BUS 681 Week 1 Assignment

1 Strategic Compensation A Component of Human Resource Systems

Learning Objectives

When you �inish studying this chapter, you should be able to: 1-1. De�ine strategic compensation.

1-2. Summarize the role of compensation as a strategic business partner. 1-3. Explain strategic compensation decisions. 1-4. Identify and discuss the building blocks and structural elements of strategic compensation systems.

1-5. Describe the �it of the compensation function in organizations. 1-6. Identify the stakeholders of the compensation function and summarize their stakes in the work compensation

professionals perform.

CHAPTER WARM-UP!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Warm-Up! and see what you already know. After reading the chapter, you’ll have a chance to take the Chapter Quiz! and see what you’ve learned.

Through the early twentieth century, manpower planning was the predecessor to contemporary human resource (HR) management. Manpower planning focused on the effective deployment of employees in factories to achieve the highest manufacturing output per employee per unit of time. That is, management sought to increase productivity (such as the number of handmade garments per hour) while also maintaining or lowering employee compensation costs. All else equal, higher employee productivity while maintaining or lowering employee compensation costs contributed to higher pro�itability for the �irm.

Through the decades, mounting government regulation involving payroll taxes and laws centered on ensuring a minimum wage, prevailing wage, equal pay for equal work, and equal employment opportunity later gave rise to the personnel management function, of which compensation was a component. Legal compliance necessitated that personnel management take on the role of an administrative, support function to maintain compliance with the myriad details of employment laws (e.g., determining prevailing wages in localities). Personnel management departments also engaged in transactions (e.g., payroll administration) with an eye toward administrative ef�iciency. Administrative ef�iciency is essential because it can indirectly contribute to company success through cost control.

Since the early 1980s, there has been growing widespread recognition that managing employees or human resources can contribute more directly to competitive advantage. Competitive advantage (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss69) describes a company’s success when the company acquires or develops capabilities that facilitate outperforming the competition. For example, Walmart is a successful retailer, in part, because its sheer size enables it to negotiate lower prices with suppliers (e.g., of clothing) than smaller retailers. In turn, Walmart is able to sell products at a price advantage relative to most competitors. Other resources may include the employment of highly skilled employees who can operate and troubleshoot problems with sophisticated robotic equipment, which can increase the pace of production while also maintaining quality.

Designing HR practices with competitive advantage in mind casts HR as a strategic function rather than as one that focuses exclusively on conducting transactions. In a strategic role, HR professionals proactively put forth forward- looking principles and ideas, and they play an important role in contributing to successful business outcomes by attracting, motivating, and retaining highly quali�ied employees.

1.1 DEFINING STRATEGIC COMPENSATION

1-1 De�ine strategic compensation.

“What is strategic compensation? Answering this question requires that we �irst answer the question, “What is compensation?”

What Is Compensation?

Compensation represents both the intrinsic and extrinsic rewards employees receive for performing their jobs and for their membership as employees. Together, both intrinsic and extrinsic compensation describe a company’s total compensation system, which we will look at more closely in this chapter, and, in even greater detail throughout the remainder of this textbook.

Intrinsic compensation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss227) re�lects employees’ psychological mind-sets that result from performing their jobs, for example, experiencing a great feeling from the belief that one’s work matters in the lives of others. Perhaps it is easy to imagine that many health care providers feel this way. Extrinsic compensation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss147) includes both monetary and nonmonetary rewards. Organizational development professionals promote intrinsic compensation through effective job design. Compensation professionals are responsible for extrinsic compensation, which is the focus of this textbook.

Compensation professionals establish monetary compensation programs to reward employees according to their job seniority, performance levels, or for learning job-related knowledge or skills. Some describe this exchange as a pay-effort bargain. As we will discuss shortly, monetary compensation represents core compensation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss82) . Nonmonetary rewards include protection programs (e.g., medical insurance), paid time off (e.g., vacations), and services (e.g., day care assistance). Most compensation professionals refer to nonmonetary rewards as employee bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss127) . Employees receive some or all of these offerings as part of an employment arrangement. Rarely do employers base employee bene�its on job performance. Employee bene�its are becoming an increasingly important element of compensation packages. Since the so-called Great Recession (2007–2009) ended, fewer companies have offered pay increases and, those that do, are offering lower amounts (from roughly an average 3.8 percent increase to less than 2 percent).1

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end1)

Both monetary and nonmonetary compensation represents costs to companies. In the case of core compensation, employers pay an hourly wage or salary. In the case of employee bene�its, employers pay some or all of the cost for employees to have health insurance coverage rather than providing dedicated monetary payments, apart from wage or salary, to pay for health care.

What Is Strategic Compensation?

De�ining strategic compensation requires that we place the relevance and importance of compensation practices in a broader context where compensation practices are linked to competitive business strategy, as shown in Figure 1- 1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec1#ch01�ig01) . Competitive business strategy (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss70) refers to the planned use of company resources—�inancial capital, equipment capital, and human capital—to promote and sustain competitive advantage. The time horizon for strategic decisions may span multiple years. For example,

Exxon Mobil Corporation, a company in the oil and gas exploration industry, strives to be the world’s premier petroleum and petrochemical company by achieving superior �inancial and operating results while simultaneously adhering to high ethical standards.2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end2) Eli Lilly and Company, a manufacturer of pharmaceutical products, pursues a competitive strategy, which focuses on creating innovative medicines that improve patient health outcomes.3

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end3)

FIGURE 1-1 Relationship between Strategic Decisions and Compensation Practices

Human resource executives collaborate with company executives to develop human resource strategies. Human resource strategies (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss206) specify the use of multiple HR practices to reinforce competitive business strategy. These statements are consistent with a company’s competitive strategy. For example, Eli Lilly is well known for the innovative environment that it creates for employees to make discoveries for pharmaceutical products that will enhance the life of people throughout the world.4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end4)

Within the context of competitive business strategy and human resource strategy, compensation professionals practice strategic compensation. Strategic compensation

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss431) refers to the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies. Compensation and bene�its executives work with the lead HR executive and the company’s chief �inancial of�icer (CFO) to prepare total compensation strategies. At Lilly, it is evident that the use of compensation and bene�its practices supports both human resource strategies and competitive strategies. Eli Lilly is well known for offering a balanced compensation and bene�its program which recognizes employee contributions and embraces employees through recognition of their needs outside the workplace.5

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end5)

1.2 COMPENSATION AS A STRATEGIC BUSINESS PARTNER

1-2 Summarize the role of compensation as a strategic business partner.

As noted earlier, personnel administration was transformed from a purely administrative function, engaged in transactions such as payroll processing, to a competitive resource in many companies emerging during the 1980s. Technological advances (e.g., the use of robotics in manufacturing) and global competition (e.g., increased imports of Japanese automobiles) contributed greatly to the need for a strategic approach. As a strategic business partner, HR and compensation professionals today need to think like the chief executive of�icer (CEO) to become a strategic partner in achieving organizational plans and results.6

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end6) Essentially, they must know more than just HR work.7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end7) For example, GE’s Human Resources Leadership Program (HRLP)8

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end8) is an exemplar of these ideas. The HRLP provides participants with opportunities to learn HR competencies, global leadership skills, and business acumen through formal training and rotational assignments in areas such as compensation, staf�ing, and employment relations. Participants also receive exposure to GE executives and HR leaders to put their work in the context of strategic issues facing the company. In doing so, they understand the production and service sides of the business and help to determine the strategic capabilities of the company’s workforce, both today and in the future. For example, increasing sales and building brand loyalty are important goals of soft drink companies such as Coca Cola and PepsiCo. Increasing sales requires hiring highly dedicated and motivated sales employees whose success is rewarded through innovative sales incentive arrangements.

