Establishing Strategy Pay Plans

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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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


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.

Documents

Establishing Strategy Pay Plans