Points To Be ConsideredBasic Factors Determining pay rates Legal Considerations in Compensation Equity and Its Impact on Pay Rates Establishing Pay Rates Pricing Managerial and Professional Jobs
Basic Factors Determining pay rates Pay in the form of Pay in the form of financial benefits such as1. Direct financial payments wages, salaries, incentives, commissions and 2. Indirect financial payments insurance bonuses.
Legal considerations in Compensation Davis-Bacon Act (1931) Walsh-Healey Public Contract Act (1936) Fair Labor Standards Act (1938) The Family and Medical Leave Act Equal Pay Act (1963) Employee Retirement Income Security Act (ERISA) The Social Security Act of 1935 (as amended) Americans with Disabilities Act Age Discrimination in Employment Act
Equity and Its Impact on Pay RatesExternal EquityInternal EquityIndividual EquityProcedural Equity
Establishing pay rates Group similar Conducting Job evaluation jobs into paysalary survey grades Price each pay grade by using wave curves
Pricing Managerial And Professional Jobs Base Pay Compensati ng Long-Term Short-term Executives Incentives Incentives and Managers Executive Benefits and Perks
Competency based PayCompetency based pay is where the company pays for theemployee’s range, depth, and types of skills andknowledge, rather than for the job title he or she holds. Wecan simply define competencies as “demonstrable”characteristics of the person, including knowledge, skills, andbehaviors, that enable performance.
Competency-Based Pay (cont’d) Support High- Performance Work SystemsSupport SupportStrategic Performance Aims Management Why Use Competency- Based Pay?
SPECIAL TOPICS IN COMPENSATION• 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. Benefits • More flexibility in assigning workers to different job grades. • Provides support for flatter hierarchies and teams. • Promotes skills learning and mobility.
Comparable worthComparable worth refers to the requirement to pay men andwomen equal wages for jobs that are of comparable (ratherthan strictly equal) value to the employer. Thus, comparableworth may mean comparing quite dissimilar jobs, such asnurses to truck mechanics or secretaries to technicians.
Board Oversight of Executive Pay• Boards of directors ( board compensation committee usually make executive pay decision in large firms) ask themselves these question: Has our compensation committee thoroughly identified its duties and processes? Is our compensation committee using the appropriate compensation advisors? Are there particular executive compensation issues that our committee should address. Do our procedures demonstrate diligence and independence? Is our committee appropriately communicating its decisions? How will shareholders react
Automating compensation administrationToday, companies more often used server based intranet compensation planning programs to keep track of who can spend what, and who is spending what. This web based method has many advantages. The employer can quickly update its compensation programs (such as how much is available, and how much can each manager allocate for various criteria) without having to modify the software on individual manager’s computers. And automating the system reduces costs by eliminating manual processes. a compensation administration system that is compatible with the employer’s HRIS can also automatically administer other pay actions, such as updating employees pay checks.
MONEY AND MOTIVATION :AN INTRODUCTION Financial rewards paid to workers Financial whose production Incentives By exceeds some Frederick predetermined Taylor standard. Systematic soldiering-The Fair day work-standards of tendency of employees to work output which employees at the slowest pace possible should device for each job and to produce at minimum based on careful scientific accepted level. analysis.
CLASSIFICATION OF MOTIVATION THOERYThe Hierarchy of needs Motivators Expectancy & Demotivators Reinforcement & Theory Abraham & & Frederick & Maslow Edward Deci B.F. Skinner Herzberg Victor Vroom
THE HIERARCHY OF NEEDSAccording to this theory, individual strives to seeks higher needs when the lowerneeds are fulfilled.Types of needs Physiological Safety (food,water,warmth) (a personal security ,health, well- being) Belonging Self-esteem (friendships,camaraderie) (respect) Self-actualization (becoming the person you believe you can become)
MOTIVATORSHerzberg theory conforms with satisfaction theories which assert that “a satisfiedemployee tends to work in the same organization but this satisfaction does notalways result in better performance.Two Factors In Theory • They are extrinsic that satisfy the person’s lower level Hygiene needs. Factor • Factors such as salary or remuneration,job security. • They are intrinsic that satisfy the person’s higher level needs. Motivators • Factors such as sense of achievement or recognization.
DEMOTIVATORSThis theory highlights potential downside to relying too heavily on extrinsicrewards . Extrinsic rewards could at time actually detract from the person’s intrinsic motivation Managers should be cautious in devising incentive pay for highly motivated people.
EXPECTANCY THEORY In this,people will pursue rewards they desire when they believe that they are likely to be successful in obtaining the rewards. Motivation = ExIxV Function of motivation are: Expectancy valence Instrumentality
REINFORCEMENTBehavior modification means changing behavior through rewards or punishmentsthat are contingent on performance.The two principles: Positive behavior tends to be repeated while negative behavior tends not to be repeated. Manager can get someone to change his/her behavior by providing properly schedule rewards.