Compensation professionals can give the CEO and CFO a powerful understanding of the role that employees play in the organization and the way it combines with business processes to expand or shrink shareholder value. Compensation professionals are integrating the goals of compensation with the goals of the organization and focusing on expanding its strategic and high-level corporate participation with an emphasis on adding value.

Perhaps a useful way to better understand how HR functions serve as a strategic business partner is to think about the role of capital for value creation. Capital (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss36) refers to the factors that enable companies to generate income, higher company stock prices, economic value, strong positive brand identity, and reputation. There is a variety of capital that companies use to create value, including �inancial capital (cash) and capital equipment (state-of-the-art robotics used in manufacturing). Employees represent a speci�ic type of capital called human capital. Human capital (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss204) , as de�ined by economists, refers to sets of collective skills, knowledge, and abilities that employees can apply to create value for their employers. Companies purchase the use of human capital by paying employees an hourly wage or salary and providing bene�its such as paid vacation and health insurance.

Compensation professionals can help leverage the value of human capital in a variety of ways. For example, well- designed merit pay programs reinforce excellent performance by awarding pay raises commensurate with performance attainments. The use of incentive pay practices is instrumental in changing the prevalent entitlement mentality U.S. workers have toward pay and in containing compensation costs by awarding one-time increases to base pay once work objectives have been attained. Pay-for-knowledge and skill-based pay programs are key to giving employees the necessary knowledge and skills to use new workplace technology effectively. Management can use discretionary bene�it offerings to promote particular employee behaviors that have strategic value. For example, employees who take advantage of tuition reimbursement programs gain knowledge and skills that directly

add value to the work they do. In line with these ideas, Bosch offers a unique program to individuals who are pursuing PhD degrees at well-respected universities.9

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end9) The company hires doctoral candidates on a limited-term basis while these students undertake dissertation work under the auspices of Bosch scientists who are working on pressing company matters of scienti�ic importance. This arrangement is a win–win situation because students have direct access to research facilities and Bosch bene�its from individuals who are gaining state-of-the-art knowledge and skills in their doctoral programs.

1.3 STRATEGIC COMPENSATION DECISIONS

1-3 Explain strategic compensation decisions.

Compensation professionals provide a strategic contribution to the company when they can answer yes to the following three questions:

Does compensation strategy �it well with the objectives of competitive business and HR strategies?

Does the choice and design of compensation practices �it well to support compensation strategy?

Does the implementation of compensation practices effectively direct employee behavior to enhance job performance that supports the choice of compensation practices?

Companies base strategy formulation on environmental scanning activities. Discerning threats and opportunities is the main focus of environmental scanning. A threat suggests a negative situation in which loss is likely and over which an individual has relatively little control. An opportunity implies a positive situation in which gain is likely and over which an individual has a fair amount of control.10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end10)

For instance, many oil and gas extraction companies in the United States are facing threats to market share and pro�itability as the supply of oil worldwide is increasing more quickly than the demand for it. Saudi Arabia, which is one of the top oil producing countries in the world, continues to pump crude oil, contributing to a glut. Historically, Saudi Arabia limited oil production, which led to lower supply relative to demand, leading to higher prices. The Saudis have departed from business as usual as a rivalry with U.S. energy companies has grown.11

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end11) Extraction and re�ining processes in the United States are more costly than in most other countries, including Saudi Arabia, which threatens the competitive advantage of the U.S.-based companies extracting and oil re�ining activities in the United States.

Government regulation provides U.S. pharmaceutical companies with the opportunity to recoup research and development costs as well as generate pro�its from the sale of products for which they have U.S. patent protection. For a limited period of a few to several years, the U.S. government grants these companies exclusivity. That is, no other company may manufacture or sell the product during this period. Without exclusivity provisions, pharmaceutical companies such as Wyeth Pharmaceuticals would be placed at a competitive disadvantage because other companies would manufacture and distribute a therapeutically equivalent product at a lower cost. For example, Wyeth Pharmaceuticals developed Protonix, a product which treats gastro esophageal re�lux disease. The company enjoyed exclusivity protection for several years until 2011. The expiration of an exclusivity clause poses a threat for, in this case, Wyeth Pharmaceuticals; yet, an opportunity for more pharmaceutical companies to compete for market share. For example, Teva Pharmaceuticals has been selling pantoprazole, a therapeutically generic version of Protonix, at a lower price. These so-called generic alternatives are less expensive because companies that manufacture and distribute them do not have research and development costs to recoup. Many health insurance companies refuse to provide coverage for brand name products where less expensive generic alternatives are available.

McDonald’s, a fast food restaurant chain, is facing at least three noteworthy threats to its future success.12

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end12) First, shifting consumer preferences, particularly among the younger generation in the United States, for healthy food options in a relaxed, casual environment is contributing to McDonald’s falling out of favor. While changing preferences are threatening

McDonald’s future success, restaurant chains like Panera Bread Company are catering to changing preferences. Second, McDonald’s less customizable menu that has a plethora of choices appears to have led to increasing wait times, which is contributing to declining patronage. Third, political tensions between the U.S. and Moscow over the con�lict in the Ukraine have led to closing many McDonald’s restaurants in those and other foreign countries.13

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end13)

Competitive Business Strategy Choices

Companies use a variety of terms to describe competitive business strategy choices. These choices fundamentally focus on attaining competitive advantage either by achieving lowest cost or product (service) differentiation. In reality, most companies pursue strategies that contain elements of both.

LOWEST-COST STRATEGY

The cost leadership or lowest-cost strategy (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss87) focuses on gaining competitive advantage by being the lowest-cost producer of a product or service within the marketplace, while selling the product or service at a price advantage relative to the industry average. Lowest-cost strategies require aggressive construction of ef�icient-scale facilities and vigorous pursuit of cost minimization in areas such as operations, marketing, and HR.

Ryanair, a low-cost commercial airline based in Ireland, is an excellent illustration of an organization that pursues a lowest-cost strategy because its management successfully reduced operations costs. At least four noteworthy decisions have contributed to Ryanair’s goals. First, Ryanair’s training and aircraft maintenance costs are lower than similar competitors’ costs because the airline uses only Boeing 737 aircraft. Ryanair enjoys substantial cost savings because it does not need to buy different curricula for training �light attendants, mechanics, and pilots to learn about procedures speci�ic to different aircraft makes (e.g., Boeing) and models (e.g., Boeing 747). Second, newer aircraft sport spartan seats that do not recline, have seat-back pockets, or have life jackets stowed under the seat (life jackets are stowed elsewhere on Ryanair planes). Not only does such seating cost less, but it also allows service personnel to clean aircraft more quickly, saving on labor costs. Third, Ryanair airplanes have one toilet to make room for additional passenger seats. Fourth, Ryanair passengers are required to carry their luggage to the plane, reducing the costs of baggage handling.

DIFFERENTIATION STRATEGY

Companies adopt differentiation strategies (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss106) to develop products or services that are unique from those of their competitors. Differentiation strategy can take many forms, including design or brand image, technology, features, customer service, and price. Differentiation strategies lead to competitive advantage through building brand loyalty among devoted consumers. Brand-loyal consumers are probably less sensitive to price increases, which enables companies to invest in research and development initiatives to further differentiate themselves from competing companies.

Apple Computer relies on a differentiation strategy to increase market demand and loyalty. Apple’s products are successful, in large part, because they have always been designed to be on the leading edge compared to the competition. Even in the face of strong competition, Apple continually excels in creating demand for its products such as iPhones, iPads, and iPods, enabling them control over pricing through product differentiation, innovative advertising, and creative publicity prior to unveiling products.

