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7/30/2019 Establishing Strategy Pay Plans
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Establishing Strategic pay Plans
By Shweta Bambuwala
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Basic Factors in
Determining Pay Rates
Direct Financial
Payments
Indirect Financial
Payments
Employee
Compensation
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Corporate Policies, Competitive Strategy,
and Compensation
Aligned Reward Strategy
The employers basic task:
To create a bundle of rewardsa total rewardpackagethat specifically elicits the employee
behaviors that the firm needs to support and achieve
its competitive strategy.
The HR or compensation manager along with topmanagement creates pay policies that are
consistent with the firms strategic aims.
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Important Compensation Related
Acts in IndiaMinimum Wages Act, 1948
Payment of Wages Act, 1936
Equal Remuneration Act, 1976Companies Act, 1956
Payment of Bonus Act
Payment of Gratuity ActEmployee Stock Scheme (ESOS)
Employee Stock Purchase (ESPS)
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Compensation Policy Issues Pay for performance
Pay for seniority
The pay cycle
Salary increases and promotions
Overtime and shift pay
Probationary pay
Paid and unpaid leaves
Paid holidays
Salary compression
Geographic costs of living differences
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Equity and Its Impact on Pay
Rates
External EquityProcedural
EquityInternal Equity
Individual
Equity
Forms of Equity
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Addressing Equity Issues
Salary Surveys
Job Analysis andJob Evaluation
Performance Appraisal
and Incentive Pay
Communications, Grievance
Mechanisms, and Employees
Participation
Methods to
Address Equity
Issues
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Establishing Pay Rates
1
2
3
4
5
Steps in Establishing Pay Rates
Determine the worth of each job in your organization throughjob
evaluation (to ensure internal equity).
Conduct a salary survey of what other employers are paying for
comparable jobs (to help ensure external equity).
Group similar jobs into pay grades.
Price each pay grade by using wave curves.
Fine-tune pay rates.
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Sources for Salary Surveys
Employer Self-
Conducted
Surveys
Government
AgenciesConsulting Firms
Sources of Wage and
Salary Information
Professional
Associations
The
Internet
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1111
Establishing Pay Rates (continued)
Skills
Effort
Responsibility
Working Conditions
Step 2. Job Evaluation:
Identifying Compensable
Factors
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Establishing Pay Rates (continued)
1
Performing the actual evaluation
Getting the cooperation of employees
Preparing for the Job Evaluation
Identifying the need for the job evaluation
Choosing an evaluation committee
2
3
4
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1113
Establishing Pay Rates (continued)
RankingFactor
ComparisonJob Classification
Methods for
Evaluating Jobs
Point
Method
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Job Evaluation Methods: Ranking
Ranking each job relative to all other jobs, usuallybased on some overall factor.
Steps in job ranking:
1. Obtain job information.
2. Select and group jobs.
3. Select compensable factors.
4. Rank jobs.
5. Combine ratings.
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Job Evaluation Methods:
Job Classification
Raters categorize jobs into groups or classesof jobs that are of roughly the same value forpay purposes.
Classes contain similar jobs. Administrative assistants
Grades are jobs similar in difficulty but otherwisedifferent.
Mechanics, welders, electricians, and machinists
Jobs are classed by the amount or level ofcompensable factors they contain.
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Job Evaluation Methods: Point Method
A quantitative technique that involves:
Identifying the degree to which each compensable
factor is present in the job.
Awarding points for each degree of each factor.
Calculating a total point value for the job by
adding up the corresponding points for eachfactor.
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Establishing Pay Rates
Point Method
Ranking Method
Classification Methods
Step 3. Group
Similar Jobs into
Pay Grades
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Step 4. Price Each Pay GradeWage Curve
Shows the pay rates paid for jobs in each pay
grade, relative to the points or rankings assigned
to each job or grade by the job evaluation.
Shows the relationships between the value of the
job as determined by one of the job evaluation
methods and the current average pay rates for
your grades.
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Step 5. Fine-Tune Pay Rates
Developing pay ranges
Flexibility in meeting external job market rates.
Easier for employees to move into higher pay grades.
Allows for rewarding performance differences and
seniority.
Correcting out-of-line rates
Raising underpaid jobs to the minimum of the rate
range for their pay grade.
Freezing rates or cutting pay rates for overpaid (red
circle) jobs to maximum in the pay range for their pay
grade.
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Compensating Executives and
Managers
Base Pay
Short term incentives
Long term incentives
Executive benefits and perks
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Elements of executive
compensation
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Criticisms of executive compensation
Complaints of over-payments.
Undue influence on compensation
determination.
Disregard for the financial health of the
organization.
Secrecy shrouding executive compensation.
Inequality of income in the organization.
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CEO Pay: More in an Hour Than Workers Get All Year?
Indra K. Nooyi
Director; Chairman of the Board and
Chief Executive Officer
PEPSICO INC (PEP)
In 2010, Indra K. Nooyi received
$16,175,381 in total compensation.
By comparison, the median worker
made $33,840 in 2010. Indra K. Nooyi
made 477 times the median worker's
pay.
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Salary $1,300,000
Bonus $0
Value of Stock Awards $6,000,029
Value of Option Awards $3,507,967
Non-Equity Incentive Plan
Compensation $3,000,000
Change in Pension Value and
Deferred Compensation Earnings$2,143,083
All Other Compensation $224,302
Total $16,175,381
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Annual Weekly Daily Hourly
Per
Minute
Indra K.
Nooyi
$16,175,3
81
$311,065.
02
$62,213.0
0$7,776.63 $129.61
Minimum
WageWorker
$15,080 $290.00 $58.00 $7.25 $0.12
Median
Worker$33,840 $650.77 $130.15 $16.27 $0.27
U.S.
President $400,000 $7,692.31 $1,538.46 $192.31 $3.21
CEO-to-Worker Comparisons
Note: calculations assume 40 hours per week/52 weeks per year.
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How Many Years to Equal Indra K. Nooyis 2010
Compensation?
Minimum
Wage Worker1072 years
Completion
Date3083 A.D.
Median
Worker477 years
Completion
Date2488 A.D.
U.S. President 40 years
Completion
Date 2051 A.D.
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How Many Workers Equal Indra K. Nooyis 2010
Compensation?
Minimum Wage
Worker1072 workers
Median Worker 477 workers
U.S. President 40 workers
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Competency-Based Pay Competencies
Demonstrable characteristics of a person,
including knowledge, skills, and behaviors, that
enable performance.
What is Competency-Based Pay? Paying for the employees range, depth, and
types of skills and knowledge, rather than for the
job title he or she holds.
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Competency-Based Pay
(continued)
Support High-Performance Work
Systems
SupportPerformance
Management
Why Use Competency-Based
Pay?
Support Strategic
Aims
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Competency-Based Pay: Pros and Cons
Pros
Higher quality
Lower absenteeism
Fewer accidents
Cons
Pay program implementation problems
Costs of paying for unused knowledge, skills, and
behaviors Complexity of program
Uncertainty that the program improves productivity
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Broadbanding
Consolidating salary grades and ranges into just a
few wide levels or bands, each of which contains
a relatively wide range of jobs and salary levels.
Pro and Cons
More flexibility in assigning workers to different job
grades.
Provides support for flatter hierarchies and teams.
Promotes skills learning and mobility.
Lack of permanence in job responsibilities can be
unsettling to new employees.
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Comparable Worth
Refers to the requirement to pay men and women
equal wages for dissimilar jobs that are of
comparable (rather than strictly equal) value to
the employer.
Seeks to address the issue that women have jobsthat are dissimilar to those of men and those jobs
are often consistently valued less than mens jobs.
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