Financial Compensation
– Pay that a person receives in the form of wages, salary,
bonuses, and commissions
• Indirect Financial Compensation (Benefits)
– All financial rewards that are NOT included in direct
compensation
– Non-financial
N fi i l Compensation
C i
• The satisfaction that a person receives from the
job itself or from the psychological and/or physical
environment in which the job is performed
38 B2002 HRM Lecture 6

19
Key Components of a
Compensation Structure (1)
• Key components of a Compensation
Structure
– Basic
B i S Salary
l
– Benefits
– Allowances
• Basic Salary
– The foundation block of any compensation
system
– Some organizations may adopt a
traditional salary structure
39 B2002 HRM Lecture 6

Key Components of a
Compensation Structure (3)
• Benefits
– A significant portion of the compensation
syste
system
– Usually non-cashable (cannot be
exchanged for cash)
– Have to be consumed & enjoyed
– Examples:
• Pension schemes
• Social security benefits
• Annual leave
• Home passage
• Rest & recreation leave
40 B2002 HRM Lecture 6

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Key Components of a
Compensation Structure (4)
• Allowances
– Cashable (can be exchanged for cash)
– Often paid in cash
– Examples:
• COLA (Cost of Living Allowance)
• Housing allowance
• Education allowance
• Hardship allowance
• Furnishing allowance
• Utility
Utilit allowance
ll
• Medical allowance
• Club membership allowance
• Taxes
• Car allowances
41 B2002 HRM Lecture 6

Wages & Salary

(Unit 13)

42 B2002 HRM Lecture 6

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Wages & Salary -
Definitions
• Compensation
– The total of all rewards provided employees in return for their
services (Mondy & Noe, 2005, P. 284.)
• Wages
– A payment made to manual workers and is usually expressed as
a rate per hour (Chan A. W., Mak, W. M. and Bannister, B. J. ,
Managing Human Resources in Hong Kong, 3rd Edition, 2002, P.
151.)
• Salary
– A fixed periodical payment to a non-manual employee and is
usually expressed in monthly or annual terms (Chan A. W., Mak,
W. M. and Bannister, B. J. , Managing Human Resources in
Hong Kong, 3rd Edition, 2002, P. 151.)
– Salary implies a relatively permanent employment relationship
though normally paid at monthly intervals
– Salaried workers are usually termed staff
• Benefits
– All financial rewards that employees generally receive indirectly
(Mondy & Noe, 2005, P. 324.)
43 B2002 HRM Lecture 6

Wage Structure of a
Manual Worker
• Basic Time Wage
– Sometimes fixed by job evaluation
– Subject to supply & demand in the labor market
– The worker is paid a hourly rate for every hour of
attendance at work
• Other Payments
– Overtime pay
– Shift pay
– Special additions (e.g. danger money, “dirt money”, “wet
money”, etc.)
– Merit or length of service additions
– Cost of living allowances
– Policy allowances
– Payments by results bonus
(Chan A. W., Mak, W. M. and Bannister, B. J. , Managing Human Resources in
Hong Kong, 3rd Edition, 2002, P. 151.)
44 B2002 HRM Lecture 6

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Wage Structure of a
Manual Worker
• Overtime pay
– for any work done beyond normal hours
– usually paid at premium rates, i.e. at time and a quarter, time and a
half, double time, etc.
– the
th ratet varies
i according
di tto ththe ti
time or th
the d
day on which
hi h th
the
overtime is worked.
• Shift pay
– Compensation for employees who work unusual or changing hours,
or for inconvenience & hardship
– Amount varies in different industries
– Amount ranges from about 10% - 20% of the basic rate
• Special additions (e.g. danger money, “dirt money”, “wet money”, etc.)
– paid to the employee during abnormal working conditions
– the circumstances which justify these allowances are hard to define
– many employers find it preferable to allow for these contingencies in
the job evaluated basic rate rather than give special extra payments
which are often difficult to take away again

