Establishing Strategic Pay Plans

Semester Ganjil 2018/2019

Sumber:
• Gary Dessler. Human Resource Management, Fourteenth Edition.
• Peraturan Pemerintah No. 78 Tahun 2015 tentang Pengupahan.
• PERATURAN MENTERI TENAGA KERJA DAN TRANSMIGRASI
REPUBLIK INDONESIA NOMOR 13 TAHUN 2012 TENTANG
KOMPONEN DAN PELAKSANAAN TAHAPAN PENCAPAIAN
KEBUTUHAN HIDUP LAYAK.
 Basic Factors in Determining Pay Rates … (a)
• Employee compensation: all forms of pay going to employees and arising
from their employment.

Employee Compensation
Components

Direct financial Indirect financial payments (financial

payments (wages, salaries, incentives, benefits like employer-paid insurance
commissions, and bonuses) and vacations)
 Basic Factors in Determining Pay Rates … (b)
1. Direct financial payments to employees based on increments of time or
based on performance.
Time-based pay
Blue-collar and clerical workers: hourly Managers or Web designers: tend to be
or daily wages salaried and paid weekly, monthly, or yearly.

2. Direct payment option based on pay for performance: amount of

production, sales commissions
Many employers’ pay plans combine time-based pay and incentives.
Several Factors should Influence any Pay Plan’s Design
Aligning total rewards with strategy

• Advance the firm’s strategic aims  aligned reward strategy  creating a

COMPENSATION PACKAGE (including wages, incentives, and benefits) that
PRODUCES THE EMPLOYEE BEHAVIORS THE FIRM NEEDS TO
ACHIEVE ITS COMPETITIVE STRATEGY.
• TOTAL REWARD STRATEGY  traditional pay, incentives, and benefits,
job design, career development, and recognition programs.
 Compensation Policy Issues
• Pay for performance
• Pay for seniority
• The pay cycle
• Salary increases and promotions
• Overtime and shift pay
• Probationary pay
• Paid and unpaid leaves
• Paid holidays
• Salary compression
• Geographic costs of living differences

11–6
 Equity and Its Impact on Pay Rates … (a)

• The equity theory of motivation  people are motivated to maintain a balance between
what they perceive as their contributions and their rewards.
• If a person perceives an inequity, a tension or drive will develop that motivates him or her to
reduce the tensions and perceive inequity.
• Overpaying can sometimes backfire, perhaps due to feelings of guilty or discomfort.
 Equity and Its Impact on Pay Rates … (b)
1. External equity refers to how a job’s pay rate in one company compares to the job’s pay
rate in other companies.
2. Internal equity refers to how fair the job’s pay rate is when compared to other jobs
within the same company (for instance, is the sales manager’s pay fair, when compared to
what production manager earns?).
3. Individual equity refers to the fairness of an individual’s pay as compared with what his
or her coworkers are earning for the same or very similar jobs within the company, based
on each person’s performance.
4. Procedural equity refers to the “perceived fairness of the processes and procedures used
to make decisions regarding the allocation of pay.”
 Equity and Its Impact on Pay Rates … (c)

Addressing Equity Issues

• Salary surveys  external equity
• Job analysis and comparisons of each job (job evaluation)  internal equity
• Performance appraisal and incentive pay  individual equity
• Communication, grievance mechanisms, and employee participation to help ensure that
employees view the pay process as procedurally fair  How satisfied are you with your pay?
What factors do you believe are used when your pay is determined?
 Legal Considerations in Compensation

1. Peraturan Pemerintah No. 78 Tahun 2015 tentang Pengupahan.

2. PERATURAN MENTERI TENAGA KERJA DAN TRANSMIGRASI
REPUBLIK INDONESIA NOMOR 13 TAHUN 2012 TENTANG
KOMPONEN DAN PELAKSANAAN TAHAPAN PENCAPAIAN
KEBUTUHAN HIDUP LAYAK.
3. Contoh: PERATURAN GUBERNUR PROVINSI DAERAH KHUSUS
IBUKOTA JAKARTA NOMOR 16 TAHUN 2018 TENTANG UPAH
MINIMUM SEKTORAL PROVINSI TAHUN 2018.
4. Contoh: Keputusan Gubernur Jabar tentang UMK tahun 2018
Union Influences on Compensation Decisions… (a)

• PENETAPAN NILAI KEBUTUHAN HIDUP LAYAK (KHL)

