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mod_11.pptxTotal Rewards and Compensation
CHAPTER 11
14e
Human Resource
Management
Robert L. Mathis | John H. Jackson | Sean R. Valentine
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Learning Objectives
Identify the three general components of total rewards and give examples of each
Explain the major laws governing employee compensation
Outline strategic compensation decisions
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Learning Objectives
Describe the challenges of managing global compensation systems
Illustrate the steps in developing a base pay system
Describe how individual pay rates are set
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Nature Of Total Rewards and Compensation
Total rewards: Monetary and non-monetary rewards provided to attract, motivate, and retain employees
Strategic decisions that guide the design of compensation practices:
Legal compliance with all applicable laws and regulations
Cost-effectiveness for the organization
Internal and external equity for employees
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Nature Of Total Rewards and Compensation
Optimal mix of compensation components
Performance enhancement for the organization
Performance recognition and talent management for employees
Enhanced recruitment, involvement, and retention of employees
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.1 - Total Rewards Components
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Figure 11.2 - Elements of Total Rewards
Source: Adapted from WorldatWork (http://www.worldatwork.org).
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Components of Compensation
| Components | Description |
| Tangible rewards | Elements of compensation that can be quantitatively measured and compared between organizations |
| Intangible rewards | Elements of compensation that cannot be as easily measured or calculated |
| Base pay | Basic compensation that an employee receives, usually as a wage or salary |
| Wages | Payments calculated directly from the amount of time worked by employees |
| Salary | Consistent payments made each period regardless of the number of hours worked |
| Variable pay | Compensation linked directly to individual, team, or organizational performance |
| Benefit | Indirect reward given to an employee or group of employees as part of membership in the organization |
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Legal Constraints On Pay Systems
Fair Labor Standards Act (FLSA) - Primary federal law affecting compensation which is enforced by the Wage and Hour Division of the U.S. Department of Labor
Provisions focus on the areas covering:
Minimum wage
Limits on the use of child labor
Overtime provisions (exempt and nonexempt statuses)
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Areas Under FSLA
Minimum wage - Set by FLSA to be paid to a broad spectrum of covered employees
Congressional action is the only way to change it
Child labor provisions - FLSA set the minimum age for employment with unlimited hours at 16 years
For hazardous occupations, the minimum is 18 years of age
Individuals 14 to 15 years old may work outside school hours with certain limitations
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Areas Under FSLA
Exempt and nonexempt statuses
Exempt employees: Employees who are not paid overtime
Nonexempt employees: Employees who must be paid overtime
Overtime - FLSA established overtime pay requirements at one and one-half times the regular pay rate for all hours worked over 40 in a week
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Figure 11.3 - Determining Exempt Status under the FLSA
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Common Overtime Issues
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Acts and Legislation Affecting Compensation
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Additional Laws Affecting Compensation
Prevailing wage: An hourly wage determined by a formula that considers the rate paid for a job by majority of the employers in the appropriate geographic area
Garnishment: A court order that directs an employer to set aside a portion of an employee’s wages to pay a debt owed to a creditor
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Independent Contractor Regulations
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Figure 11.5 - Continuum of Compensation Philosophies
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Strategic Compensation Decisions
Communicating pay philosophy - Helps employees recognize:
Value of the total reward package
How their job performance might affect their compensation
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Strategic Compensation Decisions
Compensation responsibilities
HR specialists develop and administer the organizational compensation system
They ensure pay practices comply with all legal requirements
Line managers evaluate employee performance and participate in pay decisions
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Payroll Administration
Assure compliance with compensation laws
To maintain positive employee relations
Payroll staff report to:
HR function
Accounting function
Liability for legal compliance remains with the company
Even if the payroll process is outsourced
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.6 - HR Metrics for Compensation
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Motivation Theories and Compensation
Expectancy theory: Employees’ motivation is based on the probability that:
Their efforts will lead to an expected level of performance that is linked to a valued reward
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.7 - Expectancy Theory
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Motivation Theories and Compensation
Equity theory: Individuals judge fairness in compensation by comparing their inputs and outcomes against the inputs and outcomes of referent others
Referent others - Workers that the individual uses as a reference point to make these comparisons
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure11.8 - Equity Theory
Source: Adams, 1965.*
*Adapted from John Stacey Adams, J. S. (1965). “Inequity in social exchange.” Advances in Experimental Social Psychology. Volume 62, 1965, 335–343.