45 B2002 HRM Lecture 6

Wage Structure of a
Manual Worker
• Merit or length of service additions
– Paid to employees either on the results of appraisal or on completion of
a certain period of service
– Merit payments
• not very popular with wage earners who feel that they are influenced by
prejudice & subjective judgments
– Length of service payments
• has an approximate relationship with merit
• encourage employees to stay with the company
• can be precisely defined.
• Cost of living allowances (COLA)
– given quite commonly in response to a rise in the general price level or
to employees who work in high cost areas. e.g. London.
– In many cases they are eventually consolidated into the basic wage
• Policy allowances
– cover miscellaneous extra payments, like the addition to the job
evaluated rate for temporarily scarce employees
• Payments by results bonus
– an extra payment based on the output of the worker or of the group to
which he belongs
46 B2002 HRM Lecture 6

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Salaries VS Wages

Salaries Wages
• Usually all-inclusive • Not all-inclusive, may have
additional payments (e(e.g.
g
danger money, productivity
bonuses, etc.)
• Progressive, may increase
annually • Reaches the standard rate for
the job and does not receive
any annual increase
• Regarded as personal to the • Wage = sum paid to all
individual workers in a particular job
• Often confidential • No secret

(Chan A. W., Mak, W. M. and Bannister, B. J. , Managing Human Resources in Hong

Kong, 3rd Edition, 2002, P. 156.)
47 B2002 HRM Lecture 6

Wage & Salary

Administration

48 B2002 HRM Lecture 6

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Salary Administration (1)
• 3 typical ways to administer salaries:
– Ad hoc
– Merit review
– Incremental scale
• Ad hoc
– Do not attempt to assess a fair level of salary for a job
using job evaluation
– Increases in salary are given erratically
(irregularly/uneven), often at the demand of the
employee
y rather than at the initiative of the companyy
– Workable in small companies
– In a large company, it can produce an illogical & unfair
salary structure which will cause discontent & jealousy
– For obvious reasons, salaries paid by this system are
intended to be confidential
49 B2002 HRM Lecture 6

Salary Administration (2)

• Merit review
– Usually found in medium & large companies in
the private sector
– After job evaluation, a salary range is attached to
every job
– Employees are appraised & given personal merit
increases yearly which will move their salaries at
varying speeds through the range
– Individual effort & merit are rewarded.
rewarded
– Salaries are kept confidential
– In most cases, employees do not know the
maximum salary it is possible to earn in their jobs
50 B2002 HRM Lecture 6

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Salary Administration (3)
• Incremental Scale
– Usually found in the public sector, e.g. the civil service,
nationalised boards, etc.
– Jobs are evaluated & graded, the salary range appearing
as, e.g. $8,000 x $200-$9,000 indicating that there is a
standard increment of $200 in each year
– Permit:
• a manager to award a double increment for exceptional
merit
• withhold an increment for unsatisfactory work/conduct
– Standard increment is given automatically
– Long service & loyalty are encouraged by regular salary
increases
– Merit is indicated by the speed of promotion to a higher
grade
– Salaries are not confidential
51 B2002 HRM Lecture 6

Wages & Salary

Administration (1)
• Wages & salary administration involves the selection, development, and
direction of programmes designed to implement compensation or incentive
policy through financial rewards
• HR managers translate selected policy into a wide range of compensation
p g
programmes:
– the simplest hourly wage or monthly salary
– much more complex incentive wage plans
– combinations of wages, benefits, and services
• Success of the whole personnel programme
– fair wage & salary policy
– consistent internal wage and salary relationships
• If the general level of wages and salaries in the organisation is too low, it is
difficult to attract & hold qualified personnel
• The establishment of sound internal wage & salary relationships is necessary to
avoid dissatisfaction
• Wage plans vary according to:
– nature of the industry
– preference of management
– Preference of the workers
• Any plan will fail to stimulate workers to the maximum output if it is not
intelligently operated
52 B2002 HRM Lecture 6

