Business

Unit VI Lecture Transcript

Slide 1

Unit VI, Compensation Management and Incentive Pay.

Slide 2

In order to gain a deeper understanding of the concepts presented in

this course, the unit lessons will be structured in question and answer

format. Each slide will provide at least one question based on concepts

presented in this unit and an accompanying audio response from a subject

matter expert. Review each slide to further enhance your practical

knowledge about the field of human resource management.

Slide 3

Meet Marilyn Pike. Marilyn has over 20 years of experience in HR

leadership positions in both the public and private sector, large and small

businesses, and union and non-union environments. She currently holds

both the SPHR and SHRM-SCP.

Question: What is involved in creating a compensation strategy?

Answer: Well first, of course, does the organization’s ability to pay

(compensate) their employees? An organization has to budget for wages, so

they are going to look at the KSAs (knowledge, skills, and abilities) needed

for particular positions and the market wage rate for those positions, as well

as the supply of potential workers. Do we want to be at, above, or below the

market in compensation? Then there are types of compensation. The mix of

the four basic components of compensation—base pay, wage addons,

incentives, and benefits. Currently I recruit a lot of RNs; we offer hiring

bonuses, reimburse for Internet/phone use, and we provide a good health

plan while picking up the majority of the premium. Just last week, I had an

RN decline our offer solely because she did not like the healthcare package

we offered. Of course, there is pay for performance or longevity. While often

employees expect to be paid an increasingly higher wage depending on how

long they have been with the organization, the reality is that usually is only

going to happen if their performance increases. And, of course, they also

expect to earn more vacation time after they have been with the

organization for a longer period of time.

Then there is skill- or competency-based pay. For example, registered

nurses are in high demand now and that demand is only going to become

greater as the Baby Boomer generation continues to retire as well as have

more medical needs. Unfortunately, as the Baby Boomers retire we lose

many RNs at just the time when the demand is increasing. Right now, there

is a shortage of RNs and that shortage is projected to continue. This means

RNs can attract top dollar and can be entertaining several offers at once.

Conversely, if you have a low skill set position, one which doesn’t require a

lot of education or training, one which many people can do, the wage is

going to be lower. I’m going to use the example of when I recruited

warehouse workers. Really, what we were looking for was a positive attitude

and strong work ethic. We could train the new hires and have them on the

floor picking and/or packing in just a day or two.

Slide 4

Question: What is pay compression?

Pay compression can happen between tenured employees and new

hires. It occurs when new hires are paid the same as current workers in the

same position. Causes of pay compression can be longer-term employees

started at lower wages and annual increases have not kept pace with current

market demands/inflation. Or the job requires a “hot skill” that led the

company to raise the starting salary to attract the right talent.

For example, let's say someone comes in making the Federal minimum

wage of $7.25 and has worked with the company for five years, getting a

3% wage each year. After five years they will be making about—not exactly,

this is just a rough example—$7.50 an hour. The state raises the minimum

wage to $8, which is great and their pay suddenly increases to $8/hour. But,

every new employee who comes in is also making $8, so the employee has

lost the pay increase for longevity/experience.

This happened when I was Human Resources Director for a warehouse

distribution center in Chicago. We had employees (pickers/packers) who had

been with the company for many years and had received good bonuses over

the years. But the state increased the minimum wage to a point where we

had to give these employees a pay bump to be compliant with the new

minimum wage. While obviously the employees loved getting the increase in

pay – because employees talk they soon figured out they were that now

(with their years of experience) were making the same wage as a new hire

with no experience. This was demoralizing to the employees, luckily I

worked for a very employee-friendly company. We were a privately held

(which means not traded on the stock market) family-owned company, and

the owners made the decision to tack on the increases the employees had

previously earned to the new hourly wage. But it was at significant cost to

the owners. I suspect a lot of publicly traded companies might not be so

generous.

