Determining pay rates involves considering several key factors: 1) Employee compensation includes both direct financial payments like wages and salaries as well as indirect financial payments like benefits. 2) Pay can be based on time, such as hourly or salaried wages, or performance, such as commissions or bonuses. 3) Many legal factors must be considered when determining pay rates, including laws around minimum wage, overtime, discrimination, benefits, and leave. Balancing pay equity both within and outside the organization is important.

1. D
et Ba
er si
m c F
in
in act
g or
Pa s
y In
R
Presented to: at
es
Sir Ahmed Tasman Pasha
Presented By: Sana Rao Roll no.09-29

2. Determining pay rates
• Employee compensation
• How to formulate plans for paying employees
– Time based wages or salary
– Performance based pay
• Pay plans
– Legal
– Union company policy
– An equity

3. Determining Pay Rates
• Employee compensation
All forms of pay or rewards going to
employees and arising from their
employment.

4. Basic Factors in Determining
Pay Rates
Employee
Compensation
Direct Financial Indirect Financial
Payments Payments

5. • Direct financial payments
Pay in the form of wages, salaries,
incentives, commissions, and bonuses.
• Indirect financial payments
Pay in the form of financial benefits
such as insurance

7. Determining Pay Rates
• Direct financial payments
– base on two factor
• Pay for Time
• Pay for Performance

8. Determining Pay Rates
• Pay for time:
– Blue collar and clerical workers get hourly
or daily wages,
– And others, like managers paid by the week,
month or week.
– Time pay is still the foundation of most
employer’s pay plans.

9. Determining Pay Rates
• Pay for performance:
– It ties compensation to the amount of
production the worker turns out.
– For example
• Piecework

10. Legal Considerations in
Compensation
Davis-Bacon Act (1931) Equal Pay Act (1963)
Walsh-Healey Public Employee Retirement
Contract Act (1936) Income Security Act (ERISA)
Title VII of the 1964 Employee Age Discrimination in
Civil Rights Act Compensation Employment Act
Fair Labor Standards Act Americans with
(1938) Disabilities Act
The Family and Medical The Social Security Act of
Leave Act 1935 (as amended)
Workers’ Compensation

11. • Davis-Bacon Act (1931)
– A law that sets wage rates for laborers employed by
contractors working for the federal government.
• Walsh-Healey Public Contract Act
(1936)
– A law that requires minimum wage and
working conditions for employees working
on any government contract amounting to
more than $10,000.

12. • Title VII of the 1964 Civil Rights
Act
– This act makes it unlawful for employers to
discriminate against any individual with
respect to hiring, compensation, terms,
conditions, or privileges of employment
because of race, color, religion, sex, or
national origin.

13. • Fair Labor Standards Act (1938)
– This act provides for minimum wages, maximum
hours, overtime pay for nonexempt employees after
40 hours worked per week, and child labor
protection.
– The law has been amended many times and covers
most employees.
– It covers majority of worker engaged in
• Production and sale of goods for interstate and
foreign commerce

14. Some feature of FLSA
• Exempt Employees
– Employees to whom employers are not required to
pay overtime under the Fair Labor Standards Act.
• Executives, administrators, professional (learned or
creative) employees, computer employees, outside sales
persons
• Non-exempt Employees
– Employees who must be paid overtime under the
Fair Labor Standards Act.
• Hourly
• Salaried non-exempt

15. Who Is Exempt? Who Is Not
Exempt?
• Exempt Professionals • Exempt Administrators
– Attorneys • Executive assistant to the president
– Physicians • Personnel directors
• Credit managers
– Dentists • Purchasing agents
– Pharmacists
–
Nonexempt
Optometrists
– Architects – Paralegals
– Engineers – Non licensed accountants
– Teachers – Accounting clerks
– Certified public accountants
– Scientists – Newspaper writers
– Computer systems analysts – Working foreman/forewoman
• Exempt Executives – Working supervisor
– Corporate officers – Lead worker
– Department heads
– Superintendents
– Management trainees
– General managers – Secretaries
– Individual who is in sole charge – Clerical employees
of an “independent – Inspectors
establishment” or branch
– Statisticians

16. Overview of
Compensation Laws
• The Equal Pay Act
– Passed as an amendment to the FLSA in 1963
– Prohibits sex discrimination in pay
– Unequal pay is allowed for equal work under
circumstances that are based on differences in:
• Seniority
• Productivity
• Merit
• Any factor other than sex

17. Overview of Compensation Laws
(cont’d)
• Employee Retirement Income Security Act
(ERISA)
– The law that provides government protection of
pensions for all employees with company pension
plans. It also regulates vesting rights.
– vesting rights:
• Employees who leave before retirement may
claim compensation from the pension plan
• The Age Discrimination in Employment Act
– Prohibits age discrimination against employees who
are 40 years of age and older in all aspects of
employment, including compensation.