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Wages & Salary
Administration (2)
• Importance of Wage & Salary Admin.
– Wage & salary administration is one of the vital areas
of personnel administration
– Sound wage salary policy & programmes are
essential to:
• procure, maintain, develop, promote, and transfer employees
• get effective results from employees
– Wages/salaries are perhaps the most important single
element in the conditions of employment
– Organisational morale cannot be maintained at a high
l
level
l without
ith t a ffair,
i equitable
it bl andd sound
d remuneration
ti
programme
– Modern wage & salary administration is very complex,
requiring expertise & specialist know-how

53 B2002 HRM Lecture 6

Wages & Salary

Administration (3)
• Characteristics of Satisfactory Wage Plan
– 1. The wage should be related to the individual’s productivity, with
differentials for various factors such as skill, versatility, class of work,
o
working g co
conditions,
d t o s, etc
etc.
– 2. The wage plan should be easily understood by the employees.
– 3. The wage programme should be easily related to the cost control
system.
– 4. The wage systems should facilitate the comparison of the
efficiencies of the various departments.
– 5. The wage plan should make adequate provision for learners.
– 6. It is desirable that the wage programme should not involve
excessive clerical detail.
detail
– 7. It is desirable that the worker is given a guaranteed minimum
wage to protect him against conditions over which he has no control.
– 8. The wage-plan’s administration and standard should not promote
friction with workers who are not on the incentive system.

54 B2002 HRM Lecture 6

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Wage & Salary Differentials (1)
• A company employs various types of personnel – workers, supervisors,
professional, technical, managerial, and clerical
• Among employees, there are unskilled, semi-skilled, skilled and craftsmen
• Employees may belong to different occupations and functional areas, carrying
different grades of skills,
skills knowledge,
knowledge duties
duties, responsibilities
responsibilities, assignments
assignments, and
workloads.
• Employees have to be remunerated differently according to these various
considerations
• Differentials reflect:
– job content and difficulty
– Occupational
– Geographical
– Sex
– Shift
– Age
– methods of payment
– Unionisation
– size of the company
– industry
• Even among nations, highly industrialised and advanced nations pay better
wages and salaries than the developing nations.

55 B2002 HRM Lecture 6

Wage & Salary Differentials (2)

• Wage & salary differentials reflect a variety of factors and
serve many purposes:
– 1. to induce employees to change jobs;
– 2. 2 to get employees to learn and acquire new skills;
– 3. to channel employees from declining industries to the
new industries;
– 4. to get employees to accept more responsible positions.
• No firm can ignore the impact of various wage & salary
differentials
• HR administrator can often capitalise upon distortions in
outside structures to improve
p the competitive
p p
positions of
his/her own firm
• HR administrator:
– shall be constantly aware of changes in differentials to keep
his/her own wage salary programme current
– of significant importance in connection with collective
bargaining over wage issues
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 Factors Affecting Compensation
(Determinants of Compensation)

57 B2002 HRM Lecture 6

Determinants of
Compensation (1)
The Organization
Compensation Policies
Organizational Politics
The Employee Ability to pay The Labor Market
Job Performance Compensation
Merit Pay Surveys
Variable Pay Job Expediency
Skill-based Pay Cost of Living
Competency-Based Individual Financial Labor Unions
Pay Compensation Society
Seniority The Economy
Experience Pricing Legislation
Organization
Membershipp
Potential The Job
Political Influence Job Analysis
Luck Job Descriptions
(Source: Human Resource
Job Evaluation Management (9th ed.) , Mondy
Job Pricing & Noe, 2005,
Collective Bargaining Pearson/Prentice Hall, P. 287.)
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Determinants of
Compensation (2)
• Government Legislation & Public Policy
– Labor laws such as Minimum Wages Act
– In India, wage & salary administration have to take into
consideration of legal requirements
– In USA, labour policy must be reckoned with social & public
policies of the state
• Organizational Determinants of Compensation
– Competitive Strategy
• Example: High wages to attract best workers
– Organizational Performance
• Profit sharing
• Does not improve productivity
• Can improve commitment to organization
– Ability to Pay
• Unions: companies which are able to pay high or better
salaries must do so
• Management: “ability to pay” shall not be a criterion for giving
better/higher salaries
59 B2002 HRM Lecture 6

