Unit 6 Employee Compensation

Unit Six: Compensation
2
Employee Compensation
 What is compensation?
 Total of all rewards provided to employees in return for their
labor
 Two components: Direct financial payments (wages, salaries,
incentives, bonus) and indirect financial payments (insurance,
vacations)
 Total rewards: Compensation plus recognition programs
Page 2
3
 What are the four basic factors to be considered while

determining pay?
• Legal aspects
• Union
• Policy
• equity
 (organization, labor market, job, employee – these are to be
considered)
Page 3
4
 Compensation Laws (legal aspects):

• Stipulating what employers can or must pay in terms of
minimum wages, overtime pay, equal pay, recordkeeping, and
child labor provisions
• Exempt/nonexempt based on duties, responsibilities, salary
• Equal pay act
• Civil rights act
• Other discrimination laws
Page 4
5
Unions:
• Right to organize
• Collective bargaining
• Wage rate
• Income security
• Cost of living adjustments (COLA)
• Benefits
• Health care
• Time off with pay
Page 5
6
 Compensation policies:
 Aligned reward strategy
• Pay leaders
• Market (going) rate
• Pay followers
Page 6
Establishing Pay Rates
 Step 1. Job evaluation

 A systematic comparison done in order to determine the worth of
one job relative to another.
 Compensable factor
 A fundamental, compensable element of a job, such as skills,
effort, responsibility, and working conditions.
Page 7
Job Evaluation Methods: Ranking
 Ranking each job relative to all other jobs, usually based on

some overall factor.
 Steps in job ranking:
 Obtain job information.
 Select and group jobs.
 Select compensable factors.
 Rank jobs.
 Combine ratings.
Page 8
Job Ranking by Olympia Health Care
Table 11–3
11–9 © 2005 Prentice Hall
Inc. All rights Page 9
Job Evaluation Methods:
Job Classification
 Raters categorize jobs into groups or classes of jobs that are

of roughly the same value for pay purposes.
 Classes contain similar jobs.
 Grades are jobs that are similar in difficulty but otherwise
different.
 Jobs are classed by the amount or level of compensable factors
they contain.
Page 10
Example 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.
Source: http://www.opm.gov/fedclass. gscler.pdf. August 29, 2001.
Page 11
Job Evaluation Methods: Point Method
 A quantitative technique that involves:

 Identifying the degree to which each compensable factors are
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.
11–12
Page 12
Job Evaluation Methods:
Factor Comparison
 Each job is ranked several times—once for each of several

compensable factors.
 The rankings for each job are combined into an overall
numerical rating for the job.
Page 13
Computerized Job Evaluations
 A computerized system that uses a structured questionnaire

and statistical models to streamline the job evaluation process.
 Advantages of computer-aided job evaluation (CAJE)
 Simplify job analysis
 Help keep job descriptions up to date
 Increase evaluation objectivity
 Reduce the time spent in committee meetings
 Ease the burden of system maintenance
Page 14
15
2. Constitute committee to determine worth of job (job

evaluation)
Purpose:
For formal and systematic comparison of jobs to
determine the worth of one job relative to another.
Procedure:
Compare the content of the jobs in relation to one
another (in terms of effort, responsibility, skills)
Compensable factors:
Approaches- intuitive approach or comparison of
basic common factors defining job content (as per
equal pay act- skills, effort, responsibility, working
conditions)
Job evaluation methods: Page 15
16
Step 2:Group jobs into pay grades

Jobs of approximately equal difficulty or importance as
determined by job evaluation
• Point method- jobs falling within a range of points
• Ranking method- jobs in two or three ranks
Classification method- jobs categorized into classes or
grades
Page 16
17
Step 3: Price each pay grade (wage curves)

• Assign average pay rates to each of the pay grades/
individual jobs
(Fig 7.2)
Page 17
Establishing Pay Rates
 Step 4The salary survey