The following Watch It! video illustrates the basics of competitive business strategy. These concepts, which we’ve described previously, are illustrated by comparing the strategies of two computer manufacturers, ACER and Hewlett-Packard.

WATCH IT!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the video exercise titled Acer vs. HP: Can Acer Surpass HP?

Compensation Decisions that Support the Firm’s Strategy

Compensation professionals support strategic initiatives through the design and implementation of compensation systems. Two broad elements are the basis for compensation professionals’ work. These include basic building blocks and structural design elements, which we will indtroduce later in this chapter. For example, compensation professionals make decisions about whether to use (and how to design) pay-for-performance practices, whether setting pay levels that exceed typical market pay rates, and whether to create a pay mix that emphasizes long-term over short-term incentives. The totality of choices should �it well with cost or differentiation objectives and with an eye toward rewarding behaviors that support these objectives.

Employee Roles Associated with Competitive Strategies

Common wisdom and experience tell us that HR professionals must decide which employee roles are instrumental to the attainment of competitive strategies. Knowledge of these required roles should enable HR professionals to implement HR practices that encourage enactment of these roles. Of course, compensation professionals are responsible for designing and implementing compensation practices that elicit strategy-consistent employee roles.

For the lowest-cost strategy, the imperative is to reduce output costs per employee. The desired employee roles for attaining a lowest-cost strategy include repetitive and predictable behaviors, a relatively short-term focus, primarily autonomous or individual activity, high concern for quantity of output, and a primary concern for results. Compared with lowest-cost strategies, successful attainment of differentiation strategies depends on employee creativity, openness to novel work approaches, and willingness to take risks. In addition, differentiation strategies require longer time frames to provide suf�icient opportunity to yield the bene�its of these behaviors.

1.4 BUILDING BLOCKS AND STRUCTURE OF STRATEGIC COMPENSATION SYSTEMS

1-4 Identify and discuss the building blocks and structural elements of strategic compensation systems.

FIGURE 1-2 Compensation System Building Blocks

As we discussed previously, extrinsic compensation includes both monetary (core compensation) and nonmonetary rewards (employee bene�its). Figure 1-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#ch01�ig02) lists the main compensation building blocks. The building blocks are embedded within a system of three structural elements that ultimately support compensation strategies. These structural elements include internally consistent job structures, market competitive pay structures, and structures that recognize employee contributions.

TABLE 1-1 Elements of Core Compensation

Base Pay • Hourly pay • Annual salary

How Base Pay Is Adjusted over Time • Cost-of-living adjustments • Seniority pay • Merit pay • Incentive pay • Person-focused pay or competency-based pay: pay-for-knowledge, skill-based pay

Building Blocks: Core Compensation and Employee Bene�its CORE COMPENSATION

There are two categories of core compensation: base pay and base pay adjustments over time. The speci�ic practices associated with each category are listed in Table 1-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#ch01tab01) .

Employees receive base pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss21) , or money, for performing their jobs (Chapter 7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch07#ch07) ). Base pay is recurring; that is,

employees continue to receive base pay as long as they remain in their jobs. Companies disburse base pay to employees in one of two forms: hourly pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss202) or wage (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss471) , or as salary (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss387) . Employees earn hourly pay for each hour worked. They earn salaries for performing their jobs, regardless of the actual number of hours worked. Companies measure salary on an annual basis. The Fair Labor Standards Act (FLSA) (Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) ) established criteria for determining whether employees should be paid hourly or by salary. In 2012, the average weekly rate for workers was $818.14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end14)

Companies typically set base pay amounts for jobs according to the level of skill, effort, and responsibility required to perform the jobs and the severity of the working conditions. Compensation professionals refer to skill, effort, responsibility, and working condition factors as compensable factors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss61) because they in�luence pay level (Chapters 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) and 6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06#ch06) ). Courts of law use these four compensable factors to determine whether jobs are equal per the Equal Pay Act of 1963 (EPA). According to the EPA, it is against the law to pay women less than men for performing equal work though there are exceptions, which we will discuss in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) . Compensation professionals use these compensable factors to help meet three pressing challenges, which we will introduce later in this chapter: internal consistency (Chapter 6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06#ch06) ), market competitiveness (Chapter 7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch07#ch07) ), and recognition of individual contributions (Chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) ).

Over time, employers adjust employees’ base pay to recognize increases in the cost of living, differences in employees’ performance, or differences in employees’ acquisition of job-related knowledge and skills. We will discuss these core compensation elements next.

Cost-of-living adjustments (COLAs) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss86) represent periodic base pay increases that are founded on changes in prices as recorded by the Consumer Price Index (CPI). In recent years, the typical COLA equaled approximately 2 to 3 percent annually. COLAs enable workers to maintain their purchasing power and standard of living by adjusting base pay for in�lation. COLAs are most common among workers represented by unions. Union leaders fought hard for these improvements to maintain their members’ loyalty and support. Many employers use the CPI to adjust base pay levels for newly hired employees.

Seniority pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss403) systems reward employees with periodic additions to base pay according to employees’ length of service in performing their jobs (Chapter 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03#ch03) ). These pay plans assume that employees become more valuable to companies with time and that valued employees will leave if they do not have a clear idea that their wages will progress over time. This rationale comes from human capital theory (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss205) ,15

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end15) which states that employees’ knowledge and skills (human capital) add value. Employees can develop such knowledge and skills from formal education and training, including on-the-job experience. Over time, employees presumably re�ine existing skills or acquire new ones that enable them to work more productively. Seniority pay rewards employees for acquiring and re�ining their skills as indexed by length (years) of employment.

Merit pay programs assume that employees’ compensation over time should be determined, at least in part, by differences in job performance as judged by supervisors or managers (Chapter 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03#ch03) ). Employees earn permanent

increases to base pay according to their performance. Merit pay rewards excellent effort or results, motivates future performance, and helps employers retain valued employees.

Incentive pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss212) or variable pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss212) rewards employees for partially or completely attaining a predetermined work objective. Incentive pay is de�ined as compensation (other than base wages or salaries) that �luctuates according to employees’ attainment of some standard based on a pre-established formula, individual or group goals, or company earnings (Chapter 4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch04#ch04) ).

Person-focused pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss335) or competency-based pay rewards employees for speci�ically learning new curricula. Pay-for-knowledge (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss324) plans reward managerial, service, or professional workers for successfully learning speci�ic curricula (Chapter 5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch05#ch05) ). Skill-based pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss413) , used mostly for employees who perform physical work, increases these workers’ pay as they master new skills (Chapter 5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch05#ch05) ). Both skill- and knowledge-based pay programs reward employees for the range, depth, and types of skills or knowledge they are capable of applying productively to their jobs. This feature distinguishes pay-for-knowledge plans from merit pay, which rewards employees’ job performance. Said another way, pay-for-knowledge programs reward employees for their potential to make meaningful contributions on the job.

EMPLOYEE BENEFITS

Earlier, we noted that employee bene�its represent nonmonetary rewards. Employee bene�its include any variety of programs that provide paid time off, employee services, and protection programs. Companies offer many bene�its on a discretionary basis. We refer to these as discretionary bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss108) (Chapter 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch09#ch09) ). In addition, the U.S. government requires most employers to provide particular sets of bene�its to employees. We refer to these as legally required bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss248) (Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) ). Different forces led to the rise of legally required and discretionary employee bene�its, which we discuss shortly.

