Human resource exam

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1.Describe types of compensation and outline the major influences on compensation plans

2.Describe major content and process theories of motivation and their application to compensation plan design

3.Outline methods of determining job worth and describe the advantages and disadvantages of each

4.Describe the steps and identify options for establishing pay structures

5.Describe current issues in compensation administration

Managing Hospitality Human Resources Chapter 8: Compensation Administration

Compensation Policy

• Articulates where the company wants its pay policies to be in the marketplace and how the company will reward and motivate employees

• Monetary compensation is commonly divided into the following: – Direct compensation

• payment of money to an employee in exchange for work

– Indirect compensation • compensation given as a condition of employment rather

than in direct exchange for work.

Major Influences on Compensation Plans

• Cost of living

• Labor market influences

• Union influences

• Government influences

Cost of Living

• Refers to the real dollar value of a worker’s purchasing power for ordinary necessities such as food and clothing

• The cost of living in different regions is also a factor in compensation.

• Consumer price index – computed by comparing the retail prices of goods and

services at a fixed time with the prices at subsequent or prior times

– is generally the best overall indicator of the real value of wages or salaries.

Labor Market Influences

• The number of available workers varies – Unemployment – Type of work – Location/regional economic conditions

• Compensation rates vary according to worker availability

• Internal conditions of a company influence compensation rates

Union Influences • Unions influence compensation rates

– union contracts generally have same pay for all employees who perform the same job

– raises based on seniority

• Non-union companies typically reward individual employees

• Whether unionized or not, hotels in markets in which unions are present generally have higher compensation costs.

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Government Influences • Laws that mandate companies compensation for

their employees – minimum wage – wage rates – overtime pay – child-labor restrictions

• Exempt – An employee who is not subject to the minimum wage or

overtime provisions of the Fair Labor Standards.

• Non-exempt – An employee who is subject to the minimum wage or

overtime provisions of the Fair Labor Standards.

External and Internal Equity • External equity

– pay variations among similar properties in a particular market

• Salary Survey – External analysis depends on direct collection of

information from competing organizations in the market

• Internal equity – pay variations within a particular company

• Job Evaluation – Internal analysis based on establishing meaningful

compensable factors

Job Evaluation Methods • Ranking method

– usually uses a team of managers to rank jobs

• Classification method – compares each job to a predetermined grade or class – Sometimes called job grading

• Point method – probably the most widely used method of job evaluation – A point system assigns a point total to each job on the basis of several

clearly defined criteria – jobs are then placed in job grades according to their point totals.

• Factor comparison method – entails identifying key jobs – generally those that that are extremely important to the success of

the organization

Competitive Pay Policies

• Pay leaders – Leading the market – Paying more than the market average

• Pay followers – Lagging the market – Paying below market average

• Meeting the competitors – At market – Pay the prevailing wage

Pay Grades

• Each hospitality organization must determine the number of pay grades it will use

• It is important to establish ranges of pay within each grade – allows employees to receive raises without changing pay

grades

• Performance pay must be high enough to effectively reward performance

• Must be observed differences in pay between people who make higher and lower contributions to the organization.

Determining Pay Within Grades • Seniority provides a good reason for establishing a range

of pay within job grades or classifications • Merit

– typically the second determinant of pay within grades – merit pay policies are intended to motivate employees

• Pay scales can be determined by – Broadbanding

• eliminates all but a few comprehensive salary and job classifications

– Careerbanding • uses market surveys to determine scales

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Other Pay Structure Options • Two-tier wage systems

– provide a higher pay structure for existing employees and a lower one for employees hired beyond a specific date

• Skill-based pay systems – assume that a company can afford to pay more to people

who do more

• Knowledge-based pay – a variation of a skill-based pay system in which pay is tied to

knowledge rather than to skills

• “On-call pay” – companies provide pay premiums to on-call employees

• Team-based pay rewards

Current Issues in Compensation

• Pay secrecy

• Wage compression and expansion

• Comparable worth

• Wage and hour audits

Pay Secrecy • The decision of whether or not to keep pay rates

secret involves at least two issues: – Does the company make its pay grades and the pay ranges

of those grades known to employees? – If the company prefers pay secrecy, does it attempt to

prevent or forbid employees from discussing their pay with other employees?

• The National Labor Relations Board has repeatedly found policies that forbid or discourage employees from discussing their pay to be unfair labor practices

Wage Compression and Expansion • Wage compression

– levels of demand result in higher pay for new employees than for current employees

– primarily caused by competition with other companies for new hires

• Wage expansion – occurs when employers try to raise pay rates of current

employees to keep salaries in line with higher wages of new hires

Comparable Worth • Many people confuse comparable worth with equal

pay issues – Equal Pay Act prohibits pay discrimination in the same job – Comparable worth deals with the issue of pay in similar jobs

• Comparable worth advocates cite the fact that pay is based on job classification rather than on the work that goes into a job

Wage and Hour Audits

• All pay policies and procedures must comply with the provisions of the Fair Labor Standards Act

• Policies and procedures that are inconsistent with the act can result in fines for a company and back pay for employees