What does compensation (what you receive for your services) mean to you?
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A Definition... All forms of financial return, tangible services and benefits that employees receive as part of their employment relationship
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Components of a Total Compensation Program - 1 Financial Financial Direct wages, salaries, commissions, bonuses Indirect insurance plans life, health, dental, disability social assistance benefits retirement plans, social security, workers comp paid absences vacations, holidays, sick leave
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Components of a Total Compensation Program - 2 Non-Financial Non-Financial The Job interesting, challenging, responsible opportunity for recognition, advancement feeling of achievement Job Environment policies, supervision, co-workers, status symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs
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Factors that Influence Wage Levels WAGE MIX Conditions of Labor Market Area Wage Rates Cost of Living Collective Bargaining Legal Requirements Compensation Policy of Organization Worth of Job Employees Relative Worth Employers Ability to Pay
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Designing a Compensation System Steps in the Decision Process
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Step 1 - Establish General Wage Level for Organization Factors to consider: Factors to consider: Other firms rates Union demands Cost-of-living changes Firms ability to pay
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Step 2 - Establish Wage Structure (The Pay for Each Job) Employ a job evaluation system Employ a job evaluation system Ranking Job Classification Point System Factor Comparison Results: Results: pay grades rate ranges
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Step 3 - Establish Pay for Each Individual on Each Job Inputs: Inputs: Performance appraisal information Seniority system
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A Pay Model -- 3 Basic Components I. Compensation Objectives II. Foundation Concepts III. Techniques for Management
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A Pay Model I. Compensation Objectives - 1 Organization Performance Labor Costs Attitudes and Behaviors Laws and Regulations
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A Pay Model I. Compensation Objectives - 2 Influence forms & procedures For example: if objective is pay for performance, emphasize incentives, merit pay plans if objective is stable, experienced workforce, emphasize seniority-based pay
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A Pay Model II. Foundation Concepts Equity Equity External Equity External Equity Comparison: outside organization Internal Equity Internal Equity Comparison: inside organization, among jobs Employee Equity Employee Equity Comparison: individuals doing same job for same organization
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Equity Theory I = Inputs effort, ability, experience O = Outcomes pay, benefits, perks Equity Op/Ip = Oo/Io Under-reward Inequity Op/Ip < Oo/Io Over-reward Inequity Op/Ip > Oo/Io p = personal, o = comparison other
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Why does Equity Matter? What Behaviors are Likely to Occur when Inequity is Felt?
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A Pay Model III. Techniques for Management A. Pay Level B. Pay Structure C. Individual Pay Rates
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A Pay Model III. Techniques for Management A. Pay Level Defined: average rates paid by employer Applicable concept: External Equity 3 Pure Alternatives lead competition match competition lag competition Mechanism used: Market Wage Survey
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Market Wage and Salary Surveys s Select key jobs. s Determine relevant labor market. s Select organizations. s Decide on information to collect: wages/benefits/pay policies. s Compile data received. s Determine wages and benefits to pay.
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Company As Wage Level Market Wage Levels Company Bs Wage Level Market Wage Level Which company is leading the market?Which company is leading the market? Which company is lagging the market?Which company is lagging the market? What would the wage level line look like for a company that was meeting/matching the market?What would the wage level line look like for a company that was meeting/matching the market?
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A Pay Model III. Techniques for Management B. Pay Structure Defined: pay rates for different jobs within a single organization Applicable concept: Internal Equity Pay more for jobs with greater qualifications less desirable working conditions more valuable output Mechanism used: Job Analysis & Job Evaluation
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Job Evaluation defined: the systematic evaluation of job descriptions outcome: a hierarchy of organizational jobs according to their content and value to the organization Methods: ranking classification factor comparison point method
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Standard for Comparison Other JobsFixed Criteria Unit of Comparison Whole Job Factors RankingClassification Factor Comparison Point
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Job Ranking System Simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth
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Job Classification System System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades
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Point System Quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it
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Factor Comparison System Job evaluation system that permits the evaluation process to be accomplished on a factor-by-factor basis by developing a factor comparison scale
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Hay Profile Method Job evaluation technique using three factors knowledge, mental activity, and accountability to evaluate executive and managerial positions
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A Pay Model III. Techniques for Management C. Individual Pay Rates Defined: pay rates for different individuals doing the same job within an organization Applicable concept: Employee Equity 2 Techniques Flat Rate Pay Ranges Mechanisms used: Performance or Seniority
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Wage Curve Curve in a scattergram representing the relationship between relative worth of jobs and wage rates
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Components of the Wage Structure
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Pay Grades Groups of jobs within a particular class that are paid the same rate or rate range
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Elements of the Rate Range
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Common Pay Grade Ranges Laborers & Trades, up to 20% Clerical, Technical, Para-professional, 15-49% First Level Supervisors, Professionals 30-50% Middle and Senior Level Management, 40-100%
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Monitoring Compensation Costs Compra-Ratio Formula: A compra ratio < 1 indicates lag A compra-ratio > indicates excess Actual Average Pay for Grade Midpoint Pay for Grade
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How Would You Handle Outliers? An individual whose current pay is beyond the maximum of the pay grade for his/her job An individual whose current pay is below the minimum of the pay grade for his/her job
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Federal Wage Laws Davis-Beacon Act of 1931 Walsh-Healy Act of 1936 Fair Labor Standards Act of 1938
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Nonexempt Employees Employees covered by the overtime provisions of the Fair Labor Standards Act
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Exempt Employees Employees not covered by the overtime provisions of the Fair Labor Standards Act
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Comparable Worth The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same
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Wage-Rate Compression Compression of differentials between job classes, particularly the differential between hourly workers and their managers
