1 1.Describe types of compensation and outline the major  influences on compensation plans 2.Describe major content and process theories of motivation and  their application to compensation plan design Managing Hospitality Human Resources Chapter 8: Compensation Administration 3.Outline methods of determining job worth and describe the  advantages and disadvantages of each 4.Describe the steps and identify options for establishing pay  structures 5.Describe current issues in compensation administration Compensation Policy • Articulates where the company wants its pay  policies to be in the marketplace and how the  company will reward and motivate employees • Monetary compensation is commonly divided into  the following: – Direct compensation • payment of money to an employee in exchange for work – Indirect compensation • compensation given as a condition of employment rather  than in direct exchange for work. Major Influences on Compensation Plans • Cost of living • Labor market influences • Union influences • Government influences Cost of Living • Refers to the real dollar value of a worker’s  purchasing power for ordinary necessities such as  food and clothing • The cost of living in different regions is also a factor in  compensationcompensation. • Consumer price index – computed by comparing the retail prices of goods and  services at a fixed time with the prices at subsequent or  prior times – is generally the best overall indicator of the real value of  wages or salaries. Labor Market Influences • The number of available workers varies – Unemployment – Type of work – Location/regional economic conditions • Compensation rates vary according to worker  availability • Internal conditions of a company influence  compensation rates Union Influences • Unions influence compensation rates  – union contracts generally have same pay for all employees  who perform the same job – raises based on seniority • Non‐union companies typically reward individualNon union companies typically reward individual  employees • Whether unionized or not, hotels in markets in which  unions are present generally have higher  compensation costs. 2 Government Influences • Laws that mandate companies compensation for  their employees – minimum wage – wage rates – overtime pay – child‐labor restrictions • Exempt – An employee who is not subject to the minimum wage or  overtime provisions of the Fair Labor Standards. • Non‐exempt – An employee who is subject to the minimum wage or  overtime provisions of the Fair Labor Standards. External and Internal Equity • External equity  – pay variations among similar properties in a particular  market • Salary Survey – External analysis depends on direct collection of  information from competing organizations in the market • Internal equity – pay variations within a particular company • Job Evaluation – Internal analysis based on establishing meaningful  compensable factors Job Evalu.

1. 1
1.Describe types of compensation and outline the major
influences on compensation plans
2.Describe
major content and process theories of motivation and
their application to compensation plan design
Managing Hospitality Human Resources
Chapter 8: Compensation Administration
3.Outline methods of determining job worth and describe the
advantages and disadvantages of each
4.Describe the steps and identify options for establishing pay
structures
5.Describe current issues in compensation administration
Compensation Policy
• Articulates where the company wants its pay
policies to be in the marketplace and how the
company will reward and motivate employees
• Monetary compensation is commonly divided into
the following:
– Direct compensation
• payment of money to an employee in exchange for work

2. – Indirect compensation
• compensation given as a condition of employment rather
than in direct exchange for work.
Major Influences on Compensation Plans
• Cost of living
• Labor market influences
• Union influences
• Government influences
Cost of Living
• Refers to the real dollar value of a worker’s
purchasing power for ordinary necessities such as
food and clothing
• The cost of living in different regions is also a factor in
compensationcompensation.
• Consumer price index
– computed by comparing the retail prices of goods and
services at a fixed time with the prices at subsequent or
prior times
– is generally the best overall indicator of the real value of
wages or salaries.
Labor Market Influences
• The number of available workers varies
– Unemployment

3. – Type of work
– Location/regional economic conditions
• Compensation rates vary according to worker
availability
• Internal conditions of a company influence
compensation rates
Union Influences
• Unions influence compensation rates
– union contracts generally have same pay for all employees
who perform the same job
– raises based on seniority
• Non‐union companies typically reward individualNon
union companies typically reward individual
employees
• Whether unionized or not, hotels in markets in which
unions are present generally have higher
compensation costs.
2
Government Influences
• Laws that mandate companies compensation for
their employees
– minimum wage

4. – wage rates
– overtime pay
– child‐labor restrictions
• Exempt
– An employee who is not subject to the minimum wage or
overtime provisions of the Fair Labor Standards.
• Non‐exempt
– An employee who is subject to the minimum wage or
overtime provisions of the Fair Labor Standards.
External and Internal Equity
• External equity
– pay variations among similar properties in a particular
market
• Salary Survey
– External analysis depends on direct collection of
information from competing organizations in the market
• Internal equity
– pay variations within a particular company
• Job Evaluation
– Internal analysis based on establishing meaningful
compensable factors
Job Evaluation Methods
• Ranking method
– usually uses a team of managers to rank jobs

