What specific factors influenced Laverne? How could Laverne have approached the supervisors differently? 3. What specific steps should Laverne now take with each supervisor to ensure that he or she improves employee performance in each respective unit?
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CompensationChapter8.pdf
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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
Managing Hospitality Human Resources Chapter 8: Compensation Administration
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
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 compensationcompensation.
• 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 individualNon 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 methodPoint 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 followersy – 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– 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 employeesmerit 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
h dwho 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
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Motivating Employees
• Compensation programs must motivate individual employees to work; however, they rarely succeed when they base motivation solely on monetary rewards.
• Motivation theories fall into two principal types: – Content theories
• Inherent traits of humans
– Process theories • How environments can be built to motivate others
Content Theories
• Content theories propose that all people are motivated by certain common needs; the most common are the following:
– Economic Man Theory– Economic Man Theory
– Maslow’s Hierarchy of Needs Theory
– Alderfer’s ERG Theory
– Herzberg’s Two‐Factor Theory
– McClellands’s N‐Achievement Theory
Economic Man and Maslow’s Hierarchy of Needs
• The Economic Man Theory holds the idea that money is the only important goal for which people work
M l ’ Hi h f N d• Maslow’s Hierarchy of Needs
Economic Man and Maslow’s Hierarchy of Needs
• The Economic Man Theory holds the idea that money is the only important goal for which people work
M l ’ Hi h f N d• Maslow’s Hierarchy of Needs
Alderfer’s ERG Theory
• Alderfer’s ERG Theory agrees with Maslow –individuals have basic needs that could be arranged in order of priorityarranged in order of priority
–there are basic distinctions among those needs
–those needs need to be classified –Alderfer divides them into three categories • Existence Relatedness Growth
Alderfer’s ERG Theory
• Alderfer’s ERG Theory agrees with Maslow –individuals have basic needs that could be arranged in order of priorityarranged in order of priority
–there are basic distinctions among those needs
–those needs need to be classified –Alderfer divides them into three categories • Existence Relatedness Growth
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Herzberg’s Two‐Factor Theory
• Employees have two needs –Hygiene factors
• factors that are expected by employees, p y p y , and therefore cannot lead to satisfaction
• Extrinsic rewards
–Motivating factors • factors that lead to satisfaction and can drive performance
• Intrinsic rewards
Herzberg’s Two‐Factor Theory
• Employees have two needs –Hygiene factors
• factors that are expected by employees, p y p y , and therefore cannot lead to satisfaction
• Extrinsic rewards
–Motivating factors • factors that lead to satisfaction and can drive performance
• Intrinsic rewards
McClelland’s N‐ Achievement Theory
• Contends people have three needs – Need for achievement
• Usually good managers
– Need for power • Usually good leaders
– Need for affiliation • Usually do well in jobs with high levels of social interaction or where interpersonal skills are valued
McClelland’s N‐ Achievement Theory
• Contends people have three needs – Need for achievement
• Usually good managers
– Need for power • Usually good leaders
– Need for affiliation • Usually do well in jobs with high levels of social interaction or where interpersonal skills are valued
Process Theories
• Used to explain how employees can be motivated to work
– Exectancy theory
Equity theory– Equity theory
– Goal setting theory
– Reinforcement theory
Expectancy Theory
• Contends that motivation is related to an individual’s perception of three factors
– Expectancy • The probability that effort will lead to performance
– Instrumentality • The probability that performance will lead to certain outcomes
– Valence • The value attached to each outcome
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Expectancy Theory
• Contends that motivation is related to an individual’s perception of three factors
– Expectancy • The probability that effort will lead to performance
– Instrumentality • The probability that performance will lead to certain outcomes
– Valence • The value attached to each outcome
Equity Theory
• Does employee believe he/she is being fairly treated in comparison to another person perceived as being in the same position
A ll l k• Assumes all employees ask: – What do I receive in return for what I give
– What do others receive in return for what they give
Equity Theory
• Does employee believe he/she is being fairly treated in comparison to another person perceived as being in the same position
A ll l k• Assumes all employees ask: – What do I receive in return for what I give
– What do others receive in return for what they give
Goal Setting Theory
• States setting specific goals motivates better performance
• The following factors are needed to bring higher levels of performance from specific andhigher levels of performance from specific and challenging goals
– Ability
– Goal Commitment
– Feedback
Goal Setting Theory
• States setting specific goals motivates better performance
• The following factors are needed to bring higher levels of performance from specific andhigher levels of performance from specific and challenging goals
– Ability
– Goal Commitment
– Feedback
Reinforcement Theory
• Assumes people are conditioned to respond to stimuli
• Leads to four possible managerial actions in response to employee behaviorresponse to employee behavior
– Positive reinforcement
– Negative reinforcement
– Extinction
– Punishment
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Reinforcement Theory
• Assumes people are conditioned to respond to stimuli
• Leads to four possible managerial actions in response to employee behaviorresponse to employee behavior
– Positive reinforcement
– Negative reinforcement
– Extinction
– Punishment