The �irst signs of contemporary discretionary bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss108) were evident in the late 1800s when large companies such as American Express offered pension plans to employees. Most of the development in employee bene�its practice for the next few decades resulted from government legislation, as previously noted. Discretionary bene�its offerings became more prominent in the 1940s and 1950s due in large part to federal government restrictions placed on increasing wage levels. Employee bene�its were not subject to those restrictions.

Discretionary bene�its fall into three broad categories: protection programs, paid time off, and services (Chapter 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch09#ch09) ). Protection programs provide family bene�its, promote health, and guard against income loss caused by such catastrophic factors as unemployment, disability, or serious illness. Not surprisingly, paid time off (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss314) provides employees with pay for time when they are not working (e.g., vacation). Services (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss405) provide such enhancements as tuition reimbursement and day care assistance to employees and their families.

Legally required bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss248) historically provided a form of social insurance. Prompted largely by the rapid growth of industrialization in the

United States during the late nineteenth and early twentieth centuries as well as the Great Depression of the 1930s, initial social insurance programs were designed to minimize the possibility of destitution for individuals who were unemployed or became severely injured while working. In addition, social insurance programs aimed to stabilize the well-being of dependent family members of injured or unemployed individuals. Further, early social insurance programs were designed to enable retirees to maintain subsistence income levels. These intents of legally required bene�its remain intact today. The U.S. government has established programs to protect individuals from such catastrophic events as disability and unemployment. Legally required bene�its are protection programs (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss359) that attempt to promote worker safety and health, maintain the in�lux of family income, and assist families in crisis. Many of the key legally required bene�its are mandated by the Social Security Act of 1935, various state workers’ compensation laws, the Family and Medical Leave Act of 1993, and the Patient Protection and Affordable Care Act of 2010 (PPACA). All provide protection programs to employees and their dependents (Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) ). It especially should be noted that until the passage of PPACA, employers offered health insurance as a discretionary bene�it. Not only does this law require that employers provide health insurance, but it also exerts in�luence on the design of health insurance arrangements (Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) ).

Employers typically spend substantial amounts to pay employees and provide bene�its. Table 1-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#ch01tab02) lists these costs.16

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end16) This table also includes the cost of wages and salaries based on a sample of occupations and industry types. The costs are expressed on an hourly basis per employee. For example, in September 2014, employers characteristically spent $32.20 per employee per hour worked, including wages and salaries as well as bene�its. Of this �igure, $22.13 was spent on wages and salaries and $10.07 was spent on bene�its ($2.47 for legally required bene�its and $7.60 for discretionary bene�its). All employee bene�its costs account for 31.3 percent of total compensation costs.

Fundamental Compensation System Design Elements

Compensation professionals promote effective compensation systems by meeting three important goals: internal consistency, market competitiveness, and recognition of individual contributions, which corresponds to three important compensation system design elements.

INTERNAL CONSISTENCY

Internally consistent compensation systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss226) clearly de�ine the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy. Companies rely on a simple, yet fundamental, principle for building internally consistent compensation systems: Employees in jobs that require greater quali�ications, more responsibilities, and more complex job duties should be paid more than employees whose jobs require lesser quali�ications, fewer responsibilities, and less- complex job duties. Internally consistent job structures formally recognize differences in job characteristics, which therefore enable compensation managers to set pay accordingly. For example, let’s consider two related HR jobs that differ in job characteristics. According to the Occupational Outlook Handbook, the work of Human Resources Specialists and Labor Relations Specialists is described in the following manner:

Human resources specialists recruit, screen, interview, and place workers. They often handle other human resources work, such as those related to employee relations, payroll and bene�its, and training. Labor relations specialists interpret and administer labor contracts regarding issues such as wages and salaries, employee welfare, healthcare, pensions, and union and management practices.17

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end17)

A Human Resources Manager’s work is described in the following way:

Human resources managers plan, direct, and coordinate the administrative functions of an organization. They oversee the recruiting, interviewing, and hiring of new staff; consult with top executives on strategic planning; and serve as a link between an organization’s management and its employees.18

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end18)

A comparison shows similarities (jobs that are focused on HR functions) and differences. The specialist roles are transactional (e.g., conducting job interviews) while the managerial roles include strategic considerations based on consultations with executives. The median annual pay for a specialist is $56,63019

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end19) and $100,800 for the manager.20

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end20) The pay difference can be attributed, in large part, to the noted dissimilarities between the jobs and the roles they play relative to competitive strategy attainment.

TABLE 1-2 Employer Costs per Hours Worked for Employee Compensation, Civilian Workersa

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#ch01fn001)

Total

Compensation

Wages and

Salaries All

Bene�its Paid Leave

Supplemental Pay Insurance

Retirement and

Savings

Legally Required Bene�its

Cost per hour worked (in dollars)

Civilian Workers 32.20 22.13 10.07 2.25 0.79 2.89 1.67 2.47

Occupational Group

Management, professional, and related

53.38 36.74 16.65 4.32 1.26 4.36 3.28 3.44

Sales and of�ice 24.02 16.83 7.19 1.54 0.53 2.39 0.87 1.87

Natural resources, construction, and maintenance

34.03 22.54 11.49 1.91 0.97 3.19 2.17 3.25

Production, transportation, and material moving

26.75 17.54 9.21 1.64 0.95 2.99 1.10 2.53

Industry Group

Goods-producing 36.37 24.04 12.32 2.38 1.41 3.46 1.95 3.12

Service 31.46 21.79 9.67 2.23 0.68 2.79 1.62 2.36 a Includes workers In the private nonfarm economy excluding households and the public sector excluding the federal government. Source: U.S. Department of Labor (December 10, 2014). Employer costs for employee compensation, September 2014 (USDL: 14- 2208). Available: http://www.bls.gov/news.release/archives/ecec_12102014.pdf (http://www.bls.gov/news.release/archives/ecec_12102014.pdf) , accessed February 1, 2015.

Compensation professionals use job analysis and job evaluation to achieve internal consistency. Job analysis (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss229) is a systematic process for gathering, documenting, and analyzing information in order to describe jobs. Job analyses describe content or job duties, worker requirements, and sometimes the job context or working conditions. For example, aerospace engineers design aircraft, spacecraft, satellites, and missiles. In addition, they test prototypes to make sure that they

function according to design.21 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end21) Aerospace engineers possess at least a bachelor’s degree in aerospace engineering or another �ield of engineering or science related to aerospace systems. While some aerospace engineers work on projects that are related to national defense and thus require security clearances, others are employed in industries whose workers design or build aircraft, missiles, systems for national defense, or spacecraft.

Compensation professionals systematically use job evaluation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss236) to recognize differences in the relative worth among a set of jobs and to establish pay differentials accordingly. Whereas job analysis is almost purely descriptive, job evaluation partly re�lects the values and priorities that management places on various positions. Based on job content differences (e.g., job analysis results) and the �irm’s priorities, managers establish pay differentials for virtually all positions within the company.

MARKET COMPETITIVENESS

Market-competitive pay systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss266) play a signi�icant role in attracting and retaining the most quali�ied employees. Compensation professionals build market-competitive compensation systems based on the results of compensation surveys.

Compensation surveys (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss67) collect and then analyze competitors’ compensation data. Compensation surveys traditionally focused on competitors’ wage and salary practices. Now, employee bene�its are also a target of surveys because bene�its are a key element of market-competitive pay systems. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors’ pay practices. In the absence of compensation survey data, compensation professionals would have to use guesswork to build market-competitive compensation systems.

RECOGNIZING EMPLOYEE CONTRIBUTIONS

Pay structures (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss322) represent pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions. No two employees possess identical credentials or perform the same jobs equally well. Companies recognize these differences by paying individuals according to their credentials, knowledge, or job performance. When completed, pay structures should de�ine the boundaries for recognizing employee contributions. Well- designed structures should promote the retention of valued employees.