Jumlah Tim Survei yang dibentuk disesuaikan dengan kebutuhan. Anggota
masing - masing Tim Survei di daerah yang telah terbentuk Dewan Pengupahan
sebanyak 5 (lima) orang, yang terdiri dari 4(empat) orang anggota Dewan
Pengupahan yang keanggotaannya terdiri dari unsur Pemerintah, Organisasi
Pengusaha, Serikat Pekerja/Serikat Buruh, Perguruan Tinggi dan Pakar,
dan 1 (satu) orang dari BPS setempat.
 Union Influences on Compensation Decisions… (b)
• JAYAPURA, KOMPAS.com - Pengurus Serikat Pekerja Seluruh Indonesia (SPSI) Provinsi Papua
menilai penetapan Upah Minimum Provinsi (UMP) 2018 oleh Pemerintah Provinsi Papua tidak
sesuai prosedur. Ketua SPSI Papua Nurhaidah mengungkapkan, semua mekanisme yang harus
dilalui sebelum dihasilkan rekomendasi besaran UMP, sama sekali tidak dijalankan. “Kita juga
anggota Dewan Pengupahan Papua. Dalam penetapan UMP 2018 sama sekali tidak dilakukan
survei Kebutuhan Hidup Layak (KHL) 2017. Bila itu tak dilakukan, maka tidak bisa menghitung
besaran UMP,” ungkapnya, Kamis (2/11/2017). Nurhaidah menegaskan, yang sudah dilakukan
Pemprov Papua dengan menetapkan UMP 2018 bisa berdampak pada konsekuensi hukum ke
depannya.

Artikel ini telah tayang di Kompas.com dengan judul "Serikat Pekerja Nilai Penetapan UMP Papua Tidak
Sesuai Prosedur", https://regional.kompas.com/read/2017/11/02/15343851/serikat-pekerja-nilai-penetapan-
ump-papua-tidak-sesuai-prosedur.
Penulis : Kontributor Jayapura, Jhon Roy Purba
 Establishing Pay Rates
Steps in Establishing Pay Rates

Conduct a salary survey of what other employers are

1
paying for comparable jobs (to help ensure external equity).

2
Determine the worth of each job in your organization
through job evaluation (to ensure internal equity).

3 Group similar jobs into pay grades.

4 Price each pay grade by using wave curves.

5 Fine-tune pay rates.

Step1: The Salary Survey

Uses for Salary Surveys

To price To market-price To make decisions

benchmark jobs wages for jobs about benefits
Sources for Salary Surveys
Sources of Wage and
Salary Information

Self-
Consulting Professional Government The
Conducted
Firms Associations Agencies Internet
Surveys
TABLE 11–2 Some Pay Data Web Sites

Sponsor Internet Address What It Provides Downside

Salary.com Salary.com Salary by job and zip code, Adapts national
plus job and description, averages by applying
for hundreds of jobs local cost-of-living
differences

Wageweb www.wageweb.com Average salaries for more than Charges for

150 clerical, professional, and breakdowns by
managerial jobs industry, location, etc.

U.S. Office of www.opm.gov/oca/ Salaries and wages for U.S. Limited to U.S.
Personnel 09Tables/index.asp government jobs, by location government jobs
Management

Job Smart http://jobstar.org/tools/ Profession-specific salary Necessary to review

salary/sal-prof.php surveys numerous salary
surveys for each
profession

cnnmoney.com cnnmoney.com Input your current salary and Based on national

city, and this gives you averages adapted
comparable salary in to cost-of-living
destination city differences
Job Evaluation Methods
Job Evaluation Methods … (a)
Employers use two basic approaches to setting pay rates:
1. Market-based approaches: conducting formal or informal salary surveys to
determine what other in the relevant labor markets are paying for particular
jobs  price their own jobs.
2. Job evaluation methods: assigning values to each of the company’s jobs 
helps to produce a pay plan in which each job’s pay is equitable based on its
value to the employers.

Formal and systematic A Wage or Salary Structure

comparison of jobs to of Hierarchy (the pay rate for
determine the worth of one various jobs or groups of
job relative to another jobs)
Job Evaluation Methods … (b)
The basic principle of job evaluation: Jobs that require greater
qualification, more responsibilities, and more complex duties
should receive more pay than jobs with lesser requirements.