18. • The Age Discrimination in
Employment Act
– Prohibits age discrimination against
employees who are 40 years of age and
older in all aspects of employment,
including compensation.

19. Other legislation affecting compensation
• The Americans with Disabilities
Act
– Prohibits discrimination against qualified
persons with disabilities in all aspects of
employment, including compensation .

20. The Family and Medical Leave Act
• Entitles eligible employees, both men and women, to
take up to 12 weeks of unpaid, job-protected leave for
the birth of a child or for the care of a child, spouse, or
parent.

21. Compensation Policy Issues
• Workers’ compensation
– Designed to provide financial protection for individuals
injured on the job
– Compensation is provided for:
• Medical expenses
• Lost wages from the time of injury until their return to
the job
• Death, dismemberment, or permanent disability
– Payouts have more than tripled in the past 20 years.
• Much of this increase is due to fraud.
– The fastest growing category of workers’ compensation
claims is mental stress.

22. Corporate Policies, Competitive Strategy,
and Compensation
• Aligned reward strategy
– The employer’s basic task is to create a
bundle of rewards—a total reward
package—specifically aimed at eliciting
the employee behaviors the firm needs
to support and achieve its competitive
strategy.

23. – The HR or compensation manager will
write the policies in conjunction with top
management, in a manner such that the
policies are consistent with the firm’s
strategic aims.

24. Compensation Policy Issues
• Pay for performance
• Pay for seniority
• The pay cycle
• Salary increases and promotions
• Overtime and shift pay
• Probationary pay
• Paid and unpaid leaves
• Paid holidays
• Salary compression
• Geographic costs of living differences

25. Compensation Policy Issues
(cont’d)
• Salary compression
– A salary inequity problem, generally
caused by inflation, resulting in longer-
term employees in a position earning
less than workers entering the firm
today.

26. • Geography
– Employers handle cost-of-living
differentials way.
– One is to give the transferred person a
nonrecurring payment.
– Other pay differential in several ways.

27. • IBM example.
• It dominated its industry into the 1980s.
• But by 1990s, it was failing to exploit new
technologies and losing touch with its
customers.
• Its board hired Louis Gerstein as CEO.
• Its first strategic aim was to transform IBM
from a sluggish giant to a lean winner.

28. IBM example
 To change this situation, Gerstner’s team made
four main change sin what become the firm's
new strategic compensation plan.
• The Market place Rule:
– The company switched from its pervious
single salary structure to new different
salary structure and merit budget for
different job families.

29. • Fewer job, evaluated differently, in
broadband:
– Second, IBM scraped its point factor job
evaluation system and its 24 traditional
salary grade.

30. • Mangers manage:
– Manger rank employees on a variety of
factors (such as critical skills and
results).
– Manager decide which factors are used
and weights they are given.

31. • Big stack for stockholders:
– Every no executive employee’s cash
compensation consisted of base salary.
– There was no concept of pay for
performance.
• A top-rated employee receives two-and-
one-half times the award of an employee
within the lowest ranking.

32. Equity and Its Impact on
Pay Rates
• Equity theory
– Formulated by J. Stacy Adams
– People form equity beliefs based on two
factors:
• Inputs (I)
– Refer to the perceptions that people have
concerning what they contribute to the job (e.g.,
skill and effort)

33. • Outputs (O)
– Refer to the perceptions that
people have regarding the returns
they get (e.g., pay) for the work
they perform

34. Equity and Its Impact on Pay
Rates
• The equity theory of motivation
– States that if a person perceives an
inequity, the person will be motivated to
reduce or eliminate the tension and
perceived inequity.

35. • Inequity
– Occurs when the ratio of outputs to
inputs is perceived to be unequal
– When employees’ O/I ratios are less
than that of their referent others, they
feel they are being underpaid.
– When employees’ O/I ratios are greater,
they feel they are being overpaid.
• Equity
– Occurs when the ratio of outputs to
inputs is perceived to be equal

36. Equity and Its Impact on Pay Rates
Forms of Equity
External Internal Individual Procedural
Equity Equity Equity Equity

37. Forms of Equity
• External equity
– How a job’s pay rate in one company
compares to the job’s pay rate in other
companies.
• Internal equity
– How fair the job’s pay rate is, when
compared to other jobs within the same
company

38. • Individual equity
– How fair an individual’s 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.

39. • Impact of equity perceptions on
employee behavior
– Responses to feeling underpaid:
• Decrease inputs
• Escape the situation

40. – Responses to feeling overpaid:
• Just as satisfying as equity
• Somewhat dissatisfying, but not nearly as
dissatisfying as underpayment

41. Addressing Equity Issues
Salary Surveys
Job Analysis and
Job Evaluation
Methods to
Address Equity
Issues
Performance Appraisal
and Incentive Pay
Communications, Grievance
Mechanisms, and Employees’
Participation

42. The Salary Survey
Step 1. The Wage Survey:
Uses for Salary Surveys
To price To market- To make
benchmark price wages decisions
jobs for jobs about benefits