Pay grades and pay ranges are structural features of pay structures. Pay grades (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss320) group jobs for pay policy application. Human resource professionals typically group jobs into pay grades based on similar compensable factors and value. These criteria are not precise. In fact, no single formula determines what is suf�iciently similar in terms of content and value to warrant grouping into a pay grade. Pay ranges (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss321) build upon pay grades. Pay ranges include minimum, maximum, and midpoint pay rates. The minimum and maximum values denote the acceptable lower and upper bounds of pay for the jobs in particular pay grades. The midpoint pay value is the halfway mark between the minimum and maximum pay rates.

Alternative Pay Structure Con�igurations

There are alternative pay structure con�igurations, which we will explore in this book. Each structure comes with its own set of challenges. These structures include:

Merit pay plans (chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) )

Sales compensation plans (chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) )

Broadband structures (chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) )

Two-tier wage structures (chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) )

Executive compensation (chapter 11 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch11#ch11) )

Contingent worker compensation (chapter 12 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12#ch12) )

Expatriate compensation (chapter 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch13#ch13) )

Compensation structures in countries other than the United States (Chapter 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch14#ch14) )

1.5 FITTING THE COMPENSATION FUNCTION IN AN ORGANIZATION’S STRUCTURE

1-5 Describe the �it of the compensation function in organizations.

Understanding compensation professionals’ goals requires knowing the role of HR within companies and speci�ic HR practices, particularly how HR professionals �it into the corporate hierarchy, and how the compensation function �its into HR departments.

How HR Professionals Fit into the Corporate Hierarchy

Line function and staff function broadly describe all employee functions. Line employees (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss253) are directly involved in producing companies’ goods or delivering their services. Assembler, production worker, and salesperson are examples of line jobs. Staff employees (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss423) ’ functions support the line functions. Human resource professionals and accountants are examples of staff employees. Human resource professionals are staff employees because they offer a wide variety of support services for line employees. In a nutshell, HR professionals promote the effective use of all employees in companies. Effective use means attaining work objectives that �it with the overall mission of the company. According to Jay Hannah, BancFirst Corp. executive vice president of �inancial services, “The HR department is the source and keeper of critical information, which is key in today’s workplace. With the information they provide, we in turn can build and design strategies to hire and retain the best workforce possible. And this may sound cliché, but it’s very true—the real competitive advantage is our company’s human resources.”22 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end22)

Human resource professionals design and implement a variety of HR practices that advance this objective. In addition to compensation, HR practices include:

Recruitment

Selection

Performance appraisal

Training

Career development

Labor–management relations

Employment termination

Managing HR within the context of legislation

Most company structures include an HR department. Traditionally, HR departments were thought of as an administrative or support function for the company because the �inancial or market value of HR was not as readily apparent as sales, manufacturing, or marketing functions. Some practitioners and researchers are suspect about the future of internal HR functions.

The Compensation Profession

Various designations are used within the human resource profession, in general, and in compensation, speci�ically. Among these are compensation executives, generalists, and specialists. An executive is a top-level manager who reports directly to the corporation’s CEO or to the head of a major division. A generalist (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss173) , who may be an executive, performs tasks in a variety of HR-related areas. The generalist is involved in several, or all, of the compensation functions such as building job structures, market competitive pay systems, and merit pay structures. A specialist (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss420) may be an HR executive, manager, or non-manager who is typically concerned with only one of the areas of compensation practice. According to the Occupational Outlook Handbook, compensation and bene�its managers do the following:

Compensation managers plan, direct, and coordinate how much an organization pays its employees and how employees are paid. Bene�its managers plan, direct, and coordinate retirement plans, health insurance, and other bene�its that an organization offers its employees.23

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end23)

Performance standards are established by members of the profession rather than by outsiders. Most professions also have effective representative organizations that permit members to exchange ideas of mutual concern. Several well-known organizations serve the profession. Among the more prominent for compensation professionals are the Society for Human Resource Management (http://www.shrm.org (http://www.shrm.org) ), the International Foundation of Employee Bene�it Plans (http://www.ifebp.org (http://www.ifebp.org) ), and WorldatWork (http://www.worldatwork.org (http://www.worldatwork.org) ).

Opportunities for employment as compensation and bene�its managers are projected to grow at an annual rate of 3 to 7 percent through 2022.24 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end24) The median annual compensation for Compensation and Bene�its Managers was $101,490,25

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end25) which is more than double the median annual earnings for all jobs. The salary levels vary on a number of factors, including relevant work experience, educational credentials, and industry. For example, the mean annual compensation was lowest in local government ($92,540) settings and highest in the oil and gas extraction industry ($158,870).

How the Compensation Function Fits into HR Departments

Human resource practices do not operate in isolation. Every HR practice is related to others in different ways. For example, as an employer, U.S. federal government agencies publicly acknowledge the relationships between incentive compensation and other HR practices, including recruitment, relocation, and retention:

Recruitment: An agency may pay a recruitment incentive to a newly appointed career executive if the agency has determined that the position is likely to be dif�icult to �ill in the absence of an incentive. A recruitment incentive may not exceed 25 percent of the executive’s annual rate of basic pay in effect at the beginning of the service period multiplied by the number of years (including fractions of a year) in the service period (not to exceed 4 years). Relocation: An agency may pay a relocation incentive to a current career executive who must relocate to accept a position in a different geographic area if the agency determines that the position is likely to be dif�icult to �ill in the absence of an incentive. A relocation incentive may be paid only when the executive’s rating of record under an of�icial performance appraisal or evaluation system is at least “fully successful” or equivalent. A relocation incentive may not exceed 25 percent of the executive’s annual rate of basic pay in effect at the beginning of the service period multiplied by the number of years (including fractions of a year) in the service period (not to exceed 4 years). Retention: An agency may pay a retention incentive to a current career executive if (1) the agency determines that the unusually high or unique quali�ications of the executive or a special need of the agency

for the executive’s services makes it essential to retain the executive, and that the executive would be likely to leave the Federal service in the absence of a retention incentive, or (2) the agency has a special need for the employee’s services that makes it essential to retain the employee in his or her current position during a period of time before the closure or relocation of the employee’s of�ice, facility, activity, or organization and the employee would be likely to leave for a different position in the Federal service in the absence of a retention incentive. A retention incentive may be paid only when the executive’s rating of record under an of�icial performance appraisal or evaluation system is at least “fully successful” or equivalent. A retention incentive rate, expressed as a percentage of the executive’s rate of basic pay, may not exceed 25 percent.26

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end26)

Let’s consider additional relationships between compensation and each of the HR practices.

COMPENSATION, RECRUITMENT, AND SELECTION

Job candidates choose to work for particular companies for a number of reasons, including career advancement opportunities, training, the company’s reputation for being a “good” place to work, location, and compensation. Companies try to spark job candidates’ interest by communicating the positive features of the core compensation and employee bene�its programs. As we will discuss in Chapter 7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch07#ch07) , companies use compensation to compete for the very best candidates. In addition, companies may offer such inducements as one-time signing bonuses to entice high-quality applicants. It is not uncommon for signing bonuses to amount to as much as 20 percent of starting annual salaries. Signing bonuses are useful when the supply of quali�ied candidates falls short of companies’ needs for these candidates.