(what other comparable employers are paying for comparable
jobs)
• Formal or informal
• Pricing of benchmark jobs
• Data on other benefits
 Aimed at determining prevailing wage rates.
 A good salary survey provides specific wage rates for specific jobs.
 Formal written questionnaire surveys are the most
comprehensive, but telephone surveys and newspaper ads are
also sources of information.
 Benchmark job: A job that is used to anchor the employer’s pay scale
and around which other jobs are arranged in order of relative worth.
Page 18
Sources for Salary Surveys
 Consulting firms
 Professional associations
 Government agencies
 U.S. Department of Labor’s Bureau of Labor Statistics (BLS)
conducts three annual surveys:
 Area wage surveys
 Industry wage surveys
 Professional, administrative, technical, and clerical (PATC) surveys.
Page 19
Some Pay Data Web Sites
*An alliance between recruiters Korn/Ferry International and the Wall Street Jour
Page 20
21
Pricing managerial and professional jobs:

Job evaluation for these positions-
• partial exercise,
• doesn’t evaluate attributes like problem solving,
discretionary time, judgments, working conditions
Page 21
22
Study on managerial pricing:

Three factors-
• Job complexity-
span of control, number of divisions over which the
executive has direct responsibility, and management
level
• Ability to pay-
total profit and rate of return
• Executive’s human capital-
educational level, field of study, work experience
Page 22
Establishing pay rates
 Step 5: Compare and adjust current and market wage rate

 Equitable internally and externally
 Step 6: Develop rate ranges

 For example: 10 levels in one grade with 10 salary
Page 23
24

Three factors-
• Job complexity-
span of control, number of divisions over which the
executive has direct responsibility, and management level
• Ability to pay-
total profit and rate of return
• Executive’s human capital-
educational level, field of study, work experience
(changing trend- financial performance the basis for managerial
salary, pay for performance)
Page 24
25

• Cash focused culture- bonuses, dividends, commission
• Rewarding certain behaviors with cash- influences individual
behavior and performance
Page 25
26
Pay package element (for managers, executives, professionals):

• Base salary
• Short-term incentives
• Long-term incentives
• Executive benefits and perks
Page 26
27
Strategy and executive pay:

• Identify the company’s strategic direction, and translate this
into specific business goals
• List the skills and competencies your professional employees
should have and the behaviors they should exhibit to
accomplish these goals
• Evaluate the extent to which the existing pay plan produces
these skills, competencies, and behaviors (does it motivate
employees to achieve their goals?)
• Finally, design and implement the new pay plan
Page 27
28
Current trends:
• Competency and skill based pay
• Broad-banding
• Board oversight of executive pay
Page 28
29
Current trends:
Competency and skill based pay
pay the employee for the skills and knowledge he or she is
capable of using rather than for the responsibilities of the job
currently held.
Why?
to encourage the person to become more multi-skilled
How it benefits organization?
can have employees capable of handling multiple projects
(project teams), innovations, job rotation
Competencies- demonstrable personal characteristics such as
knowledge, skills, and behaviors
Page 29
30
Current trends: Competency and skill based pay

Five elements:
• Defining specific required skills
• Choosing a method for tying the person’s pay to his or her
skill competencies
• Develop a training system letting employees seek and acquire
skills
• Develop a formal competency testing mechanism
• Design the work in such a way that the employees can easily
move among jobs of varying skill levels
Page 30
31
Broad-banding
• Job slotting into classes or grades, each with its own vertical
pay rate range dictating his or her minimum and maximum
salary
How wide should the salary grades be in terms of number of job
evaluation points they include?
Broad bands- collapsing salary grades and ranges into just a few
wide ranges, or bands, each of which contains a relatively
wide range of jobs and salary levels
(fig 7.3)
Page 31
32
Board oversight of executive pay

