2017_ihrm_lecture_7.pptxPage 1
What are the 3 things that you learned in the past lecture?
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Agenda
Introduction
Strategic International Human Resource Management
Culture and International HRM/ Cross-cultural management
Global Staffing and International Assignments
Institutions, Actors and Micropolitics: Organizational Culture
Global Talent Management
International Compensation and Reward
Global Labour Regulation and Corporate Social Responsibility (22.3.17)
Gender & Global Diversity Management (29.3.17)
Summary and essay review (5.3.17)
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2017
How Would You Define Compensation?
Rewards
Incentives
Things of value
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Martocchio, J. J. (2013). Strategic Compensation: A Human Resource Management Approach. Upper Saddle River, NJ: Pearson.
Total Rewards Overview
Compensation is part of a larger framework called Total Rewards.
Total Rewards provides a scope that demonstrates compensation is a value adding activity to the employee and not just monetarily defined.
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Types of Base Pay Systems
Job-based
Pay the job (not the person)
Market-based (external equity focus)
Point factor-based (internal equity focus)
Skills / knowledge-based
Pay the person (not the job)
Wages Versus Salaries
Wages generally refer to hourly compensation paid to operating employees. The basis for wages is time.
Salary is income paid to an individual on the basis of time.
A maturity curve is a schedule specifying the amount of annual increases a person will receive.
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Pay Surveys
Pay Surveys are surveys of compensation paid to employees by other employers in a particular geographic area, industry, or occupational group.
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Determining What to Pay
Job evaluation is a method for determining the relative value or worth of a job to the organization so that individuals who perform that job can be compensated adequately and appropriately.
Classification system attempts to group sets of jobs together into clusters, which are often called grades.
The point system requires managers to qualify, in objective terms, the value of the various elements of specific jobs.
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Pay-for-Knowledge and Skill-Based Pay
Pay-for-knowledge involves compensating employees for learning specific information.
Skill-based pay rewards employees for acquiring new skills.
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Wage and Salary Administration
Wage and salary administration is the ongoing process of managing a wage and salary structure.
All managers must be sensitive to these costs and must be vigilant about managing them properly.
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Pay Secrecy
Pay secrecy refers to the extent to which the compensation of any individual in an organization is secret or the extent to which it is formally made available to other individuals.
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Pay Compression and Pay Inversion
Pay compression occurs when individuals with substantially different levels of experience and/or performance abilities are being paid wages or salaries that are relatively equal.
Pay inversion occurs when the external market changes so rapidly that the new employees are actually paid more than experienced employees.
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Mandated Benefits
Unemployment Insurance is a mandated protection plan that provides a basic substance payment to employees who are between jobs.
Social Security provides limited income to retired individuals.
Workers’ Compensation is insurance that covers individuals who suffer a job-related illness or accident.
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Non-mandated Benefits
Private Pension Plans are administered by the organization and provide income to the employees at their retirement.
Defined benefit plans: a private pension plan where the benefit is precisely known based on a simple formula such as years of service. Defined contribution plans: a private pension plan in which the size of the benefit depends on how much money is contributed to the plan.
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Additional Benefits
Wellness programs concentrate on keeping employees from becoming sick rather than simply paying expenses when they do become ill.
Child care programs assist parents with child care expenses.
Cafeteria-style benefits allow employees to choose the benefits they really want.
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The Importance of Compensation
Impacts an employer’s ability to attract and retain employees.
Ensure optimal levels of employee performance in meeting the organization’s strategic objectives.
Compensation’s components
Direct compensation in the form of wages or salary
Base pay (hourly, weekly, and monthly)
Incentives (sales bonuses and or commissions)
Indirect compensation in the form of benefits
Legally required benefits (e.g., Social Security)
Optional (e.g., group health benefits)
Theory Behind Compensation
Equity Theory
Comparing inputs and outputs of a similar co-worker
Perceived inequity affects employee effort
Expectancy Theory
People are motivated by intrinsic and extrinsic outcomes they desire.
People will only be motivated if outcome is possible.
People will only be motivated if outcome is contingent.
Equity Theory
Internal equity
Comparison of my input / reward ratio with that of similar others.
Employees may seek to address imbalance by changing their inputs.
Fairness of pay differentials between different jobs in the organization can be established by job ranking, job classification, point systems and factor comparisons.
External equity
Fairness of organizational compensation levels relative to similar jobs in other organizations.
MBAO 6030 Human Resource Management
Equity Theory Implications
There is tension between internal and external pay equity: Decide where to place the emphasis. Example: “In and out” versus “lifelong” employment system
Let employees know who their pay referents are in the pay system: identify pay competitors and internal pay comparators.
Strive for consistent pay allocations
Monitor internal pay structure and position in the labor market for consistency.
“Monkeys Demand Equal Pay”
A recent study shows brown capuchin monkeys refused to play along when they saw another monkey get a better payoff for performing the same work.
The monkeys were trained to trade a granite token for a piece of cumber. When the reward was the same for both monkeys, they took the cucumber 95 percent of the time.
But it was a different story when one monkey was given something better -- namely, a grape. Then, the other monkey often pitched a fit -- either throwing the token, refusing to eat the cucumber or giving it to the other monkey.