The basic job evaluation procedure:

• to compare jobs in relation to one another (job complexity, skills,
required effort) in your firm
• conduct a salary survey to see what other are paying for similar
jobs.
• Price all the jobs in your company
 Factors that establish how the jobs compare to one
another, and that determine the pay for each jobs

Identifying Compensable Factors

Working
Skills Effort Responsibility
conditions

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–20

Preparing for the Job Evaluation:
a judgmental process and demands close cooperation among
supervisors, HR specialists, and employees and union
representatives

Preparing for the Job Evaluation

1 Identifying the need for the job evaluation

2 Getting the cooperation of employees
3 Choosing an evaluation committee
4 Performing the actual evaluation
11–21
 How to Evaluate Jobs

Methods for Evaluating Jobs

Ranking Job classification Point method

11–22
 Job Evaluation Methods: Ranking
• Ranking each job relative to all other jobs, usually based on some overall
factor.
• Steps in job ranking:
1. Obtain job information.
2. Select and group jobs.
3. Select compensable factors.
4. Rank jobs.
5. Combine ratings.

11–23
Illustration a Job Ranking at Jackson Hospital
Ranking Order Annual Pay Scale
1. Office manager $ 43,000
2. Chief nurse 42,500
3. Bookkeeper 34,000
4. Nurse 32,500
5. Cook 31,000
6. Nurse’s aide 28,500
7. Orderly 25,500
Job Evaluation Methods:
Job Classification or Job Grading

Raters categorize jobs into groups or classes of jobs that are of roughly the
same value for pay purposes.
1. Classes contain similar jobs.
Administrative assistants
2. Grades are jobs similar in difficulty but otherwise different.
Mechanics, welders, electricians, and machinists
3. Jobs are classed by the amount or level of compensable factors they contain.
 FIGURE 11–4Example of a Grade Level Definition

This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance
work. Do not use this chart alone for classification purposes; additional grade level criteria are in the
Web-based chart.

11–26
 Job Evaluation Methods: Point Method
A quantitative technique that involves:
• Identifying the degree to which each compensable factor is
present in the job.
• Awarding points for each degree of each factor.
• Calculating a total point value for the job by adding up the
corresponding points for each factor.

11–27
 How To Create a
Market-Competitive Pay Plan
 The 16 steps in creating a market-competitive pay plan

1. Choose benchmark jobs 9. Draw the current (internal) wage

2. Select compensable factors curve
3. Assign weights to compensable 10. Conduct a market analysis: Salary
factors surveys
4. Convert percentages to points for 11. Draw the market (external) wage
each factor curve
5. Define each factor’s degrees 12. Compare and adjust current and
6. Determine for each factor its factor market wage rates for jobs
degrees’ points 13. Develop pay grades
7. Review job descriptions and job 14. Establish rate ranges
specifications 15. Address remaining jobs
8. Evaluate the jobs 16. Correct out-of-line rates
 Pricing Managerial and Professional Jobs
• The basic aim is the same with developing compensation plans for any
employee: to attract, motivate, and retain good employee.
• There are some big differences between managerial jobs and
production/clerical jobs.
1. Tend to stress harder-to-quantify factors like judgment and problem
solving more than do production and clerical jobs.
2. More emphasis on their performance or on what they can do, rather than
on static job demands like working conditions.
3. They must compete in the marketplace.
 What Determines Executive Pay?
• In reality, CEO pay is set by the board taking into account a variety of
factors such as the business strategy, corporate trends, and most
importantly where they want to be in a short and long term.”
• Job complexity (span of control, the number of functional divisions over
which the executive has direct responsibility, and management level).
• The employer’s ability to pay (total profit and rate of return).
• The executive’s human capital (educational level, field of study, work
experience)
 Compensating Executives and Managers
• The basic approach: to classify executive and management positions into a series of
grades, each with a salary range.
• Compensation for executives:
1. Base pay: fixed salary, guaranteed bonuses such as “10% of pay at the end of the
fourth fiscal quarter, regardless of whether or not the company makes a profit”.
2. Short-term incentives: cash or stock bonuses for achieving short-term goals such as
year-to-year increases in sales revenue.
3. Long-term incentives: aim to encourage the executive to take actions that drive up
the value of the company’s stock and include things like stock options  the executive
has the right to purchase stock at a specific price for a specific period.
4. Executive benefits and perks  supplemental executive retirement pension plans.
Contemporary Topics in Compensation
Competency- based Pay
• With competency-generally skill or knowledge-based pay  pay the employee for the skills and
knowledge he or she is capable of using rather than for the responsibilities or title of the job currently
held.
• Experts variously call this competence-, knowledge-, or skill- based pay.
• Competencies are demonstrable personal characteristics such as knowledge, skills, and personal
behaviors such as leadership.
• Main elements of skill/competency/knowledge–based pay programs:
1. A system that defines specific skills
2. A process for tying the person’s pay to his or her skill
3. A training system that lets employees seek and acquire skills
4. A formal competency testing system
5. A work design that lets employees move among jobs to permit work assignment flexibility
• .
 Competency-Based Pay: Pros and Cons
• Pros
• Higher quality
• Lower absenteeism
• Fewer accidents
• Cons
• Pay program implementation problems
• Costs of paying for unused knowledge, skills, and behaviors
• Complexity of program
• Uncertainty that the program improves productivity
11–35
Broadbanding
• Most firms end up with pay plans that slot jobs into classes or grades, each
with its own vertical pay rate range.
• “how wide should salary grades be, in terms of the number of job evaluation
points they include?”
• Broadbanding means collapsing salary grades into just a few wide levels or
bands, each of which contains relatively wide range oh jobs and pay levels.
FIGURE 11–8 Broadbanded Structure and How It Relates
to Traditional Pay Grades and Ranges
The Pay Gap
• Factors Lowering the Earnings of Women:
1. Women’s starting salaries are traditionally lower.
2. Salary increases for women in professional jobs do not reflect
their above-average performance.
3. In white-collar jobs, men change jobs more frequently, enabling
them to be promoted to higher-level jobs over women with
more seniority.
4. In blue-collar jobs, women tend to be placed in departments
with lower-paying jobs.
 Improving Productivity Through HRIS:
Automating Compensation Administration
• Benefits of Compensation Automation:
1. Allows for quick updating of compensation programs
2. Eliminates costs of formerly manual processes
3. Coordinates centralized compensation budgets to prevent overages in
compensation and raises