Determinants of
Compensation (3)
• Going Wages & Salaries
– The wages & salaries paid for comparable jobs by other firms
in the industry and in the community affect wage policies
– Without paying at least the going wage or salary,
salary the ability of
an organisation to attract & retain personnel will be strictly
limited
• Labour Supply & Demand
– The supply and demand factors have to be noted and
analysed and there must be flexibility in the wage and salary
policies
– When the labour market is ‘tight’ and when it is ‘loose’ has to
be determined with a view to formulating your wage structure
• Union Demand
– Trade unions play a significant role in wage & salary
administration
– Organizations need to seek co-operation of & acceptance by
unions
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Determinants of
Compensation (4)
• Productivity
– Trend: gearing wage increases to productivity
increases
– Productivity is the key factor in the operations of a
company
– High wages & low costs are possible only when
productivity increases appreciably
• Labour Costs
– wages
g & salaries constitute a cost
– no wage programme can ignore the total labour costs
and the return for the company
– Increasing labour costs seriously affect a company’s
operations, prices, and profits
61 B2002 HRM Lecture 6

Determinants of
Compensation (5)
• Job Level Determinants of • Employee Level Determinants of
Compensation Compensation
– Position in Hierarchy – Education
– Job Characteristics – Experience
– Seniority
• Education Required
– Skills or Training
• Experience Required – Professional Certification
• Special Skills Required – Personal Contacts
• Decision Making – Performance
• Nature of Relationships • Outcome achievement
– Inside the • Interpersonal skills
organization • Job behaviors
– Outside the org. – Objectively determined or
• Financial subjectively determined?
Responsibilities
• Managerial
Responsibilities
• Working Conditions
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Objectives of Having a
Sound Compensation Structure
1. To facilitate the procurement of human resources
– The organization pays a competitive wage based on objective factors (e.g. skill
level, education background, and experience)
– Able to attract suitable candidates from a competitive labor market place
– Avoid favoritism & arbitrary decisions which would not attract or retain good
candidates
2. To help maintain the organization’s pool of human resources
– If a sound compensation structure is linked with a sound performance appraisal
system,
• the performance appraisal exercise would act as a motivating factor for the
employees
• Makes sure that salaries are in line with the market
• To improve morale & productivity
3. To support an organization by developing a pool of human resources
– Motivates employees to perform better
– Attract good people from the labor market
– Help keeping good employees
– Develop the breadth & depth of the skill pool of the organization
4. To promote talented employees
– Talented employees are recognized for their talents, rewarded appropriately
5. To facilitate the promotion & transfer of good & high-performing employees within
the organization
6. To simplify collective bargaining
7. To facilitate payroll administration, budgeting, as well as wage & salary control
63 B2002 HRM Lecture 6

English – Chinese Glossary

English Chinese English Chinese

Allowance 津貼/補貼 Performance 績效

Benefit 津貼 Performance- 以績效為基礎的薪酬
based pay
Compensation 報酬 Salary 薪資/薪水
（通常以月/年計）
Compensation 報酬結構 Shift 輪班
structure
Congenial co
co- 友善的同事 Skill based
Skill-based 以技能為基礎的薪酬
workers pay
Cost of living 生活費用的津貼 Team-based 以團隊為基礎的薪酬
allowance pay
Determinant 決定因素 Wage 薪資/薪水
（通常以時/日/周計）
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