5. • Classification method
– compares each job to a predetermined grade or class
– Sometimes called job grading
• Point methodPoint method
– probably the most widely used method of job evaluation
–
A point system assigns a point total to each job on the basis of s
everal
clearly defined criteria
–
jobs are then placed in job grades according to their point totals
.
• Factor comparison method
– entails identifying key jobs
–
generally those that that are extremely important to the success
of
the organization
Competitive Pay Policies
• Pay leaders
– Leading the market
– Paying more than the market average
• Pay followersy
– Lagging the market
– Paying below market average

6. • Meeting the competitors
– At market
– Pay the prevailing wage
Pay Grades
• Each hospitality organization must determine the
number of pay grades it will use
• It is important to establish ranges of pay within each
grade
allows employees to receive raises without changing pay–
allows employees to receive raises without changing pay
grades
• Performance pay must be high enough to effectively
reward performance
• Must be observed differences in pay between people
who make higher and lower contributions to the
organization.
Determining Pay Within Grades
• Seniority provides a good reason for establishing a range
of pay within job grades or classifications
• Merit
– typically the second determinant of pay within grades
– merit pay policies are intended to motivate employeesmerit
pay policies are intended to motivate employees

7. • Pay scales can be determined by
– Broadbanding
•
eliminates all but a few comprehensive salary and job classificat
ions
– Careerbanding
• uses market surveys to determine scales
3
Other Pay Structure Options
• Two‐tier wage systems
– provide a higher pay structure for existing employees and a
lower one for employees hired beyond a specific date
• Skill‐based pay systems
– assume that a company can afford to pay more to people
h dwho do more
• Knowledge‐based pay
– a variation of a skill‐based pay system in which pay is tied to
knowledge rather than to skills
• “On‐call pay”
– companies provide pay premiums to on‐call employees
• Team‐based pay rewards
Current Issues in Compensation

8. • Pay secrecy
• Wage compression and expansion
• Comparable worth
• Wage and hour audits
Pay Secrecy
• The decision of whether or not to keep pay rates
secret involves at least two issues:
– Does the company make its pay grades and the pay ranges
of those grades known to employees?
– If the company prefers pay secrecy, does it attempt to
prevent or forbid employees from discussing their pay with
other employees?
• The National Labor Relations Board has repeatedly
found policies that forbid or discourage employees
from discussing their pay to be unfair labor practices
Wage Compression and Expansion
• Wage compression
– levels of demand result in higher pay for new employees
than for current employees
– primarily caused by competition with other companies for
new hires
• Wage expansion
– occurs when employers try to raise pay rates of current

9. employees to keep salaries in line with higher wages of
new hires
Comparable Worth
• Many people confuse comparable worth with equal
pay issues
– Equal Pay Act prohibits pay discrimination in the same job
– Comparable worth deals with the issue of pay in similar jobs
• Comparable worth advocates cite the fact that pay is
based on job classification rather than on the work
that goes into a job
Wage and Hour Audits
• All pay policies and procedures must comply with the
provisions of the Fair Labor Standards Act
• Policies and procedures that are inconsistent with
the act can result in fines for a company and back
pay for employees
4
Motivating Employees
• Compensation programs must motivate
individual employees to work; however, they
rarely succeed when they base motivation solely
on monetary rewards.

10. • Motivation theories fall into two principal types:
– Content theories
• Inherent traits of humans
– Process theories
• How environments can be built to motivate others
Content Theories
• Content theories propose that all people are
motivated by certain common needs; the
most common are the following:
– Economic Man Theory– Economic Man Theory
– Maslow’s Hierarchy of Needs Theory
– Alderfer’s ERG Theory
– Herzberg’s Two‐Factor Theory
– McClellands’s N‐Achievement Theory
Economic Man and Maslow’s
Hierarchy of Needs
• The Economic Man Theory holds the idea that
money is the only important goal for which
people work
M l ’ Hi h f N d• Maslow’s Hierarchy of Needs
Economic Man and Maslow’s
Hierarchy of Needs

11. • The Economic Man Theory holds the idea that
money is the only important goal for which
people work
M l ’ Hi h f N d• Maslow’s Hierarchy of Needs
Alderfer’s ERG Theory
• Alderfer’s ERG Theory agrees with
Maslow
–individuals have basic needs that could be
arranged in order of priorityarranged in order of priority
–there are basic distinctions among those
needs
–those needs need to be classified
–Alderfer divides them into three
categories
• Existence Relatedness Growth
Alderfer’s ERG Theory
• Alderfer’s ERG Theory agrees with
Maslow
–individuals have basic needs that could be
arranged in order of priorityarranged in order of priority
–there are basic distinctions among those
needs
–those needs need to be classified
–Alderfer divides them into three
categories
• Existence Relatedness Growth