4. Can integrate and automatically administer other pay actions

 Chapter 11
Appendix

11–40

Copyright © 2011 Pearson Education, Inc.

publishing as Prentice Hall
FIGURE 11–A1 Sample Definitions of Five Factors Typically
Used in the Factor Comparison Method

1. Mental Requirements
Either the possession of and/or the active application of the following:
A. (inherent) Mental traits, such as intelligence, memory, reasoning, facility in verbal expression,
ability to get along with people, and imagination.
B. (acquired) General education, such as grammar and arithmetic; or general information as to sports, world
events, etc.
C. (acquired) Specialized knowledge, such as chemistry, engineering, accounting, advertising, etc.

2. Skill Requirements
A. (acquired) Facility in muscular coordination, as in operating machines, repetitive movements, careful
coordinations, dexterity, assembling, sorting, etc.
B. (acquired) Specific job knowledge necessary to the muscular coordination only; acquired by
performance of the work and not to be confused with general education or specialized knowledge.
It is very largely training in the interpretation of sensory impressions.
Examples
1. In operating an adding machine, the knowledge of which key to depress for a subtotal would be skill.
2. In automobile repair, the ability to determine the significance of a knock in the motor would be skill.
3. In hand-firing a boiler, the ability to determine from the appearance of the firebed how coal should be
shoveled over the surface would be skill.

3. Physical Requirements
A. Physical effort, such as sitting, standing, walking, climbing, pulling, lifting, etc.; both the amount
exercised and the degree of the continuity should be taken into account.
B. Physical status, such as age, height, weight, sex, strength, and eyesight.
FIGURE 11–A1 Sample Definitions of Five Factors Typically
Used in the Factor Comparison Method (cont’d)

4. Responsibilities
A. For raw materials, processed materials, tools, equipment, and property.
B. For money or negotiable securities.
C. For profits or loss, savings or methods’ improvement.
D. For public contact.
E. For records.
F. For supervision.
1. Primarily the complexity of supervision given to subordinates; the number of subordinates is a secondary
feature. Planning, direction, coordination, instruction, control, and approval characterize this kind of supervision.
2. Also, the degree of supervision received. If Jobs A and B gave no supervision to subordinates,
but A received much closer immediate supervision than B, then B would be entitled to a higher rating than A in
the supervision factor.
To summarize the four degrees of supervision:
Highest degree—gives much—gets little
High degree—gives much—gets much
Low degree—gives none—gets little
Lowest degree—gives none—gets much

5. Working Conditions
A. Environmental influences such as atmosphere, ventilation, illumination, noise, congestion,
fellow workers, etc.
B. Hazards—from the work or its surroundings
C. Hours
 TABLE 11–A1 Ranking Key Jobs by Factors1

Mental Physical Skill Working

Requirements Requirements Requirements Responsibility Conditions

Welder 1 4 1 1 2
Crane operator 3 1 3 4 4
Punch press operator 2 3 2 2 3
Security guard 4 2 4 3 1

11 is high, 4 is low.