INDIVIDUAL EMPLOYEE INCENTIVESPiecework plans: Piecework is a type of incentive program where bythe employee is paid based on each unit of output. • A fixed sum is paid for each unit the worker produces under an established Straight Pro piecework • Equitable,powerful incentive. Cons • Possibility of violating minimum wage • The worker gets a premium equal to the standard. Standard percent by which his or her work performance exceeds the established hour plans standard.
Individual Employee incentives (cont’d) Merit Pay Option Merit Pay Annual lump-sum merit raises is a form of reward in which individuals receive permanent pay that do not make the raise partincreases (i.e.,raises) as a function of their individual performance of an employee’s base ratings salary.Merit awards tied to both individual and organizational performance Professional Employees Recognition –Based Award It involves application of It involves Recognition learned knowledge to the program solution of the employer’s Social Recognition program problems. Performance feedbacks
INCENTIVE FOR SALESPEOPLE Salary Plan Combination Plan 70%+30%Commission Plan
INCENTIVES FOR MANAGERS &EXECUTIVESSOX ACT 2002 (Sarbanes-Oxley Act) This act was passed by congress to inject a higher level of responsibilities into executives and board members decisions. The act also CEOs CFOs requires of a public company to repay any bonuses, incentives or equity based compensations received from company during the 12 months following the issuance of the financial statement that the company must restate.
THE ANNUAL BONUSShort-Term Incentives: Eligibility-Basic eligibility are job level, job title or salary. The percentage size of bonus is 40% for senior mangers 25-30% for middle level managers and 10-15% for supervisors.Fund Size- There are no hard and fast rules about the proportion of profits to pay out. The act allows employers to pay bonus from the allocable surplus fund, which are called as the set on and set off methods.
THE ANNUAL BONUS(contd.) Individual Performance- The basically sets a target bonus for each eligible positions. The actual award then reflects the managers performance. One complication is whether managers will receive bonuses based on Individual Performance, Corporate Performance or both. Two main concepts in this part are Spilt-award plan Multiplier method
LONG TERM INCENTIVESThey are like GOLDEN HANDCUFFS as theymotivate executives to stay with company byletting them accumulate capital that they canonly cash in after a certain number of years. It Includes the followingmain things Stock Stock options problems Rewards managers Specific no. of with lack luster shares. performance. Blame the stock Specific price and options for period. contributing to corporate scandals
HOW TO DESIGN TEAM INCENTIVES Firms Increasingly rely on teams to manage their work . They therefore need incentives plans that encourage team work and focus team members attention on performances Team Based • Piece Rate Incentive • Pay how well the best • Standard Hour Plan team member does • To pay the entire • This concept failed in team case of Levi’s. Engineered Best Team Member Standards Incentive
VARIABLE PAY PLANS Profit sharing plan Scanlon plan Employees Gain stock sharing ownership plan plan
WHY INCENTIVES PLANS FAIL?Performance pay can’t replace good management.You get what you pay for.Pay is not a motivator.Rewards punish.Rewards rupture relationships.Rewards can have undermine responsiveness.Rewards undermine intrinsic motivation.
Link the incentive withManagers can your strategy. Make sure ask and the programmotivate the is employees. motivational. How to implement effective incentive plans? Financial incentives Non-financial incentives
INCENTIVES PLAN IN PRACTICE: NUCORLargest steel producer in the united states, also hashighest productivity, wages and lowest labour cost. Employees earn bonus of 100%or more of base salary and all Nucor employees participate in one four performance based incentive plans. Finally under the senior officer incentive plans Nucor senior managers get bonus based on Nucor’s annual overall percentage of net income to stockholders equity.
Purpose of this Chapter To weigh pros and cons of various employee benefit plansBenefitsIndirect financial and non-financialpayments employees receive for continuingtheir employment with the company
Types of employee benefit plans Services andPay for time not Insurance Retirements Family – Friendly worked Benefits Benefits Benefits
Pay for Time Not WorkedAlso known as supplemental pay benefitsExamples include:• Holidays• Sick leave• Parental leaveProper leave records should be kept by employers
Pay for Time Not Worked Vacation and holiday Sick leave Parental leaveSeverance • A one-time payment when terminating an employee. pay • Reasons for granting severance pay: • Acts as a humanitarian gesture and good public relations. • Mirrors employee’s two week quit notice. • Avoids litigation from disgruntled former employees.
Insurance Benefits • Provides income and medical benefits to work-related accident victims or their dependents, regardless of fault. • Death or disability: a cash Workers’ benefit based on prior earnings. compensation • Controlling worker compensation costs (monetary or • Screen out accident-prone workers. medical) • Make the workplace safer. • Thoroughly investigate accident claims. • Use case management to return injured employees to work as soon as possible.
