(c) 2007 by Prentice Hall 10-1
Managing CompensationManaging Compensation
Chapter 10
(c) 2007 by Prentice Hall 10-2
• Identify the compensation policies and practices that
are most appropriate for a particul...
(c) 2007 by Prentice Hall 10-3
• Total compensationTotal compensation –– The package ofThe package of
quantifiable rewards...
(c) 2007 by Prentice Hall 10-4
• Internal equityInternal equity – The perceived fairness of– The perceived fairness of
the...
(c) 2007 by Prentice Hall 10-5
Designing a CompensationDesigning a Compensation
SystemSystem
•The Distributive Justice Mod...
(c) 2007 by Prentice Hall 10-6
Designing a CompensationDesigning a Compensation
SystemSystem
• Fixed versus Variable PayFi...
(c) 2007 by Prentice Hall 10-7
Job vs. Individual PayJob vs. Individual Pay
Job-based pay is best where:Job-based pay is b...
(c) 2007 by Prentice Hall 10-8
Job vs. Individual PayJob vs. Individual Pay
• Individual-based pay is best where:Individua...
(c) 2007 by Prentice Hall 10-9
• Egalitarian pay systemEgalitarian pay system – A pay plan in– A pay plan in
which most em...
(c) 2007 by Prentice Hall 10-10
• Below-market vs. Above-marketBelow-market vs. Above-market
compensationcompensation
• Mo...
(c) 2007 by Prentice Hall 10-11
Job-based compensation plansJob-based compensation plans
• Achieving Internal Equity: JobA...
(c) 2007 by Prentice Hall 10-12
• Step 1: Conduct job analysisStep 1: Conduct job analysis
• Step 2: Write job description...
(c) 2007 by Prentice Hall 10-13
Compensation ToolsCompensation Tools
Achieving ExternalAchieving External
Equity:Equity:
M...
(c) 2007 by Prentice Hall 10-14
Job-based compensation plansJob-based compensation plans
Achieving Individual Equity: With...
(c) 2007 by Prentice Hall 10-15
Compensation ToolsCompensation Tools
• Evaluating job-basedEvaluating job-based
compensati...
(c) 2007 by Prentice Hall 10-16
• The Fair Labor Standards ActThe Fair Labor Standards Act
– Exempt/Non-exempt employeesEx...
(c) 2007 by Prentice Hall 10-17
• What is compensation?
• Designing a compensation
system
• Compensation tools
• The legal...
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Managing Human Resources, Luis Gomez Mejia, David Balkin,Ch1, Managing Human Resources 6e Luis Gomez Mejia David Balkin, Ch10, Vahdi Boydaş, Mensur Boydaş

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Managing Human Resources, Luis Gomez Mejia, David Balkin,Ch1, Managing Human Resources 6e Luis Gomez Mejia David Balkin, Ch8, Vahdi Boydaş, Mensur Boydaş

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Managing Human Resources, Luis Gomez Mejia, David Balkin,Ch1, Managing Human Resources 6e Luis Gomez Mejia David Balkin, Ch10, Vahdi Boydaş, Mensur Boydaş