Associated Press 2003
Equity Theory
Equity Theory
Fairness about pay differentials among individuals who hold the same job can be established by using:
Seniority-based pay systems that reward longevity.
Merit-based pay systems that reward employee performance.
Incentive plans that allow employees to receive part of their compensation based on their job performance.
Skills-based pay systems.
Team-based pay plans that encourage cooperation and flexibility in employees.
Job Based Pay
| Attraction | Depends on market pricing |
| Motivation | No performance impact |
| Skill Development | Learn job-related and upward mobility skills |
| Culture | Bureaucratic, hierarchical |
| Structure | Hierarchical, individual jobs and differentiation |
| Cost | Good control of individual pay |
Individual Skill/Knowledge Based Pay
| Attraction | Attracts learning-oriented individuals, high skills individuals |
| Motivation | Little performance impact |
| Skill Development | Motivates needed skill development |
| Culture | Learning, self-managing |
| Structure | Flat or team-based |
| Cost | Higher individual pay |
When to Use a Job-based Pay Policy
A job-based pay work best in situations where:
Job duties are stable.
Skills are generic.
Employees move up through the ranks over time.
Jobs are fairly standardized within the industry.
Drawbacks of a job-based pay system
Discounts individual ability.
Discourages lateral movement.
Tends to be bureaucratic, mechanistic, and inflexible.
Employees’ perceptions of equity are more important than market or point data.
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Individual-based Compensation
Individual-based compensation works when:
The firm has a relatively educated workforce.
Employees often do different jobs
Technology changes frequently.
Employee participation and teamwork are encouraged.
Opportunities for upward mobility are limited.
Opportunities to learn new skills are present.
The costs of employee turnover and absenteeism in terms of lost production are high.
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Pricing Jobs
First conduct job analysis
Qualifications
KSA’s
Non-quantitative methods
Job Ranking (create hierarchy of jobs)
Job Classification (create groups of similar jobs)
Quantitative Methods
Point factor systems
Compare “compensable factors”
Market pricing
Compensable Factors
Hay Factors
Know-how
Problem solving
Accountability
National Position Evaluation Plan (MAA)
Skill
Effort
Responsibility
Job Conditions
Characteristics in the job that the organizational values and that help achieve its objectives.
Pricing Jobs
Executive Compensation
Most senior executives receive their compensation in 2 forms:
base salary
a form of incentive pay (usually a bonus which is based on company performance)
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Legal Issues in Compensation
In many countries there are requirements for a minimum wage, and laws restricting overtime
HR managers must adhere to overtime laws.
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Variable Pay Incentives
Linking performance to pay
Individual – Bonuses, piece-rates, stock options
Team – Bonuses and awards
Plant / Unit / Business – Gainsharing, profit sharing
Corporation – ESOP’s
“Line of sight” is the perceived link between individual behavior and the reward.
Individual Merit
| Attraction | Good for high performers |
| Motivation | Good line of sight |
| Skill Development | Learn skills that lead to rewarded performance |
| Culture | Performance oriented, job focused |
| Structure | Individual and independent jobs |
| Cost | Depends on the size of the awards |
Team Incentives
| Attraction | Good if team performs well |
| Motivation | Moderate line of sight |
| Skill Development | Encourages team skills |
| Culture | Team focused |
| Structure | Team-based and integrated |
| Cost | High if significant awards given |
Organizational Plans
| Attraction | Good if organization performs well |
| Motivation | Weak line of sight |
| Skill Development | Encourages broad understanding of business |
| Culture | Business involvement |
| Structure | Organization wide integration |
| Cost | Possible self-funding if based on performance improvement |
Pay for Performance Requires
Definition of performance
How are we going to measure and compare people?
Distribution of performance
Can we distinguish high and low performers?
Decide the increase for each level of performance.
How large a difference between high and low performers?
Key Strategic Issues in Compensation
Determining compensation relative to the market.
Striking a balance between fixed and variable compensation.
Deciding whether or not to utilize team-based versus individual pay.
Creating the appropriate mix of financial and non-financial compensation.
Developing a cost-effective compensation program that results in high performance.
New Thinking
Strategic approaches to may compensation (pay) systems more responsive:
Pay the person for individual worth (knowledge, skills and competencies) rather than for the value of a job they perform.
Reward excellence through a pay for performance compensation that establishes a clear relationship between a significant amount of pay and attainment of organizational objectives.
Individualize the pay system to give employees choices in how they are rewarded and what reward they receive.
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What are the 3 things that you learned in this lecture?
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Seminar 7: In your workshop group:
Last week you defined groups of employees for your company In the same team and working with the same company setting, this week we will create a compensation plan for each group of employee.
Suppose that our company operates in Brighton
PREPARATION: Find out about local salaries for similar positions in the UK, for instance by analyzing job advertisements on job websites such as www.monster.co.uk
What kind of system do you propose to:
Calculate salary
Ensure that pay is attractive and just for employees
Offer alternative benefits benefits
Agenda
Introduction
Strategic International Human Resource Management
Culture and International HRM/ Cross-cultural management
Global Staffing and International Assignments
Institutions, Actors and Micropolitics: Organizational Culture
Global Talent Management
International Compensation and Reward
Global Labour Regulation and Corporate Social Responsibility
Gender & Global Diversity Management
Summary and essay review
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2017
