2. Basic Factors In Determining
Pay Rates
ďEmployee compensation: All forms of pay going to
employees and arising from their employment.
ď2 Main Components:
DIRECT
FINANCIAL
PAYMENTS
INDIRECT
FINANCIAL
PAYMENTS
3. LEGAL CONSIDERATIONS
ďEmployee compensation systems around the world
operate within the framework of legislations.
ďIn India, various legislations influence the structure,
computation, and payment of compensation.
ďThe important wage-related legislations are the
Minimum Wages Act of 1948, the Payment of Wages
Act of 1936, and the Equal Remuneration Act of
1976.
4. Overview of Compensation Laws
ďThe Companies Act of 1956:
-Sets the framework for remuneration of the top management
of Indian companies.
ďDavis-Bacon Act (1931)
-A law that sets wage rates for laborers employed by
contractors working for the federal government.
ďWalsh-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.
5. ďTitle 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.
ďFair 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.
6. Provisions:
Overtime pay: Employers must pay overtime at a rate of at
least one-and-a-half times normal pay for any hours
worked over 40 in a work week.
7. Child labor : Prohibit employing minors between 16 to 18
years old in hazardous occupations, and carefully restrict
employment of those under 16.
8. Exempt/Non-Exempt
ď Exempt Professionals
ď Attorneys
ď Physicians
ď Dentists
ď Pharmacists
ď Architects
ď Engineers
ď Teachers
ď Scientists
ď Computer systems analysts
ď Exempt Executives
ď Corporate officers
ď Department heads
ď General managers
ď Individual who is in sole charge of
an âindependent establishmentâ or
branch
ď Nonexempt
ď Accounting clerks
ď Newspaper writers
ď Working foreman/forewoman
ď Working supervisor
ď Management trainees
ď Secretaries
ď Clerical employees
ď Inspectors
ď Statisticians
9. ď1963 Equal Pay Act
- Employees of one sex may not be paid wages at a rate lower
than that paid to employees of the opposite sex for doing
roughly equivalent work.
ďąOther Legislations Affecting Compensation:
ďąAge Discrimination in Employment
ďąAmericans with Disabilities Act
ďąFamily and Medical Leave Act
ďąSocial Security Act of 1935
10. Competitive Strategy, Corporate Policies,
and Compensation
ďAligned Reward Strategy
ď The employerâs basic task here is to create a bundle of
rewards- a total reward package-aimed at eliciting the
employee behaviors the firm needs to support and achieve its
competitive strategy.
11. ď 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.
- Sometimes mediocre performance or lack of assertiveness and
not salary compression is the reason for low salaries.
ďGeography
The compensation level varies between cities in India as well.
12. Equity and its Impact on Pay Rates
ďąEquity Theory of Motivation:
If a person perceives an inequity, a tension or drive will
develop in the personâs mind, and the person will be motivated
to reduce or eliminate the tension and perceived inequity.
13. Forms of EquityďExternal equity
ď It refers to how a jobâs pay rate in one company compares to
the jobâs pay rate in other companies.
ďInternal equity
ď It refers to how fair the jobâs pay rate is, when compared to
other jobs within the same company.
ďIndividual equity
ď It refers to how fair an individualâs pay as compared with
what his or her co-workers are earning for the same or very
similar jobs within the company.
ďProcedural equity
ď The perceived fairness of the process and procedures to make
decisions regarding the allocation of pay.
14. Methods to address Equity issues
ď Salary surveys
ď To monitor and maintain external equity.
ď Job analysis and job evaluation
ď To maintain internal equity.
ď Performance appraisal and incentive pay
ď To maintain individual equity.
ď Communications, grievance mechanisms, and employeesâ
participation
ď To help ensure that employees view the pay process as
transparent and fair.
15. Paycheck India Project
ďIt is a part of the worldwide, Web-based research initiative on
wage transparency called the Wage Indicator project.
ďIt involves a salary questionnaire that is used to collect salary
details from employed anonymously, and a salary checker Web
site that presents the average salary figure for various
occupations.
16.