  1. 1. (c) 2007 by Prentice Hall 10-1 Managing CompensationManaging Compensation Chapter 10
  2. 2. (c) 2007 by Prentice Hall 10-2 • Identify the compensation policies and practices that are most appropriate for a particular firm • Weigh the strategic advantages and disadvantages of the different compensation options • Establish a job-based compensation scheme that is internally consistent and linked to the labor market • Understand the difference between a compensation system in which employees are paid for the skills they use and one in which they are paid for the job they hold • Make compensation decisions that comply with the legal framework Chapter 10 OverviewChapter 10 Overview
  3. 3. (c) 2007 by Prentice Hall 10-3 • Total compensationTotal compensation –– The package ofThe package of quantifiable rewards an employeequantifiable rewards an employee receives for his or her labors. Includesreceives for his or her labors. Includes three components: base compensation,three components: base compensation, pay incentives, and indirectpay incentives, and indirect compensation/benefits.compensation/benefits. What Is Compensation?What Is Compensation?
  4. 4. (c) 2007 by Prentice Hall 10-4 • Internal equityInternal equity – The perceived fairness of– The perceived fairness of the pay structure within a firm.the pay structure within a firm. • External equityExternal equity – The perceived fairness in– The perceived fairness in pay relative to what other employers arepay relative to what other employers are paying for the same type of labor.paying for the same type of labor. Designing a CompensationDesigning a Compensation SystemSystem
  5. 5. (c) 2007 by Prentice Hall 10-5 Designing a CompensationDesigning a Compensation SystemSystem •The Distributive Justice ModelThe Distributive Justice Model •Labor Market ModelLabor Market Model •Balancing EquityBalancing Equity
  6. 6. (c) 2007 by Prentice Hall 10-6 Designing a CompensationDesigning a Compensation SystemSystem • Fixed versus Variable PayFixed versus Variable Pay • Performance versusPerformance versus MembershipMembership
  7. 7. (c) 2007 by Prentice Hall 10-7 Job vs. Individual PayJob vs. Individual Pay Job-based pay is best where:Job-based pay is best where: • Technology is stableTechnology is stable • Jobs do not change oftenJobs do not change often • Employees do not need to cover for one anotherEmployees do not need to cover for one another frequentlyfrequently • Much training is required to learn a given jobMuch training is required to learn a given job • Turnover is relatively lowTurnover is relatively low • Employees are expected to move up through theEmployees are expected to move up through the ranks over timeranks over time • Jobs are fairly standardized within the industryJobs are fairly standardized within the industry
  8. 8. (c) 2007 by Prentice Hall 10-8 Job vs. Individual PayJob vs. Individual Pay • Individual-based pay is best where:Individual-based pay is best where: • The firm has a relatively educated workforce with bothThe firm has a relatively educated workforce with both the ability and the willingness to learn different jobsthe ability and the willingness to learn different jobs • The company’s technology & organizational structureThe company’s technology & organizational structure change frequentlychange frequently • Employee participation & teamwork are encouragedEmployee participation & teamwork are encouraged throughout the organizationthroughout the organization • Opportunities for upward mobility are limitedOpportunities for upward mobility are limited • Opportunities to learn new skills are presentOpportunities to learn new skills are present • The costs of employee turnover and absenteeism inThe costs of employee turnover and absenteeism in terms of lost production are highterms of lost production are high
  9. 9. (c) 2007 by Prentice Hall 10-9 • Egalitarian pay systemEgalitarian pay system – A pay plan in– A pay plan in which most employees are part of thewhich most employees are part of the same compensation systems.same compensation systems. • Elitist pay systemElitist pay system – A pay plan in which– A pay plan in which different compensation systems aredifferent compensation systems are established for employees or groups atestablished for employees or groups at different organizational levels.different organizational levels. Job vs. Individual PayJob vs. Individual Pay
  10. 10. (c) 2007 by Prentice Hall 10-10 • Below-market vs. Above-marketBelow-market vs. Above-market compensationcompensation • Monetary vs. Nonmonetary rewardsMonetary vs. Nonmonetary rewards • Open vs. Secret payOpen vs. Secret pay • Centralization vs. Decentralization ofCentralization vs. Decentralization of pay decisionspay decisions • SummarySummary Job vs. Individual PayJob vs. Individual Pay
  11. 11. (c) 2007 by Prentice Hall 10-11 Job-based compensation plansJob-based compensation plans • Achieving Internal Equity: JobAchieving Internal Equity: Job EvaluationEvaluation – The ultimate goal of job evaluation is toThe ultimate goal of job evaluation is to achieve internal equity in the payachieve internal equity in the pay structure.structure. Compensation ToolsCompensation Tools
  12. 12. (c) 2007 by Prentice Hall 10-12 • Step 1: Conduct job analysisStep 1: Conduct job analysis • Step 2: Write job descriptionStep 2: Write job description • Step 3: Determine job dpecificationsStep 3: Determine job dpecifications • Step 4: Rate worth of all jobs using aStep 4: Rate worth of all jobs using a predetermined systempredetermined system Steps to Achieving InternalSteps to Achieving Internal EquityEquity • Step 5: Create a job hierarchyStep 5: Create a job hierarchy • Step 6: Classify jobs by grade levelsStep 6: Classify jobs by grade levels
  13. 13. (c) 2007 by Prentice Hall 10-13 Compensation ToolsCompensation Tools Achieving ExternalAchieving External Equity:Equity: Market SurveysMarket Surveys • Step 1: IdentifyStep 1: Identify benchmark or key jobsbenchmark or key jobs • Step 2: Establish a payStep 2: Establish a pay policypolicy
  14. 14. (c) 2007 by Prentice Hall 10-14 Job-based compensation plansJob-based compensation plans Achieving Individual Equity: Within-Achieving Individual Equity: Within- Pay-Range Positioning CriteriaPay-Range Positioning Criteria • Individual equityIndividual equity – The perceived fairness– The perceived fairness of individual pay decisions.of individual pay decisions. Compensation ToolsCompensation Tools
  15. 15. (c) 2007 by Prentice Hall 10-15 Compensation ToolsCompensation Tools • Evaluating job-basedEvaluating job-based compensation planscompensation plans • Suggestions for practiceSuggestions for practice • Skill-based compensation plansSkill-based compensation plans
  16. 16. (c) 2007 by Prentice Hall 10-16 • The Fair Labor Standards ActThe Fair Labor Standards Act – Exempt/Non-exempt employeesExempt/Non-exempt employees – Minimum wagesMinimum wages – OvertimeOvertime • The Equal Pay ActThe Equal Pay Act – Comparable worthComparable worth – Role of the Office of Federal ContractRole of the Office of Federal Contract ComplianceCompliance The Legal Environment andThe Legal Environment and Pay Systems GovernancePay Systems Governance
  17. 17. (c) 2007 by Prentice Hall 10-17 • What is compensation? • Designing a compensation system • Compensation tools • The legal environment and pay systems governance Summary and ConclusionsSummary and Conclusions

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