Human resources in transition
Diesel2018
Ch9_PowerPoint_BaseCompensation.pptxBase Compensation
1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
chapter 9
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Describe the difference between financial and nonfinancial compensation.
Describe the four forces influencing direct financial compensation.
Describe how organizations can evaluate the worth of a job.
List the three methods most commonly used for job pricing.
List four special compensation issues facing organizations.
Describe the Fair Labor Standards Act, the Equal Pay Act, and worker’s compensation.
2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What Is Compensation?
Direct financial compensation: compensation received in the form of salary, wages, commissions, stock options, or bonuses
Indirect financial compensation: all the tangible and financially valued rewards that are not included in direct compensation, including free meals, vacation time, and health insurance
Nonfinancial compensation: employee rewards and incentives that are not financial in nature, including flexible work schedules, development opportunities, casual dress codes, and helping employees balance work with the other demands
3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation
Base pay: reflects the size and scope of an employee’s responsibilities
Severance pay: given to employees upon termination of their employment
Total rewards: includes everything an employee perceives to be of value that results from the employment relationship
4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategic Compensation
Goal of a strategic compensation system
Attract and retain qualified employees
Reflect the relative value of each job
Be externally competitive and internally consistent and fair
Motivate individual performance and employees’ contribution to organizational goal achievement
Foster employee engagement and productive work relationships
Comply with all state and federal laws and regulations
5
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pay
Fixed pay: a set amount employees receive regardless of performance
Variable pay: some or all of an employee’s compensation based on employee, team, or organizational performance
Pay structure: an organization’s array of pay rates for different skills or work, including the difference in pay among employees in different job families
Pay mix: the relative emphasis given to different compensation components
6
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pay Structure
7
Figure 9-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What Influences Direct Financial Compensation?
The organization
The job
The employee
External forces
8
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Influence of the Organization on Direct Financial Compensation
Different industries and different organizations within an industry are able to pay differently based on their profitability and resources.
Pay leader: organization with a compensation policy of giving employees greater rewards compared to competitors
Pay follower: an organization that pays its front-line employees as little as possible
9
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Influence of the Job on Direct Financial Compensation
Organizations should ensure that pay differences across employees are based upon variations in job requirements including skill, effort, working conditions, job responsibility, and mental and physical requirements rather than bias.
Resource dependence theory: proposition that organizational decisions are influenced by both internal and external agents who control critical resources
10
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Influence of the Employee on Direct Financial Compensation
Wage differentials are differences in wages between workers, groups of workers, or workers within a career field.
Seniority and merit are two of the largest influences on wage differentials among people holding the same job in an organization.
11
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Influence of External Forces on Direct Financial Compensation
The labor market for a position consists of all of the potential employees located within a geographic area from which the organization might be able to hire.
The labor market during the time of an employee’s hire can result in differing pay for employees in the same job.
12
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What do you think is “reasonable” compensation for a not-for-profit organization?
Whose responsibility is it to inform a company’s board of directors of the CEO’s total compensation details?
Do you think that it is possible for a CEO to be paid too much? How would you determine an appropriate amount? Why?
13
Case Study: “Reasonable” Compensation at a Not-for-Profit Organization
Exercise
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Evaluating the Worth of a Job
Market pricing: uses external sources of information about how others are compensating a certain position to assign value to a company’s similar job
Job evaluation methods: a systematic process that uses expert judgment to assess differences in value between jobs
Position analysis questionnaire: a job analysis technique that is also useful in evaluating jobs for compensation purposes
14
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Pricing
Compensation surveys are surveys of other organizations conducted to learn what they are paying for specific jobs or job classes.
Benchmark jobs are jobs that tend to exist across departments and across diverse organizations, allowing them to be used as a basis for compensation comparisons.
15
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Compensation Levels
16
Table
9-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Job Evaluation Methods
Ranking method: comparing jobs based on their overall worth to the organization or their relative difficulty to rank them from most to least valuable
Job classification method of job analysis: jobs subjectively classified into an existing hierarchy of grades or categories
Point factor method: using a set of compensable factors to determine the value of each job
Hay Group Guide Chart-Profile Method: using a point-factor system to produce both a profile and a point score for each position
17
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Ranking Method of Job Evaluation
18
Figure 9-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Job Classification Method of Job Evaluation
19
Figure 9-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Point Factor Method
20
Figure 9-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Job Pricing
Single-rate system: paying all employees performing the job the same rate
Pay grades: the range of possible pay for a group of jobs
Broadbanding: the use of very wide pay grades (for example, salary ranges of plus or minus 30 percent to 60 percent of the salary midpoint) to increase pay flexibility
21
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pay Grade Structure
22
Figure 9-5
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation Issues: Equity
Two most often cited fairness principles underlying compensation systems
Equal pay for equal work
Higher pay for more important work
Internal equity: employees perceive their pay to be fair relative to the pay of other jobs in the organization
Employee equity: perceived fairness of the relative pay between employees performing similar jobs for the same organization
23
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation Issues: Equity
External equity: an organization’s employees believe that their pay is fair when compared to what other employers pay their employees who perform similar jobs
Comparable worth: if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them
Wage rate compression: starting salaries for new hires exceed the salaries paid to experienced employees
24
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation Issues
Team compensation: Tying team rewards to team performance motivates team members to pursue team goals rather than individual goals.
Executive compensation: Base salaries of executives are higher than those of low-level managers or operative personnel. Executives frequently operate under bonus and stock option plans that can dramatically increase their total financial rewards.
25
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Global Compensation
Cost-of-living adjustments
Housing allowance
Hardship premiums
Tax equalization payments
Inflation adjustments
26
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation Laws and Regulations
The Fair Labor Standards Act: federal law that sets standards for minimum wages, overtime pay, and equal pay for men and women performing the same jobs
The Equal Pay Act: prohibits gender-based wage discrimination
Employees in the same company who are performing work that requires equal skill, effort, and responsibility and performing under similar working conditions must not be paid differently based on gender
27
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compensation Laws and Regulations
Workers’ Compensation: a type of insurance that replaces wages and medical benefits for employees injured on the job in exchange for relinquishing the employee’s right to sue the employer for negligence
28
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