The next three sections will address performance appraisal, training, and career development. Before discussing these issues, however, let’s �irst look at how the U.S. federal government explicitly acknowledges the relationship between compensation and these HR practices:

Chapter 43 of Title 5, United States Code, provides for performance management for the Senior Executive Service (SES), the establishment of SES performance appraisal systems, and appraisal of senior executive performance. Agencies establish performance management systems that hold senior executives accountable for their individual and organizational performance in order to improve the overall performance of Government by:

Expecting excellence in senior executive performance;

Linking performance management with the results-oriented goals of the Government Performance and Results Act of 1993;

Setting and communicating individual and organizational goals and expectations;

Systematically appraising senior executive performance using measures that balance organizational results with customer, employee, or other perspectives; and

Using performance results as a basis for pay, awards, development, retention, removal and other personnel decisions.

Agencies develop performance management systems subject to Of�ice of Personnel Management (OPM) regulations and approval.

The supervisor establishes performance elements and requirements in consultation with the executive and consistent with the goals and performance expectations in the agency’s strategic planning initiatives. The supervisor proposes the initial summary rating, based on both individual and organizational performance, and taking into

account customer satisfaction and employee perspective.27

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end27)

COMPENSATION AND PERFORMANCE APPRAISAL

Accurate performance appraisals are integral to effective merit pay programs. For merit pay programs to succeed, employees must know that their efforts toward meeting production quotas or quality standards will lead to pay raises. Job requirements must be realistic, and employees must be prepared to meet job goals with respect to their skills and abilities. Moreover, employees must perceive a strong relationship between attaining performance standards and receiving pay increases. Merit pay systems require speci�ic performance appraisal approaches. Administering successful merit pay programs depends as much on sound performance appraisal practices as it does on the compensation professional’s skill in designing and implementing such plans.

COMPENSATION AND TRAINING

Successful pay-for-knowledge plans depend on a company’s ability to develop and implement systematic training programs. When training is well designed, employees should be able to learn the skills needed to increase their pay, as well as the skills necessary to teach and coach other employees at lower skill levels. Companies implementing pay-for-knowledge plans typically increase the amount of classroom and on-the-job training. Pay-for-knowledge systems make training necessary rather than optional. Companies that adopt pay-for-knowledge systems must accordingly ensure that all employees have equal access to the training needed to acquire higher-level skills.

COMPENSATION AND CAREER DEVELOPMENT

Most employees expect to experience career development within their present companies. Employees’ careers develop in two different ways. First, some employees change the focus of their work—for example, from supervisor of payroll clerks to supervisor of inventory clerks. This change represents a lateral move across the company’s hierarchy. Second, others maintain their focus and assume greater responsibilities. This change illustrates advancement upward through the company’s hierarchy. Advancing from payroll clerk to manager of payroll administration is an example of moving upward through a company’s hierarchy. Employees’ compensation changes to re�lect career development.

COMPENSATION AND LABOR–MANAGEMENT RELATIONS

Collective bargaining agreements describe the terms of employment (e.g., pay and work hours) reached between management and the union. Compensation is a key topic. Unions have fought hard for general pay increases and regular COLAs to promote their members’ standard of living. In Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) , we will review the role of unions in compensation, and in Chapter 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03#ch03) , we indicate that unions have traditionally bargained for seniority pay systems in negotiations with management. More recently, unions have been willing to incorporate particular incentive pay systems. For example, unions appear to be receptive to behavioral encouragement plans because improving worker safety and minimizing absenteeism serve the best interests of both employees and employers.

COMPENSATION AND EMPLOYMENT TERMINATION

Employment termination takes place when an employee’s agreement to perform work is terminated. Employment terminations are either involuntary or voluntary. The HR department plays a central role in managing involuntary employment terminations. Companies initiate involuntary terminations for a variety of reasons, including poor job performance, insubordination, violation of work rules, reduced business activity due to sluggish economic conditions, and plant closings. Discharge represents involuntary termination for poor job performance, insubordination, or gross violation of work rules. Involuntary layoff describes termination under sluggish economic conditions or because of plant closings. In the case of involuntary layoffs, HR professionals typically provide

outplacement counseling to help employees �ind work elsewhere. Companies may choose to award severance pay (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss406) , which usually amounts to several months’ pay following involuntary termination and, in some cases, continued coverage under the employer’s medical insurance plan. Employees often rely on severance pay to meet �inancial obligations while they search for employment. In the past, companies commonly offered a year or more of severance pay. Severance bene�its today tend to be less generous. For example, as part of Delta Airline’s closure of its Boston reservation center, the company offered only 6 weeks of severance pay regardless of seniority with the company.

Employees initiate voluntary terminations, most often to work for other companies or to retire. In the case of retirement, companies sponsor pension programs. Pension programs (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss327) provide income to individuals throughout their retirement. Companies sometimes use early retirement programs (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss118) to reduce workforce size and trim compensation expenditures. Early retirement programs contain incentives designed to encourage highly paid employees with substantial seniority to retire earlier than they had planned. These incentives expedite senior employees’ retirement eligibility and increase their retirement income.

COMPENSATION AND LEGISLATION

Employment laws establish bounds of both acceptable employment practices and employee rights. Federal laws that apply to compensation practices are grouped according to four themes:

Income continuity, safety, and work hours

Pay discrimination

Medical care and the accommodation of disabilities and family needs

Prevailing wage laws

The federal government enacted income continuity, safety, and work hours laws (e.g., the Fair Labor Standards Act of 1938) to stabilize individuals’ incomes when the individuals became unemployed because of poor business conditions or workplace injuries, as well as to set pay minimums and work-hour limits for children. The civil rights movement of the 1960s led to the passage of key legislation (e.g., the Equal Pay Act of 1963 and the Civil Rights Act of 1964) designed to protect designated classes of employees and to uphold their individual rights against discriminatory employment decisions, including matters of pay. Congress enacted legislation, namely, Patient Protection and Affordable Care Act of 2010, the Pregnancy Discrimination Act of 1978, the Americans with Disabilities Act of 1990, and the Family and Medical Leave Act of 1993 to provide medical care and accommodate employees with disabilities and pressing family needs. Prevailing wage laws (e.g., the Davis–Bacon Act of 1931) set minimum wage rates for companies that provide paid services—such as building maintenance—to the U.S. government. We will review these laws in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) .

1.6 STAKEHOLDERS OF THE COMPENSATION SYSTEM

1-6 Identify the stakeholders of the compensation function and summarize their stakes in the work compensation professionals perform.

The HR department provides services to stakeholders within and outside the company. These include:

Employees

Line managers

Executives

Unions

U.S. government

The success of HR departments depends on how well they serve various stakeholders. “Each constituency [stakeholder] has its own set of expectations regarding the personnel department’s activities; each holds its own standards for effective performance; each applies its own standards for assessing the extent to which the department’s activities meets its expectations; and each attempts to prescribe preferred goals for the subunit or presents constraints to its sphere of discretion. Multiple stakeholders often compete directly or indirectly for the attention and priority of the personnel department.”28

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec11#ch01end28) Our focus is on some of the ways compensation professionals serve these stakeholders.

Employees

As we discussed earlier, successful pay-for-knowledge programs depend on a company’s ability to develop and implement systematic training programs. Compensation professionals must educate employees about their training options and how successful training outcomes will lead to increased pay and advancement opportunities within the company. These professionals should not assume that employees will necessarily recognize these opportunities unless they are clearly communicated. Written memos and informational meetings conducted by compensation professionals and HR representatives are effective communication media.

Discretionary bene�its provide protection programs, paid time off, and services. As compensation professionals plan and manage employee bene�its programs, they should keep these functions in mind. There is probably no single company that expects its employee bene�its program to meet all these objectives. Compensation professionals as representatives of company management, along with union representatives, must therefore determine which objectives are the most important for their particular workforce.