17. â˘Indra Nooyi - Chairman and CEO PepsiCo -Born: 1955
India - Married - Children: 2
â˘Annual: INR 307,952,239.00
â˘Monthly: INR 25,662,687.00
â˘Weekly: INR 6,159,045.00
â˘Daily: INR 1,231,809.00
Oprah Winfrey - Talk show host, actress, publisher, CEO Harpo Productions - Born:
1954 USA -Boyfriend - Children: 0
â˘Annual: INR 4,940,067,164.00
â˘Monthly: INR 411,672,264.00
â˘Weekly: INR 98,801,343.00
â˘Daily: INR 19,760,269.00
Forbes 2013: $77 million Forbes 2012 pay: $165 million Forbes 2011 pay: $290 million
Forbes 2010 pay: $315 million
18. Establishing Pay Rates
ďStep 1: Conduct a Salary Survey
ďStep 2: Job Evaluation
ďStep 3: Group similar jobs into pay grades
ďStep 4: Price each pay grade
ďStep 5: Fine-tune pay rates
19. Step 1: The Salary Survey
ďA survey aimed at
determining prevailing
wage rates.
ďSalary surveys can be
formal or informal.
ď Benchmark job: A job
that is used to anchor
the employerâs pay scale
and around which other
jobs are arranged in
order of relative worth.
20. Sources for Salary Surveys
ďConsulting firms :
Publish data covering
compensation for top &
middle management &
members of board of
directors.
ďProfessional
Organization: Publish
surveys of compensation
practices among members
of their associations.
21. (âŚcontâd)
⢠Government Agencies : U.S. Department of Laborâs
Bureau of Labor Statistics (BLS) conducts three annual
surveys:
ďź Area wage surveys
ďź Industry wage surveys
ďź Professional, administrative, technical, and clerical
(PATC) surveys.
23. Establishing Pay Rates (contâd)
Step 2: Job Evaluation
⢠A systematic comparison done in order to
determine the worth of one job relative to
another.
⢠Compensable factor: A fundamental,
compensable element of a job, such as skills,
effort, responsibility, and working conditions.
⢠2 Basic approaches are used.
24. Preparing for the Job Evaluation
ďIdentifying the need for the job evaluation
ďGetting the cooperation of employees
ďChoosing an evaluation committee.
ďPerforming the actual evaluation.
26. Job Evaluation Methods: Ranking
ďRanking each job relative to
all other jobs, usually based
on some overall difficulty.
Steps in Job Ranking
1. Obtain job information:
Job description &
information about the jobâs
duties (job analysis).
2. Select and group jobs:
Rank jobs by department
or in clusters.
27. 3) Select compensable factors: It is common to use
just one factor (eg: job difficulty) & to rank jobs
based on the whole job.
4) Rank Jobs: Each rater is given a set of index cards
which contains brief description of a job. They
then rank the job from lowest to highest.
5) Combine ratings: Several raters rank the jobs
independently. Then the committee averages
the ratersâ ranking.
28. Job Evaluation Methods: Job
Classification
ďRaters categorize jobs into groups or classes of jobs
that are of roughly the same value for pay purposes.
ďClasses contain similar jobs.
ďGrades are jobs that are similar in difficulty but
otherwise different.
29. Job Evaluation Methods: Point
Method
ďThe job evaluation method in which a number of
compensable factors are identified and then the
degree to which each of these factors is present on
the job is determined.
ďIdentifying the degree to which each compensable
factors are present in the job.
ďAwarding points for each degree of each factor.
ďCalculating a total point value for the job by adding up
the corresponding points for each factor.
30. Job Evaluation Methods: Factor
Comparison
ďA widely used method of ranking jobs according to a
variety of skill and difficulty factors, then adding up
these rankings to arrive at an overall numerical rating
for each given job.
ďFor Eg. First rank the job in terms of the compensable
factor âskillâ & then rank them according to their
âmental requirementsâ etc.
31. Computerized Job Evaluations
ďA computerized system
that uses a structured
questionnaire and
statistical models to
streamline the job
evaluation process.
32. Establishing Pay Rates
(contâd)
Step 3: Group Similar Jobs into Pay Grades
ďA pay grade is comprised of jobs of approximately
equal difficulty.
ďPoint method: the pay grade consists of jobs
falling within a range of points.
ďRanking method: the grade consists of all jobs
that fall within two or three ranks.