Copyright © 2011 Pearson

11–43 Education, Inc. publishing
as Prentice Hall
 TABLE 11–A2 Ranking Key Jobs by Wage Rates1

Requirements
Hourly Working
Wage Mental Physical Skill Responsibility Conditions

Welder $9.80 4.00 (1) 0.40 (4) 3.00 (1) 2.00 (1) 0.40 (2)

Crane operator $5.60 1.40 (3) 2.00 (1) 1.80 (3) 0.20 (4) 0.20 (4)

Punch press operator $6.00 1.60 (2) 1.30 (3) 2.00 (2) 0.80 (2) 0.30 (3)

Security guard $4.00 1.20 (4) 1.40 (2) 0.40 (4) 0.40 (3) 0.60 (1)

11 is high, 4 is low.

Copyright © 2011 Pearson

11–44 Education, Inc. publishing
as Prentice Hall
 TABLE 11–A3 Comparison of Factor and Wage Rankings

Mental Physical Skill Working

Requirements Requirements Requirements Responsibility Conditions

A1 $2 A1 $2 A1 $2 A1 $2 A1 $2

Welder 1 1 4 4 1 1 1 1 2 2

Crane operator 3 3 1 1 3 3 4 4 4 4

Punch press operator 2 2 3 3 2 2 2 2 3 3

Security guard 4 4 2 2 4 4 3 3 1 1

1Amount of each factor based on step 3.

2Ratings based on distribution of wages to each factor from step 5.

Copyright © 2011 Pearson

11–45 Education, Inc. publishing
as Prentice Hall
TABLE 11–A4 Job (Factor)-Comparison Scale

Mental Physical Skill Working

Value Requirements Requirements Requirements Responsibility Conditions
0.20 Crane Operator Crane Operator

0.30 Punch Press Operator

0.40 Welder Sec. Guard Sec. Guard Welder

0.60 Sec. Guard

0.80 Punch Press Operator

1.00 (Plater)

1.20 Sec. Guard

1.30 Punch Press Operator

1.40 Crane Operator Sec. Guard (Inspector) (Plater)

1.50 (Inspector) (Inspector)

1.60 Punch Press Operator

1.70 (Plater)

1.80 Crane Operator (Inspector)

2.00 Crane Operator Punch Press Operator Welder

2.20 (Plater)

2.40 (Inspector) (Plater)

3.00 Welder
4.00 Welder
The Point Method of Job Evaluation
Step 1. Determine clusters of jobs to be evaluated

Step 2. Collect job information

Step 3. Select compensable factors

Step 4. Define compensable factors

Step 5. Define factor degrees

Step 6. Determine relative values of factors

FIGURE 11–A2 Example of One Factor (Complexity/Problem Solving)
in a Point Factor System

Point
Level Value Description of Characteristics and Measures
0 0 Seldom confronts problems not covered by job routine or organizational policy;
analysis of data is negligible. Benchmark: Telephone operator/ receptionist.

1 40 Follows clearly prescribed standard practice and demonstrates straightforward

application of readily understood rules and procedures. Analyzes noncomplicated
data by established routine. Benchmark: Statistical clerk, billing clerk.

2 80 Frequently confronts problems not covered by job routine. Independent judgment

exercised in making minor decisions where alternatives are limited and standard
policies established. Analysis of standardized data for information of or use by others.
Benchmark: Social worker, executive secretary.

3 120 Exercises independent judgment in making decisions involving nonroutine problems

with general guidance only from higher supervision. Analyzes and evaluates data
pertaining to nonroutine problems for solution in conjunction with others.
Benchmark: Nurse, accountant, team leader.

4 160 Uses independent judgment in making decisions that are subject to review in the final
stages only. Analyzes and solves nonroutine problems involving evaluation of a wide
variety of data as a regular part of job duties. Makes decisions involving procedures.
Benchmark: Associate director, business manager, park services director.

5 200 Uses independent judgment in making decisions that are not subject to review.
Regularly exercises developmental or creative abilities in policy development.
Benchmark: Executive director.
TABLE 11–A5 Evaluation Points Assigned to Factors and Degrees

First-Degree Second-Degree Third-Degree Fourth-Degree Fifth-Degree

Points Points Points Points Points

Decision making 41 82 123 164 204

Problem solving 35 70 105 140 174

Knowledge 24 48 72 96 123