Line Managers

Compensation professionals use their expert knowledge of the laws that in�luence pay and bene�its practices to help line managers make sound compensation judgments. For example, the Equal Pay Act of 1963 (discussed in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) ) prohibits sex discrimination in pay for employees performing equal work, so compensation professionals should advise line managers to pay the same hourly pay rate or annual salary for men and women hired to perform the same job.

Line managers turn to compensation professionals for advice about appropriate pay rates for jobs. Compensation professionals oversee the use of job evaluation to establish pay differentials among jobs within a company. In addition, they train line managers in how to evaluate jobs properly.

Executives

Compensation professionals serve company executives by developing and managing sound compensation systems. Executives look to them to ensure that the design and implementation of pay and bene�its practices comply with pertinent legislation. Violation of these laws can lead to substantial monetary penalties to companies. Executives also depend on compensation professionals’ expertise to design pay and bene�its systems that will attract and retain the best-quali�ied employees.

Unions

As noted earlier, collective bargaining agreements describe the terms of employment reached between management and the union. Compensation professionals are responsible for administering the pay and bene�its policies speci�ied in collective bargaining agreements. They mainly ensure that employees receive COLAs and seniority pay increases on a timely basis.

U.S. Government

The U.S. government requires that companies comply with all employment legislation. Compensation professionals apply their expertise regarding pertinent legislation to design legally sound pay and bene�its practices. In addition, since the passage of the Civil Rights Act of 1991, compensation professionals have applied their expertise to demonstrate that alleged discriminatory pay practices are a business necessity. As we will discuss in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) , the burden of proof to demonstrate that alleged discriminatory pay practices are not discriminatory rests with compensation professionals.

COMPENSATION IN ACTION

Consistent, innovative, and fair compensation practices are central to ensuring the success of both human resource strategies and overall company competitive strategies. While it is HR’s role to decide what kind of people are critical to �ill roles that will lead to successful execution of competitive strategies, compensation professionals must align practices that will enable attraction, appropriate job placement, and development of these individuals. Many companies have moved from the personnel management model to the HR business partner model; however, some still look to HR to guarantee that policies are being enforced and the company mitigates legal risk. Depending on the company where you are employed—and whether you are a line manager or HR professional—you may �ind yourself in a position to understand the competitive strategy of the business and align compensation practices with the strategic thrust of the business.

Action checklist for line managers and HR—aligning compensation with strategy

HR takes the lead

Work with line managers to fully understand which roles and types of employees will best support the execution of company strategy.

Collaborate with compensation specialists to run analysis of market factors (competitors, industry standards, local labor market) to get indicators of compensation norms and standards in order to

keep your company’s compensation practices competitive.

Create, together with line managers, pay structures wherein roles are placed into appropriate pay grades. Each grade will have a corresponding range that will serve as the basis for assigning pay rates for roles.

Line managers take the lead

Educate staff positions, along with other business–leaders, in order for all to understand what strategy is being employed to achieve speci�ic company objectives.

Educate HR on certain aspects of roles (e.g., autonomy, skill variety, task signi�icance, etc.) that, when enhanced, could improve intrinsic motivation, thus leading to bene�its for employees and employers. HR works on ways to couple the intrinsic compensation with the identi�ied plan for the core compensation plan.

Work together with HR to implement a plan that ties the compensation plan to a successful recruitment, training, and development plan, ensuring that the company is retaining the talent that is critical to the implementation and delivery of the strategic objectives.

END OF CHAPTER REVIEW

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) to complete the problems marked with this icon .

Summary

Learning Objective 1: Strategic compensation refers to the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies. The building blocks of strategic compensation include extrinsic compensation (monetary compensation or core compensation as well as nonmonetary compensation or employee bene�its).

Learning Objective 2: Compensation professionals must think like the Chief Executive Of�icer (CEO) to become a partner in achieving organizational plans and results. Compensation professionals help leverage the value of employees (human capital) for competitive advantage based on the design and use of various compensation practices, including merit pay and incentive pay.

Learning Objective 3: Compensation professionals design compensation systems to meet the imperatives of two competitive business strategy types: lowest cost strategy and differentiation strategy. Success comes with being able to answer yes to each of three questions: (1) Does compensation strategy �it well with the objectives of competitive business and HR strategies? (2) Does the choice and design of compensation practices �it well to support compensation strategy? (3) Does the implementation of compensation practices effectively direct employee behavior to enhance job performance that supports the choice of compensation practices?

Learning Objective 4: The building blocks of compensation systems include core compensation and employee bene�its. The elements of compensation systems focus on achieving internally consistent job structures, market- competitive pay systems, and alternative pay structures that recognize employee contributions.

Learning Objective 5: Fitting compensation into an organization’s structure requires consideration of how compensation professionals �it into the corporate hierarchy, how compensation �its into HR departments, and the relationship between compensation practice and other HR functions (e.g., recruitment and training).

Learning Objective 6: The HR department provides services to the several stakeholders: employees, line managers, executives, unions, and the U.S. government. Compensation professionals serve these stakeholders in particular ways. For example, compensation professionals educate employees about their training options and how successful training outcomes will lead to increased pay and advancement opportunities.

Key Terms competitive advantage 2 (ch01.xhtml#page_2) intrinsic compensation 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#page_3) extrinsic compensation 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#page_3) core compensation 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#page_3) employee bene�its 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#page_3) competitive business strategy 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#page_3) human resources strategies 4

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec1#page_4) strategic compensation 4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec1#page_4) capital 5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec2#page_5) human capital 5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec2#page_5) cost leadership (lowest-cost strategy) 7

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec3#page_7) differentiation strategies 7

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec3#page_7) base pay 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) hourly pay or wage 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) salary 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) compensable factors 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) cost-of-living adjustment 9

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) seniority pay 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_9) human capital theory 10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) merit pay 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) incentive pay 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) variable pay 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) person-focused pay 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) competency-based pay 10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) pay-for-knowledge 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) skill-based pay 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) discretionary bene�its 10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) legally required bene�its 10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) paid time off 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) services 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_10) protection programs 11

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_11) internally consistent compensation systems 11

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_11) job analysis 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13) job evaluation 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13)

market-competitive pay systems 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13)

compensation surveys 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13)

pay structures 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13) pay grades 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13) pay ranges 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_13) line employees 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_14) staff employees 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_14) generalist 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_14) specialist 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec4#page_14) severance pay 17 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec5#page_17) pension programs 17 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec5#page_17) early retirement programs 17

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01lev1sec5#page_17)

MyManagementLab CHAPTER QUIZ! If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Quiz! and see what you’ve learned.

Discussion Questions 1-1. De�ine strategic compensation.

1-2. Identify two companies—one that you believe pursues a lowest-cost strategy and another that pursues a differentiation strategy. Relying on personal knowledge, company annual reports, or articles in newspapers and business periodicals, discuss these companies’ competitive strategies. How might compensation professionals contribute to these objectives?

1-3. Stakeholder expectations pose challenges for compensation professionals. At times, there may be con�lict among the expectations of different stakeholders. Give two examples and explain how compensation professionals meet their expectations.

1-4. Are the three main elements of compensation systems—internal consistency, market competitiveness, and recognizing employee contributions—equally important, or do you believe that they differ in importance? If different, which do you believe is most important? Least important? Give your rationale.

CASE Competitive Strategy at Sportsman Shoes

An additional Supplemental Case can be found on MyManagementLab.