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensation Fairness and Equity
Compensation Fairness and Equity
External equity
Internal equity Procedural Justice Distributive Justice
Pay secrecy vs. openness
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.9 - Compensation Quartile Strategies
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Market Competitive Compensation
Used when the employer is experiencing financial difficulties and when an abundance of workers is available
Lag-the-Market Strategy
Aggressive approach that enables a company to attract and retain sufficient workers with the required capabilities and be more selective when hiring
Lead-the-Market Strategy
Attempts to balance employer cost pressures and the need to attract and retain employees by providing compensation levels that meet the market for the employer’s jobs
Match-the-Market Strategy
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Selecting a Quartile
Deciding which quartile position to target for pay structures is a function of many considerations:
Financial resources available
Competitiveness pressures
Market availability of employees with different capabilities
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Selecting a Quartile
Decisions about compensation mix and competitive position are related
Should be addressed as part of a comprehensive total rewards strategy
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Competency-Based Pay
Rewards individuals for the capabilities they demonstrate and acquire
In knowledge-based pay (KBP) or skill-based pay (SBP) systems employees:
Start at a base level of pay
Receive increases as they learn to do other jobs
Gain additional skills and knowledge
Become more valuable to the employer
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensation System Design Issues
Team
How to develop compensation programs that support the team concept
Individual
How to compensate individuals whose performance may be a result of team efforts and achievements
Individual versus Team Rewards
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.11- Staffing Categories for International Assignees at Multinational Enterprise (MNE)
Source: Adapted from McPhail, Fisher, Harvey, & Moeller, 2012 and Isidor, Schwens, & Kabst, 2011.
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Compensating Expatriates
Maintain an expatriate’s standard of living in the home country
Home-Country-Based Approach
Compensate the expatriate at the same level as workers from the host country
Host-Country-Based Approach
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Figure 11.12 - Compensation Administration Process
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Valuing Jobs with Job Evaluation Methods
Job evaluation: Formal, systematic means used to identify the relative worth of jobs within an organization
Compensable factor: Job value commonly present throughout a group of jobs within an organization
Derived from job analysis
Reflect the nature of different types of work performed in the organization
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Job Evaluation Methods
Job Evaluation Methods
Point factor Method
Ranking method
Classification method
Factor-comparison method
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Market Pricing
Use of market pay data to identify the relative value of jobs based on what other employers pay for similar jobs
Identifying relevant market pay data for jobs that are good matches with the employer’s:
Jobs
Geographic considerations
Company strategies and philosophies about desired market competitiveness levels
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Job Evaluation Methods
Advantages
Disadvantages
Ties organizational pay levels to the external job market, without internal job evaluation distortion
Communicates to employees that the compensation system is market linked
Relies on market survey data
Specific job may differ from a matching job in the survey
Market data’s scope is a concern
Tying pay levels to market data can lead to wide fluctuations
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Surveys
Collection of data on compensation rates for workers performing similar jobs in other organizations
Benchmark jobs: Jobs found in many organizations that can be used for the purposes of comparison
Internet-based pay surveys
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Using Pay Surveys
Survey Data Relevance and Validity
Participants
Broad-based
Timeliness
Job matches
Details provided
Methodology
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Pay Surveys and Legal Issues
Conditions to be met by organizations to participate in surveys:
Must be administered by a third party
Data must be more than three months old
Minimum of five employers must participate in the survey
No single employer’s data may be worth more than 25 percent of the total
All data must be aggregated and stripped of any identifying information
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Pay Grades
Groupings of individual jobs having approximately the same job worth
Market line: Graph line that shows the relationship between job value as determined by:
Job evaluation points
Pay survey rates
Market banding: Grouping jobs into pay grades based on similar market survey amounts
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
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Pay Ranges
Each pay grade pay level can be determined by making the market line the midpoint line of the new pay structure
Broadbanding: Practice of using fewer pay grades with much broader pay ranges than in traditional compensation systems
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Figure 11.13 - Market Pay Line and Job Evaluation Points
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Individual Pay
Red-circled employees: Current jobholder who is paid above the range set for the job
Green-circled employees: Incumbent who is paid below the range set for the job
Pay compression: Situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Approaches to Provide Employees With Performance-based Increases
Targeting high performers - Focuses on providing the top-performing employees with higher pay raises
Pay adjustment matrix - Reflects an employee’s upward movement in a firm
Factors considered:
Employee’s level of performance as rated in an appraisal
Employee’s position in the pay range
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Standardized Pay Adjustments
Standardized Pay Increases
Seniority
Cost-of-Living Adjustments (COLA)
Across-the-Board Increases
Lump-Sum Increases (LSI)
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Figure 11.16 - Pay Adjustment Matrix
Source: Adapted from Payscale’s 2012 Compensation Best Practices report.
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Compensation Challenges
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