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Compensation Policies
Pay leaders pay higher wages and
salaries
Market rate, or going rate pay what
most employers pay for same job
Pay followers pay below market rate
because poor financial condition or
believe they do not require highly capable
employees
4
Determining internal
equity
Job Evaluation
Firm determines the relative value of one
job in relation to another
Point factor system most widely used
Determine compensible factors
Set weights for each
Assign points
Decide pay classifications
Job Pricing
Placing a dollar value on worth of a job
Pay grades - Grouping of similar jobs to
simplify pricing jobs
Wage curve - Fitting of plotted points to
create a smooth progression between pay
grades
Pay ranges - Minimum and maximum pay
rate with enough variance between the
two to allow for a significant pay difference
10
18.50
17.20
15.90
ag
W
14.60
14.00
13.30
12.90
12.00
100
1
Summary
Evaluated Points
0- 99
100-199
200-299
300-399
400-500
rve
u
eC
2
1
200
300
400
500
Evaluated Points
2
3
4
5
Pay Grades
Pay Grade
1
2
3
4
5
Minimum
$12.00
13.30
14.60
15.90
17.20
Midpoint
$13.30
14.60
15.90
17.20
18.50
Maximum
$14.60
15.90
17.20
18.50
12
19.80
Grade 2
Grade 1
Band A
Low
High
Job Worth
13
Employee as a Determinant of
Financial Compensation
Performance-based Pay
Skilled-based Pay
Competency-based Pay
Seniority
Experience
Membership in the organization
Potential
Political Influence
Luck
14
The Employee
Job Performance
Merit
Pay
Variable Pay
Competency-Based
Pay Seniority
Experience
Organization Membership
Potential
Political Influence
Luck
Job
Individual
Financial
Compensation
Pricing
The Job
Job Analysis
Job Descriptions
Job Evaluation
Collective Bargaining
15
Performance-Based Pay
Merit pay - Pay increase given to
employees based on their level of
performance as indicated in the appraisal
Variable pay - Compensation based on
performance (bonus)
Piecework Employees paid for each
unit they produce
16
Skill-Based Pay
Compensates on basis of job-related skills
and knowledge
Employees and departments benefit when
employees obtain additional skills
Appropriate where work tends to be
routine and less varied
Must provide adequate training
opportunities or system becomes a
demotivator
17
Competency-Based Pay
Compensates on
basis of
demonstrated
expertise
18
Seniority
Length of time an employee
has been associated with the
company, division, department,
or job
Labor unions tend to favor
seniority
19
Experience
Regardless of
nature of job,
very few factors
have a more
significant impact
on performance
than experience
20
21
22
23
Executive Compensation
Critical factor in
attracting and
retaining best
managers
24
Determining Executive
Compensation
Firms typically prefer
to relate salary growth
for the highest-level
managers to overall
corporate
performance
25
27