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Chapter # 4 , 5 & 6
Human Resource
Societal Strategies Corporate Affecting Compensation Business Decision Making Functional
Governmental Decisions Organizational Management Decisions Function Level Decisions
Strategies
Total Compensation
Indirect
Vacations Breaks Holidays
Insurance Plans
Medical Dental Life
Security Plans
Pensions
Employee Services
Educational assistance Recreational programs
The strategic perspective involves thinking about how pay can assist in achieving organization success.
Recruitment
Supply of applicants affects wage rates Selection standards affect level of pay required Increased knowledge leads to higher pay A basis for determining employees rate of pay Pay rates determined through negotiation
Pay can motivate training Training and development may lead to higher pay Low pay encourages unionization
1. To reward employees past performance 2. To remain competitive in the labor market 3. To maintain salary equity among employees 4. To mesh employees future performance with organizational goals 5. To control the compensation budget 6. To attract new employees 7. To reduce unnecessary turnover & motivate employees
Compensation System
Determining compensation relative to market Balance between fixed and variable compensation Deciding whether or not to utilize team-based versus individual pay Creating appropriate mix of financial and non-financial compensation Developing a cost-effective compensation program resulting in high performance
Pay for performance Pay for seniority Salary increases and promotions Overtime and shift pay Probationary pay Paid and unpaid leaves Paid holidays Salary compression Geographic costs of living differences
Forms of Equity
External equity
How a jobs pay rate in one company compares to the jobs pay rate in other companies.
Internal equity
How fair the jobs pay rate is, when compared to other jobs within the same company
Individual equity
How fair an individuals pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company.
Procedural equity
The perceived fairness of the process and procedures to make decisions regarding the allocation of pay.
Equity Theory
- States that if a person perceives an inequity, the person will be motivated to reduce or eliminate the tension and perceived inequity.
Expectancy Theory
A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward.
OTHERS PAY Their qualifications Their work performed Their product value
50 45 40 35 30 25 20 15 10 5 0 I nequity Equity I nequity My I nput/ Output Ratio Comparison Person's I nput/ Output Ratio
The greater the perceived disparity between my input/output ratio and the comparison persons input/output ratio, the greater the motivation to reduce the inequity.
Individual Equity
Fairness about pay differentials among individuals in same job Established by using
- Seniority-based pay systems: Reward longevity - Merit-based pay systems: Reward employee performance - Incentive plans: Employees receive part of compensation based on performance - Skills-based pay systems: Compensation based on employees possessing skills that firm values - Team-based pay plans: Encourage cooperation and flexibility
Internal Equity
Fairness of pay differentials between different jobs in organization Established by job ranking, job classification, point systems or factor comparisons (job evaluation)
Internal alignment, often called internal equity, refers to the pay relationships between the jobs / skills / competencies within a single organization. The relationships form a pay structure that can support the workflow, is fair to workflow, employees, employees, and directs their behavior toward organization objectives.
External Equity
Fairness of organizational compensation levels relative to external compensation Assessed by collecting wage and salary survey information to guide in setting organizations pay strategy to lead, meet, or lag labor market wages
External Equity
Lag policy
- Lower wages than competitors, compensates employees through other means - Opportunity for advancement - Incentive plans - Good location - Good working conditions - Employment security
Market policy
- Wages equal to competitors - Neutralizes pay as factor
Lead policy
- Higher wages than competitors to ensure organization becomes employer of choice
Salary surveys
- To monitor and maintain external equity.
Competency-based pay
Where the company pays for the employees range, depth, and types of skills and knowledge, rather than for the job title he or she holds.
Competencies
Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance.
1. The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate. 2. The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities. 3. The pay level at which employees may be recruited and the pay differential between new and more senior employees. 4. The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises. 5. The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered.
Compensating Teams
Pay-for-Performance Standard
The standard by which managers tie compensation to employee effort and performance. Refers to a wide range of compensation options, including meritbased pay, bonuses, salary commissions, job and pay banding, team/ group incentives, and various gainsharing programs.
Hourly Work
- Work paid on an hourly basis.
Piecework
- Work paid according to the number of units produced.
Salary Workers
- Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods.
Worth of a Job
- Establishing the internal wage relationship among jobs and skill levels.
Employers Ability-to-Pay
- Having the resources and profits to pay employees.
Cost of Living
Local housing and environmental conditions can cause wide variations in the cost of living for employees. Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.
Collective Bargaining
Escalator clauses in labor agreements provide for quarterly upward cost-ofliving wage adjustments for inflation to protect employees purchasing power. Unions bargain for real wage increases that raise the standard of living for their members. Real wages are increases larger than rises in the consumer price index; that is, the real earning power of wages.
Wage Curve
A curve in a scattergram representing the relationship between relative worth of jobs and wage rates. Groups of jobs within a particular class that are paid the same rate. A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade. Payment rates above the maximum of the pay range.
Pay Grades
-
Rate Ranges
Broadbanding
- Collapses many traditional salary grades into a few wide salary bands.
Pay Secrecy
- An organizational policy prohibiting employees from revealing their compensation information to anyone. - Creates misperceptions and distrust of compensation fairness and payfor-performance standards. - Arguments against secrecy: - Knowledge of base pay is the strongest predictor of pay satisfaction, which is highly associated with work engagement - Knowledge of base pay more strongly predicts pay satisfaction than does the actual amount of pay received by employees.
Virtuous Circle
Risk/Return BALANCE Increased Employee Performance
Vicious Circle
Risk/Return IMBALANCE Decreased Employee Performance
TRANSACTIONAL
LOW PAY LOW COMMITMENT Workers as Commodity (Employers of Migrant Farm Workers)
Low
Low
High
RELATIONAL
Pay structure, refers to the array of pay rates for different work or skills within a single organization. The number of levels, differentials in pay between the levels, and the criteria used to determine those differences create the structure.
Pay structure
Reduce turnover Facilitate career progression Facilitate performance Reduce pay-related paygrievances Reduce pay-related work paystoppages
Entry Level
Engineer: Limited use of basic principles. Close supervision. Senior Engineer: Full use of standard principles and concepts. Under general supervision. Systems Engineer: Wide applications of principles and concepts, plus working knowledge of other related disciplines. Under very general direction. Lead Engineer: Applies extensive knowledge as a generalist or specialist. Exercises wide latitude. Advisor Engineer: Applies advanced principles, theories, and concepts. Assignments often self-initiated. self-
Recognized Authority
Consultant Engineer: Exhibits an exceptional degree of ingenuity, creativity, and resourcefulness. Acts independently to uncover and resolve operational problems.
Structure A Layered
Chief Engineer Engineering Manager Consulting Engineer Senior Lead Engineer Lead Engineer Senior Engineer Engineer Engineer Trainee
Structure B DeDe-layered
Chief Engineer
Consulting Engineer
Associate Engineer
Benefits 30%
QUESTIONS