ďClassification method: automatically categorizes
jobs into classes or grades.
33. Establishing Pay Rates (contâd)
Step 4: Price Each Pay Grade-
Wage Curves
⢠Shows the pay rates currently paid for jobs in each pay
grade, relative to the points or rankings assigned to each
job or grade by the job evaluation.
34.
35. Establishing Pay Rates (contâd)
Step 5: Fine-tune pay rates
ďDeveloping pay ranges
ď Flexibility in meeting external job market rates
ď Easier for employees to move into higher pay grades
ď Allows for rewarding performance differences and seniority
ďCorrecting out-of-line rates
ď Raising underpaid jobs to the minimum of the rate range for
their pay grade.
ď Freezing rates or cutting pay rates for overpaid (âred circleâ)
jobs to maximum in the pay range for their pay grade.
36.
37. Pricing Managerial and
Professional Jobs
ďCompensating
Executives & managers:
ďBase pay: fixed salary,
guaranteed bonuses.
ďShort-term incentives: cash
or stock bonuses
ďLong-term incentives: stock
options
ďExecutive benefits and
perks: retirement plans, life
insurance, and health
insurance without a
deductible or coinsurance.
38. What Really Determines Executive Pay?
ďCEO pay is set by the board of directors taking into
account factors such as the business strategy, corporate
trends, and where they want to be in a short and long
term.
ďFirms pay CEOs based on the complexity of the jobs
they filled.
ďBoards are reducing the relative importance of base
salary while boosting the emphasis on performance-
based pay, for executives.
39. Compensating Professional
Employees
ďEmployers can use job evaluation for professional
jobs.
ďCompensable factors focus on problem solving,
creativity, job scope, and technical knowledge and
expertise.
ďFirms use the point method and factor comparison
methods, although job classification seems most
popular.
40. Competency-Based Pay
ďCompetency-based pay
ď Where the company pays for the employeeâs range, depth,
and types of skills and knowledge, rather than for the job
title he or she holds.
ďCompetencies
ď Demonstrable characteristics of a person, including
knowledge, skills, and behaviors, that enable performance.
ďType of pay programs:
Pay for knowledge or Skill-Based pay.
41. Why use Competency-Based Pay?
ďTraditional pay plans may actually backfire if a high-
performance work system is the goal.
ďPaying for skills, knowledge, and competencies is
more strategic.
ďMeasurable skills, knowledge, and competencies are
the heart of any companyâs performance management
process.
42. Competency-Based Pay in Practice
ďMain components of skill/competency/ knowledgeâbased pay
programs:
ď A system that defines specific skills, and a process for tying
the personâs pay to his or her skill
ď A training system that lets employees seek and acquire
skills
ď A formal competency testing system
ď A work design that lets employees move among jobs to
permit work assignment flexibility.
43. Competency-Based Pay: Pros, Cons, and
Results
ďPros
ď Higher quality.
ď Lower absenteeism and fewer accidents.
ďCons
ď Pay program implementation problems.
ď Cost implications of paying for unused knowledge, skills
and behaviors.
ď Complexity of program.
ď Uncertainty that the program improves productivity.
45. Pros & Cons
âť Wide bands provide for more flexibility
in assigning workers to different job
grades.
âť Lack of permanence in job
responsibilities can be unsettling to new
employees
46. Comparable Worth
⢠Refers to the requirement to
pay men and women equal
wages for jobs that are of
comparable (rather than
strictly equal) value to the
employer.
⢠Seeks to address the issue
that women have jobs that
are dissimilar to those of
men and those jobs often
consistently valued less than
menâs jobs.
47. The Pay Gap
ďFactors lowering the earnings of women:
ďWomenâs starting salaries are traditionally lower.
ďSalary increases for women in professional jobs do not
reflect their above-average performance.
ďIn white-collar jobs, men change jobs more frequently,
enabling them to be promoted to higher-level jobs over
women with more seniority.
ďIn blue-collar jobs, women tend to be placed in
departments with lower-paying jobs.
48. If you educate aIf you educate a man,man, you educate anyou educate an
IndividualIndividual
If you educate aIf you educate a womenwomen, you educate a, you educate a
NATIONNATION..
-M.K. Gandhi-M.K. Gandhi