12. 5
Herzberg’s Two‐Factor Theory
• Employees have two needs
–Hygiene factors
• factors that are expected by employees, p y p y ,
and therefore cannot lead to satisfaction
• Extrinsic rewards
–Motivating factors
• factors that lead to satisfaction and can
drive performance
• Intrinsic rewards
Herzberg’s Two‐Factor Theory
• Employees have two needs
–Hygiene factors
• factors that are expected by employees, p y p y ,
and therefore cannot lead to satisfaction
• Extrinsic rewards
–Motivating factors
• factors that lead to satisfaction and can
drive performance
• Intrinsic rewards

13. McClelland’s N‐ Achievement Theory
• Contends people have three needs
– Need for achievement
• Usually good managers
– Need for power
• Usually good leaders
– Need for affiliation
• Usually do well in jobs with high levels of social
interaction or where interpersonal skills are valued
McClelland’s N‐ Achievement Theory
• Contends people have three needs
– Need for achievement
• Usually good managers
– Need for power
• Usually good leaders
– Need for affiliation
• Usually do well in jobs with high levels of social
interaction or where interpersonal skills are valued
Process Theories
• Used to explain how employees can be
motivated to work
– Exectancy theory
Equity theory– Equity theory

14. – Goal setting theory
– Reinforcement theory
Expectancy Theory
• Contends that motivation is related to an
individual’s perception of three factors
– Expectancy
• The probability that effort will lead to performance
– Instrumentality
• The probability that performance will lead to certain
outcomes
– Valence
• The value attached to each outcome
6
Expectancy Theory
• Contends that motivation is related to an
individual’s perception of three factors
– Expectancy
• The probability that effort will lead to performance
– Instrumentality
• The probability that performance will lead to certain
outcomes

15. – Valence
• The value attached to each outcome
Equity Theory
• Does employee believe he/she is being fairly
treated in comparison to another person
perceived as being in the same position
A ll l k• Assumes all employees ask:
– What do I receive in return for what I give
– What do others receive in return for what they give
Equity Theory
• Does employee believe he/she is being fairly
treated in comparison to another person
perceived as being in the same position
A ll l k• Assumes all employees ask:
– What do I receive in return for what I give
– What do others receive in return for what they give
Goal Setting Theory
• States setting specific goals motivates better
performance
• The following factors are needed to bring
higher levels of performance from specific
andhigher levels of performance from specific and
challenging goals
– Ability

16. – Goal Commitment
– Feedback
Goal Setting Theory
• States setting specific goals motivates better
performance
• The following factors are needed to bring
higher levels of performance from specific
andhigher levels of performance from specific and
challenging goals
– Ability
– Goal Commitment
– Feedback
Reinforcement Theory
• Assumes people are conditioned to respond to
stimuli
• Leads to four possible managerial actions in
response to employee behaviorresponse to employee behavior
– Positive reinforcement
– Negative reinforcement
– Extinction
– Punishment

17. 7
Reinforcement Theory
• Assumes people are conditioned to respond to
stimuli
• Leads to four possible managerial actions in
response to employee behaviorresponse to employee behavior
– Positive reinforcement
– Negative reinforcement
– Extinction
– Punishment
1
1.Describe
general performance appraisal issues and summarize the
functions of performance appraisals.
2. Identify and discuss potential problems with performance
appraisals.
3.Describe the principal types of rating systems used in appraisi
ng

18. Managing Hospitality Human Resources
Chapter 7: Evaluating Employee Performance
employee performance.
4.Describe commonly used methods of appraising performance.
5.
Identify who should evaluate performance, and discuss objectiv
es
for programs that train managers and supervisors to conduct
performance appraisals.
6.Discuss how often performance appraisals should be conducte
d,
identify legal issues relating to performance appraisals, and
summarize keys to developing an effective employee appraisal
system.
Performance Management
• A systematic process by which managers
help employees to improve their ability
to achieve goals.
f l dPerformance management includes:
– Planning work and setting expectations
– Continually monitoring performance
– Developing employee skills
– Periodically appraising performance in an
objective manner
– Rewarding good performance
Performance Management Employee Appraisal