Insurance BenefitsHospitalization, health, and disabilityinsuranceHealth maintenance organization (HMO)• A medical organization consisting of specialists operating out of a community-based health care center. • Provides routine medical services to employees who pay a nominal fee. • Receives a fixed annual contract fee per employee from the employer (or employer and employee), regardless of whether it provides that person with service.
Insurance BenefitsLife insurance• Most employers provide group life insurance plans.• Employees can obtain lower rates in a group plan.• Employer usually pays 100 percent of the base premium; the employee pays for any additional coverage.
Retirement BenefitsPension • Financial programs that provide a fixed amount when employees reach a predetermined retirement age or when they can no longer work plans due to disability Social • Vary from country to country • In Malaysia: Social Security Act – insurance systemsecurity to cover employees’ work-related accidents and illness • In other countries – provides income for plans retirement
Services and Family-Friendly Benefits Personal services: Social and recreational facilities Transport and food: Subsidies, in-house canteens, company vehicles Education subsidy: Tuition refunds Family-friendly benefits:Child care, elder care, fitness facilities, flexible work schedules
Flexible Benefits Programs The cafeteria (flexible benefits) approach • Each employee is given a benefits fund budget to spend on the benefits he or she prefers. • The fund limits the total cost for each benefits package. • Core plus option plans establish a core set of benefits which are mandatory for all employees. • Flexible spending accounts • Enable employees to pay for medical and other expenses with pretax dollars by depositing funds in their accounts from payroll deductions.
Flexible Benefits Programs The cafeteria (flexible benefits) approach (cont’d)• Pros • Employees can choose the package that suits them best • Easier to introduce new benefits since company does not need to lock them in for all new employees• Cons • Additional admin cost as company has to periodically update each employee’s package
Flexible Work ArrangementsFlextime Job sharing Compressed Teleworking workweek
Flextime Workers can arrange their own starting and stopping hours before A plan whereby and after the core employees’ workdays period.are built around a core • Positive effects on employeeof mid-day hours when productivity, joball workers are required satisfaction, satisfaction to be present. with work schedule, and employee absenteeism. • Positive effect on absenteeism was much greater than on productivity.
Compressed Workweek Non- conventional • Example – pilots, doctors, nurses 5-day, 40-hour etc. workweek • Less disruption from shift changes Increase • Longer time-off-work productivity periods • Reduced absenteeism
Other Flexible Work Arrangements• Job sharing – Allowing two or more people to share a single full-time job.• Teleworking – Employees work from home using telephones and the Internet to transmit letters, data, and completed work to the home office. – Allows employees to manage work and family responsibilities
Flexible Benefits• Objective: To meet the diverse needs of employees• Advantages: – Encourage responsible usage by employees – Reduce wastage of benefits not fully utilized – Employees appreciate perks better because they are more aware of the dollar value of benefits• Disadvantages: – Extra cost – More administrative work as plan may be complicated
Flexible Benefits• A typical flexible benefits plan includes several basic features: – Core benefits • offered to ensure basic needs provided – include insurance and medical benefits, and they are compulsory – Credit Point/”Spending Dollars” • Used to buy optional benefits or obtain reimbursements • Points not used up may be exchanged for cash • A typical flexible benefits plan includes several basic features: (cont’d) – Optional benefits • Can be bought with credit points • Some examples are vacation days, magazine subscription, parents’ medical expenses, tuition refund, child care subsidy, health screening etc. – Spending Account • Assigned to each employee to keep track of allocated points and those used up
Flexible Benefits• Introducing a Flexible Benefits Plan: – Employee views are important even at planning stage • Designing committee can understand the individual needs and preferences – Company to explain the scheme and advise on how to choose the various optional benefits – Employees given option to keep existing benefit scheme: • To remove fear that company is forcing all employees to accept new scheme • New scheme is an excuse to cut costs• 1993 Survey on Employee Benefits (based on responses from 300 companies in private sector) – To examine company practices on employee benefits – To assess the perception of labor and management on employee benefits – To study the relationships between benefits and productivity, commitment, and quality of work life – To examine the trends in employee benefits
CONCLUSION• The economic downturn has put significant fiscal constraints on nearly all public organizations nationwide. The Board of Commissioners have instructed County Administration to take a conservative approach in its revenue projections, resulting in a projected shortfall of nearly $26 Million for the 2010/11 budget if spending continues at past levels. A multi-faceted approach is being taken to bring the budget into balance, including:• Revenue Generation• Reducing the Cost of Doing Business• Organizational Restructuring• Collaborations• Service Level Reductions in both Mandated and Non- Mandated Programs• Elimination of Non-Mandated Programs.• Employees benefits and compensation.• Employee Compensation & Benefits Workgroup), discussions at Labor Management Team meetings as well as through employee suggestions raised at Town Hall Sessions or through Central. These options were categorized as follows:• Number of Positions• Salaries & Work Hours• Life insurance• Benefits Medical• Benefits Retirement• Benefits Retiree Health Care (VEBA)• Benefits Other• Miscellaneous.