Purpose-
To make executives personally liable, under certain
conditions, for corporate financial oversight lapses
Points to consider:
• Is our compensation committee being appropriately advised?
• Do our procedures demonstrates diligence and
independence? (careful deliberations and records)
• Is our committee appropriately communicating its decisions?
How will shareholders react?
Page 32
33
Incentive plans:
• Piecework plans
• Team or group incentive plans
• Incentives for managers and executives
• Incentives for sales people
• Non-tangible and recognition based awards
• Online award programs
• Merit pay as an incentive
• Profit-sharing plans
• Employee stock ownership plan
• Gain-sharing plans
• Earnings at risk pay plans
Page 33
34
Incentive plans:
Piecework plans-
• Most common
• Payment against each unit produced by individuals
Suitability?
Page 34
35
Incentive plans:
Team or group incentive plans-
• To encourage teamwork
• All team members- same incentive based on overall team
performance
Drawback- each worker’s reward doesn’t necessarily reflect
his or her own efforts
• Different amounts for team members based on individual
efforts
Page 35
36
Incentive plans:
Incentives for managers and executives-
Compensation for influencing divisional and corporate
profitability
Short term bonuses,
Long term incentives
Stock options
Page 36
37
Incentive plans:
Incentives for sales people-
Combination of salary and commissions
Quota setting
Page 37
38
Incentive plans:
Non-tangible and recognition based awards-
• Employee certificates
• Gift certificates
• Cash rewards
• Merchandise incentives
• Training programs
• Work/life benefits
• Individual travel
Page 38
39
Incentive plans:
Online award programs-
• Use of websites to identify exceptional employee service
• Saves time and effort on organization part
Page 39
40
Incentive plans:
Merit pay (raise) as an incentive-
Aim- to differentiate between top and average performer
• Salary increase awarded to employee based on his or her
individual performance
• Becomes part of base salary (not as bonus)
• Positive side- rewards directly tied to performance motivates
performance
• Negative side- people may perceive it unfair as it relies on
performance appraisal – which has chances of appraiser’s
biases
Page 40
41
Incentive plans:
Profit-sharing plans-
• Employees receiving a share of the company’s annual profits
• Supporting argument- profit sharing plans boost productivity
• Opposing argument- not all employees put equal effort
Page 41
42
Incentive plans:
Employee stock ownership plan-
• Company-wide plans (contributing shares of its own stock or
cash to purchase those stocks
• Advantages- tax deduction for the company
• Ownership and commitment enhanced on employee part
• Productivity increased
Page 42
43
Incentive plans:
Gain-sharing plans-
Aim- to encourage improved employee productivity by sharing
resulting financial gains with employees
Scanlon plan- five features- philosophy of cooperation, identity,
competence, involvement system and sharing of benefits
formula
Page 43
44
Incentive plans:
Gain-sharing plans-
Earnings-at-risk pay plans->
Employees agree to put a portion of their normal pay (say,
6%) at risk if they don’t meet their goals, in return for the
possibility of obtaining a much larger bonus (say 12%), if they
do exceed them. If the employees simply meet their goals,
they get their full salary (100%)
Page 44
45
HRIS and productivity:

Eases recording performance and calculating incentives
against their performance
Page 45
46
Employee benefits:
Indirect monetary and non-monetary payments to employees
for continuing to work for the company
Benefits account for around one-third of total salary
Page 46
47
Employee benefits:
Types:
• Pay for time not worked
• Unemployment insurance
• Vacations and holidays
• Sick leave
• Severance pay
• Insurance benefits
• Hospitalization, medical and disability insurance
• Long term care
• Retirement benefits
• Employee services and family-friendly/work life benefits
• Flexible benefits
Page 47
48
Benefits and employee leasing:

(Human resource outsourcers)
Leasing firm- legal employer
(includes- recruiting, hiring, paying tax liabilities, performance
appraisal)
Saves time, effort, legal hassles
If not handled professionally- legal implications, financial
implications, impact on organization performance
Page 48

Unit 6 Employee Compensation

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Unit 6 Employee Compensation

Hochgeladen von

Copyright:

Verfügbare Formate

Unit Six: Compensation

 What are the four basic factors to be considered while

 Compensation Laws (legal aspects):

 Step 1. Job evaluation

 Ranking each job relative to all other jobs, usually based on

 Raters categorize jobs into groups or classes of jobs that are

Source: http://www.opm.gov/fedclass. gscler.pdf. August 29, 2001.

 A quantitative technique that involves:

 Each job is ranked several times—once for each of several

 A computerized system that uses a structured questionnaire

2. Constitute committee to determine worth of job (job

Step 2:Group jobs into pay grades

Step 3: Price each pay grade (wage curves)

 Step 4The salary survey

Pricing managerial and professional jobs:

Study on managerial pricing:

 Step 5: Compare and adjust current and market wage rate

 Step 6: Develop rate ranges

Study on managerial pricing:

Study on managerial pricing:

Pay package element (for managers, executives, professionals):

Strategy and executive pay:

Current trends: Competency and skill based pay

Board oversight of executive pay

HRIS and productivity:

Benefits and employee leasing:

Das könnte Ihnen auch gefallen