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STRATEGIC COMPENSATION. A Human Resource Management Approach. Chapter 4 Traditional Bases for Pay: Seniority and Merit. Prepared by David Oakes. Collective Bargaining. Designed to: Negotiate labor contracts Provide grievance procedures Led to: Job control unionism - PowerPoint PPT Presentation
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Prentice Hall, Inc. © 2006
4-1
A Human Resource A Human Resource Management ApproachManagement Approach
STRATEGIC STRATEGIC COMPENSATIONCOMPENSATION
Prepared by David Oakes
Chapter Chapter 4 4
Traditional Bases for Pay: Traditional Bases for Pay: Seniority and MeritSeniority and Merit
Prentice Hall, Inc. © 2006
4-2
Collective BargainingCollective Bargaining
Designed to: Negotiate labor contracts Provide grievance procedures
Led to: Job control unionism Collective bargaining units Union shops
Prentice Hall, Inc. © 2006
4-3
Seniority PaySeniority Pay
Designed to award job tenure Set base pay with time- designated increases
Facilitates administration of pay Avoids perception of favoritism Poor fit with most competitive strategies
Prentice Hall, Inc. © 2006
4-4
Longevity PayLongevity Pay
Designed to Pay grade maximum for length of service To reduce employee turnover
Used for most government employees
General Schedule System for federal employees
Prentice Hall, Inc. © 2006
4-5
General ScheduleGeneral Schedule Divided into 15 Steps Based on skills, education, & experience levels Employees eligible for 10 within-grade pay increases Step waiting periods of 1-3 years
Prentice Hall, Inc. © 2006
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Merit Pay PlansMerit Pay Plans
Pay increases based on performance Reward excellent effort or results Motivate future performance Helps retain valued employees In 2004, raises averaged 3.5%
Prentice Hall, Inc. © 2006
4-7
Elements of Merit PayElements of Merit Pay
Based on objective & subjective indicators of job performance
Periodic performance reviews
Realistic & attainable standards
Pay increases reflect performance
Prentice Hall, Inc. © 2006
4-8
Performance Appraisal PlansPerformance Appraisal Plans
Trait systems
Comparison systems
Behavioral systems
Goal - oriented systems
Prentice Hall, Inc. © 2006
4-9
Trait System CharacteristicsTrait System Characteristics
Work quality
Appearance
Dependability
Cooperation
Initiative
Judgment
Leadership responsibility
Decision-making ability
Creativity
Prentice Hall, Inc. © 2006
4-10
Comparison SystemsComparison Systems
Rates & ranks performance Pay raises based on ranking Types
Forced distribution Paired comparisons
Prentice Hall, Inc. © 2006
4-11
Behavioral SystemsBehavioral Systems
Critical-incident technique (CIT) Behaviorally-anchored rating scales (BARS) Behavioral observation scales (BOS)
Prentice Hall, Inc. © 2006
4-12
Critical Incident TechniqueCritical Incident Technique
Employees & supervisors identify & label job behaviors & results
Supervisors observe & record
Requires extensive documentation
Prentice Hall, Inc. © 2006
4-13
Behaviorally-Anchored Rating Behaviorally-Anchored Rating ScalesScales
Based on 8 - 10 expected job behaviors
Employees rated on ability to
perform each behavior
Ratings highly defensible
Prentice Hall, Inc. © 2006
4-14
Behavioral Observation ScalesBehavioral Observation Scales
Documents positive performance behaviors on job dimensions
Employees rated on exhibited behaviors
Ratings averaged for over-all rating
Prentice Hall, Inc. © 2006
4-15
Goal - Oriented SystemGoal - Oriented System
Management- by-Objectives Supervisors & employees set objectives Highly effective technique Rated on how well objectives are met Mainly for professionals & managers
Prentice Hall, Inc. © 2006
4-16
Performance Appraisal PracticesPerformance Appraisal Practices
Conduct a job analysis Incorporate results into ratings Trains supervisors on use Implement Formal appeals process
Prentice Hall, Inc. © 2006
4-17
Sources of Performance Appraisal Sources of Performance Appraisal InformationInformation
Employee Supervisor Coworkers Subordinates Customers/clients
Prentice Hall, Inc. © 2006
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360 Degree Performance Appraisal360 Degree Performance Appraisal
Uses more than one appraisal source
Reduces recruiting & hiring costs
Appropriate for work team evaluations
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4-19
Common Raters’ ErrorsCommon Raters’ Errors
Bias errors
Contrast errors
Errors of central tendency
Errors of leniency or strictness
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4-20
Bias ErrorsBias Errors
First-impression effect Positive halo effect Negative halo effect Similar-to-me effect Illegal discriminatory biases
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Contrast ErrorsContrast Errors
Supervisor compares employees’ performances to other employees, not to explicit performance standards What if the best employee is average?
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Errors of Central TendencyErrors of Central Tendency
Supervisors rate all employees as average
Usually occurs when only extreme behaviors require documentation
Prentice Hall, Inc. © 2006
4-23
Errors of LeniencyErrors of Leniency
Leniency errors-managers rate employees’ performances more highly than they would rate them using objective criteria
Causes employees to believe they are going to receive larger pay raises than they deserve
Prentice Hall, Inc. © 2006
4-24
Pay For Performance LinkPay For Performance Link
Link appraisals to business goals Analyze jobs Communicate Establish effective appraisals Empower employees Differentiate among performers
Prentice Hall, Inc. © 2006
4-25
Limitations of Merit Pay ProgramsLimitations of Merit Pay Programs
Failure to differentiate Poor measures
Supervisor biases
Poor communication
Undesirable social structures Using non-merit factors Undesirable competition
Motivational value small
Prentice Hall, Inc. © 2006
4-26
Competitive Strategies Competitive Strategies Lowest-Cost
Reduce output costs per employee Merit pay works if tied to long - term productivity
Differentiation Make product or service unique Merit pay can promote creativity and risk-taking
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