As I said, employees talk; we refer to this as pay transparency. Some

companies have policies that say that employees cannot share their wage

information, but the NLRB (National Labor Relations Board) has made clear,

an employee has a right to tell anyone they want what wage they make. Pay

transparency particularly exists in the public sector where employees’ wages

are public information. I remember when I became an HR Analyst for the

city of Las Cruces many years ago. I was shocked (read not pleased) to find

out literally anyone could find out what I made.

Pay compression can even happen between managers and their direct

reports. Employees who work a lot of overtime can begin to make as much

or more than their supervisor, who might be salaried so will not earn

overtime pay regardless of how many hours they work. This issue is going to

be alleviated somewhat because of the new minimum salary threshold that

is being proposed by the Department of Labor. It would increase from the

current $455 a week salary (the equivalent of $11.75 for a 40-hour week,

and most salaried workers work more than 40 hours a week) to $679 a week

(the equivalent of $16.98 an hour).

Slide 5

Question: What is pay equity and comparable worth? How is that

different from equal pay for equal work?

Answer: Comparable worth is similar pay for similar work that is

different from equal pay for equal work. The concept of comparable worth

holds that if we can compare your job with that of another person and they

are similar, we should pay you a similar wage, which makes this concept

much broader than equal pay. The biggest problem with comparable worth

from a legal standpoint is how to legislate the value of a job while taking

supply and demand into account.

The Equal Pay Act requires that men and women in the same

workplace be given equal pay for equal work. The jobs do not need to be

identical, but they must be substantially equal. The job titles do not have to

be the same. The focus is on job content in the sense of the basic KSAs

(knowledge, skills, and abilities) that are needed—that’s what determines

whether jobs are substantially equal. A classic example of this would be the

position of secretary/receptionist versus the position of janitor, where the

janitor might not even need a high school diploma or GED. All forms of pay

(bonuses, benefits, etc.) are covered by this law. If there is an inequality in

wages between men and women, employers may not reduce the wages of

either sex to equalize their pay.

Slide 6

Question: Why do companies use independent contractors, as opposed

to employees?

Answer: Companies are using more independent contractors to

maintain maximum organizational flexibility, and, in some cases, at least, to

lower costs associated with maintaining employees. Employees cost more

than just their wage, there are the cost of benefits, healthcare insurance

eligibility, or any other compensation factors like federal (social security and

other) taxes or state mandated (unemployment, workers’ compensation,

etc.) taxes on employees and other potential costs. For several years, Uber

drivers, who are independent contractors, have wanted to wanted to form a

union, but the NLRB recently concluded Uber drivers are independent

contractors and not employees—a classification that means they have no

right to form a union or bargain collectively (Romo, 2019).

Slide 7

Question: Can you tell us about incentive pay plans?

Answer: While there is concern that at least in some cases, incentives

don’t work, evidence does show that group incentives work better than

individual incentives. But in general, it is difficult to tie employee actions to

company success. There is also an issue of incentives becoming an

entitlement. If this occurs, the incentive no longer motivates changed

behaviors. Classic example of this was when I worked at a bank. Every year,

employees had gotten a holiday bonus and they had come to expect it. One

year, the banking industry was struggling and the bank did not offer a

holiday bonus. This caused huge dissatisfaction among employees. There is

also a school of thought that external incentives may act to lower a person’s

internal motivation to do something, which may mean that we actually lower

performance instead of raising it when we apply incentives. Finally, there is

the problem of people only focusing on what they are receiving incentive pay

to do.

Slide 8

This concludes the Unit VI question and answer session with subject

matter expert, Marilyn Pike. Reflect on this question and answer session as

you review your readings for this unit.

Slide 9

Reference

Romo, V. (2019). Uber drivers are not employees, National Relations Board

rules. Drivers saw it coming. Retrieved from

https://www.npr.org/2019/05/15/723768986/uber-drivers-are-not-

employees-national-relations-board-rules-drivers-saw-it-com