19. • An objective and comprehensive rating or
evaluation of employees.
Successful performance appraisal programs
include:include:
– Performance goals set by supervisors and
employees.
– Regular, informal feedback from supervisors.
– A formal method to address performance or
disciplinary problems.
– Regular and formal appraisal.
Performance Appraisal Issues
• Mismanagement can cause resentment and
resistance
• Managers must realize that both managers and
employees are subject to human
conditionsemployees are subject to human conditions
that affect performance appraisals
• Managers should also comment on the
positive aspects of an employee’s performance
Functions of Performance Appraisals
• Basically fill two kinds of needs in
organizations:
– improving work performance
– making work‐related decisions
• The purpose is to give employees feedback
– reinforce or encourage performance
– help employees develop in their careers

20. • Appraisals should be designed with a specific
purpose in mind
2
Performance Feedback
• To be successful, feedback should contain
– No surprises
– Employee Involvement
– Primarily objective dataPrimarily objective data
Decision Making and Evaluation Tool
• Provide an effective way to link rewards and
discipline to performance
• Provide a basis for compensation, promotion,
transfer, grievance, or discipline decisionsg p
• Can be used to measure the effectiveness of
training
– if the employee is evaluated both before and after
the training
• Can serve as an evaluation for new policies
Validation of Selection Process
• May help establish predictive validity
– the extent to which a measurement predicts future
behavior, of selection methods

21. • Construct validity
– appraisals must measure what they intend to
• Content validity
– appraisals must measure the entire issue
• Consistency
– it is important to look for consistency rather than
just focusing on one or two particular points in time
Bias
• Leniency errors
– occur when managers or interviewers rate an
employee too positively
• Severity errors
– occur when managers or interviewers rate
employees too severely
• Central tendency errors
– occur when managers or interviewers rate all or
most employees as average
More Possible Bias
• Recency errors
– when managers base employee ratings primarily
on the most recent events or behaviors
• Past anchoring errors
– when rate employees on the basis of previous
ratings
• Halo errors
– when managers rate employees on the basis of a

22. single positive attribute
Principal Appraisal Rating Systems
• Trait‐based ratings
– used primarily to assess the personal
characteristics of employees
• Behavior‐based ratingsg
– assess employees on their behaviors rather than
on personal characteristics.
• Results‐based ratings
– focused on measuring the extent to which
employees accomplish results
3
• Ranking methods
• Forced distribution
• Graphic rating scale
Methods of Appraising Performance
• BARS ‐ Behavioral anchored rating scales
• Narrative essays
• Critical incidents
• MBO ‐ Management by objectives
Ranking Methods
• Simple ranking
– rank all employees from best to worst
– does not distinguish between different aspects of

23. job responsibilities
• Alternative ranking
– list each employee on a separate piece of paper
and order them from best to last
• Paired comparisons
– directly compare employees to one another on
each job criterion
• Ranking methods
• Forced distribution
• Graphic rating scale
Methods of Appraising Performance
• BARS ‐ Behavioral anchored rating scales
• Narrative essays
• Critical incidents
• MBO ‐ Management by objectives
• Ranking methods
• Forced distribution
• Graphic rating scale
Methods of Appraising Performance
• BARS ‐ Behavioral anchored rating scales
• Narrative essays
• Critical incidents
• MBO ‐ Management by objectives
Methods of Appraising Performance
Methods of Appraising Performance

24. 4
Methods of Appraising Performance
Other Methods of Evaluating
Performance
• Peer evaluations
• Staff appraisals of managers
• Self appraisals• Self‐appraisals
• Guest appraisals
• Multiple rater evaluations
– 360 degree appraisal
Supervisors as Appraisers
• May have little to no contact with the employees he
or she evaluates
• Immediate supervisors make vastly superior
assessments when compared with those of a second‐
level supervisor
• Bosses in a bad mood are more likely to issue
negative performance appraisals
• Subconscious stereotypes that managers hold
regarding race, age, attractiveness, and other
attributes directly affect their appraisals
Frequency
• Once or twice per year is norm
• Difficult to remember events and behaviors
that occurred

25. • Goal should be quarterly• Goal should be quarterly
• Performance appraisals are most effective
when used often
Content Issues
• Performance standards must be based on job
analysis
• Evaluations based on specific dimensions of
job performancejob performance
• Performance standards should be objective
and observable
• Ratings should be documented
• Validity of appraiser’s ratings should be
assessed
Process Issues
• Performance standards must be
communicated to and understood by
employees
• Specific instructions for appraisals should be
in writing
• More than one appraiser should be used
• Appraisers should review results with
employees
• Have process clear for formal appeals