Sportsman Shoes has been a leader in the shoe industry for more than 30 years. Sportsman manufactures and sells athletic shoes for all types of sports. The company has pursued a low-cost strategy in order to sustain its success. It sells a limited number of shoe designs and has held costs low through manufacturing ef�iciency and standardized operations. However, the past years have been a struggle at Sportsman. The shoe market has seen a rise in the availability of low-cost imported shoes that has threatened Sportsman’s competitive position. As a result, company executives have decided it is time for a strategy shift.

Sportsman executives have done extensive market research and determined that many niche athletic shoe markets exist where athletes are willing to pay more for shoes designed to meet the unique needs of their sport. There are very few competitors in these niche athletic shoe markets, and most do not have Sportsman’s past experience in keeping control of manufacturing costs. Sportsman has determined that with talented shoe designers in place, they can manufacture athletic shoes to meet the needs of the niche markets using their current manufacturing facilities and employees. By designing shoes that have features that differ from competitors and meet the speci�ic needs of a new group of customers, Sportsman believes the company can create a competitive advantage. Further, while their shoes will not be as low cost as they were in the past, they will likely be able to sell their shoes for less than market competitors and still make a healthy pro�it.

Therefore, Sportsman has decided to shift from its current low-cost strategy to a differentiation strategy and will begin production to make specialty athletic shoes. Sportsman must now make many tactical decisions in various functional areas of the company to support its decision to shift its overall business strategy. Its �irst priority is to restructure the product development function. As it will need to understand the needs of the niche markets and design shoes to meet those needs, it will need to hire and retain talented shoe designers. The company will also need to hire operations specialists to transition its manufacturing operations to produce the new shoe designs. Beyond hiring new staff, Sportsman also must consider the implications for current employees to help them successfully transition to their new work requirements. Therefore, there are several considerations the company must address in the area of human resource management.

Questions:

1-5. Following Sportsman’s shift in competitive strategy, what are some considerations for the company’s human resource management practices?

1-6. What kind of challenges will Sportsman face speci�ically in the area of compensation?

Crunch the Numbers! Calculating the Costs of Increasing the Total Compensation Budget at Butcher Enterprises

An additional Crunch the Numbers! exercise can be found on mymanagementlab.com (http://mymanagementlab.com) .

Butcher Enterprises has experienced substantial employee turnover among its of�ice workers. During exit interviews, more than 80 percent stated that low pay was the top reason for resigning. The company conducted a survey of local companies’ pay practices to con�irm whether this concern is valid. Indeed, Butcher Enterprises’ average hourly pay rate for total compensation falls well below the market. The compensation survey showed an average hourly rate of $23 for total compensation. Of this amount, wages are $16 per hour and bene�its are $7 per hour. In comparison, Butcher Enterprises spends an average hourly rate of $19 for total compensation. Of this amount, 70 percent is allocated for wages.

Questions:

1-7. On an average hourly basis, how much does Butcher Enterprises spend on wages and bene�its, respectively, in dollars?

1-8. How much does the company spend on wages and bene�its over the course of one year for 100 of�ice workers? Assume that each worker provides 2,080 hours of service each year.

1-9. How much additional money does the company need to match the market rates for this group of 100 employees?

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) for Auto-graded writing questions as well as the following Assisted-graded writing questions:

1-10. Explain the similarities and differences between merit pay, incentive pay, and personfocused pay. Explain the role of performance appraisals in merit pay programs.

1-11. Discuss how compensation professionals contribute to a �irm’s competitive advantage.

1-12. MyManagementLab Only – comprehensive writing assignment for this chapter.

Endnotes 1. Day, N. (2013). Transforming the role of money in the new economy: Removing pay as the star of the show. WorldatWork Journal (Fourth Quarter): 7–20.

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3. Eli Lilly’s Annual Report. (2009). Available: http://investor.lilly.com/annuals.cfm (http://investor.lilly.com/annuals.cfm) , accessed January 28, 2011.

4. Why Lilly? Available: http://www.lilly.com/careers/why-lilly/Pages/why-lilly.aspx (http://www.lilly.com/careers/why-lilly/Pages/why-lilly.aspx) , accessed April 22, 2015.

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6. “Attorney urges HR professionals to think like the CEO,” HR Focus 89 (April 2012): 10. 7. “HR in 2020 should understand clearly all aspects of business,” HR Focus 90 (February 2013): 8–9. 8. GE (2015). Experienced Program: Human Resources Leadership Program (HRLP), United States. Available:

http://www.ge.com/careers/culture/university-students/human-resources-leadership-program/united- states (http://www.ge.com/careers/culture/university-students/human-resources-leadership-program/united-states) , accessed February 6, 2015.

9. Bosch (2015). Careers at Bosch | PhDs. Available: http://your.bosch- career.com/en/web/us/us/joining_bosch_us/graduates_us/phds_us/phds (http://your.bosch- career.com/en/web/us/us/joining_bosch_us/graduates_us/phds_us/phds) , accessed February 6, 2015.

10. Dutton, J. E., & Jackson, S. E. (1987). The categorization of strategic issues by decision makers and its links to organizational action. Academy of Management Review, 12, pp. 76–90.

11. Solomon, J., & Said, S. (2014). Why Saudis decided not to prop up oil. The Wall Street Journal (December 14). Available: http://www.wsj.com (http://www.wsj.com) , accessed January 31, 2015.

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19. U.S. Bureau of Labor Statistics. Occupational Employment and Wages (May, 2013), Human resource specialists. Available: http://www.bls.gov/oes/current/oes131071.htm (http://www.bls.gov/oes/current/oes131071.htm) , accessed February 6, 2015.

20. U.S. Bureau of Labor Statistics (2013). Occupational Employment and Wages (May). Human resources managers. Available: http://www.bls.gov/oes/current/oes113121.htm (http://www.bls.gov/oes/current/oes113121.htm) , accessed February 6, 2015.

21. U.S. Bureau of Labor Statistics (2014). Occupational Outlook Handbook, 2014-15 Edition, Aerospace engineers. Available: http://www.bls.gov/ooh/architecture-and-engineering/aerospace-engineers.htm (http://www.bls.gov/ooh/architecture-and-engineering/aerospace-engineers.htm) , accessed February 6, 2015.

22. Quotation excerpted from Leonard, B. (2002). Straight talk: Executives sound off on why they think HR professionals lost strategic ground, and what they can do to earn a place “at the table.” HRMagazine, January, Vol. 47, No. 1, p. 48. Available: www.shrm.org (http://www.shrm.org) , accessed March 10, 2013.

23. U.S. Bureau of Labor Statistics (2014). Occupational Outlook Handbook, 2014-15 Edition, Compensation and bene�its managers. Available: www.bls.gov/ooh/management/compensation-and-bene�its-managers.htm (http://www.bls.gov/ooh/management/compensation-and-bene�its-managers.htm) , accessed February 5, 2015.

24. U.S. Bureau of Labor Statistics (2013). 2012–2022 employment projections. Available: http://www.bls.gov/news.release/ecopro.nr0.htm (http://www.bls.gov/news.release/ecopro.nr0.htm) , accessed February 3, 2015.

25. U.S. Bureau of Labor Statistics (2014). 2013 wage data. Available: www.bls.gov/oes (http://www.bls.gov/oes) , accessed February 3, 2015.

26. U.S. Federal Government. (2011). Performance & compensation: Incentive payments. Available: http://www.opm.gov/ses/performance/incentive.asp (http://www.opm.gov/ses/performance/incentive.asp) , accessed January 15, 2015.

27. U.S. Federal Government. (2011). Performance management. Available: http://www.opm.gov/ses/performance/index.asp (http://www.opm.gov/ses/performance/index.asp) , accessed July 13, 2011.

28. Tsui, A. S. (1984). Personnel department effectiveness: A tripartite approach. Industrial Relations, 23, p. 187.