Dessler hrm12e ppt_11
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This PowerPoint presentation discusses establishing strategic pay plans. It covers topics such as determining pay rates based on factors like internal equity, conducting salary surveys, job evaluation methods, grouping jobs into pay grades, using wage curves to price grades, and fine-tuning pay rates. It also addresses issues like compensation for managers and professionals, competency-based pay, broadbanding, the gender pay gap, and automating compensation administration. The overall presentation provides an overview of developing compensation systems aligned with business strategy.
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Dessler hrm12e ppt_11
- 1. PowerPoint Presentation by Charlie Cook The University of West Alabama Chapter 11 Establishing Strategic Pay Plans Part Four | Compensation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
- 2. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–2 Basic Factors in DeterminingBasic Factors in Determining Pay RatesPay Rates Direct financial payments Indirect financial payments Employee Compensation Components
- 3. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–3 Corporate Policies, Competitive Strategy,Corporate Policies, Competitive Strategy, and Compensationand Compensation • Aligned Reward StrategyAligned Reward Strategy The employer’s basic task:The employer’s basic task: To create a bundle of rewards—a total reward package—thatTo create a bundle of rewards—a total reward package—that specifically elicits the employee behaviors that the firm needsspecifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy.to support and achieve its competitive strategy. The HR or compensation manager along with top managementThe HR or compensation manager along with top management creates pay policies that are consistent with the firm’s strategiccreates pay policies that are consistent with the firm’s strategic aims.aims.
- 4. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–4 Compensation Policy IssuesCompensation Policy Issues • Pay for performancePay for performance • Pay for seniorityPay for seniority • The pay cycleThe pay cycle • Salary increases and promotionsSalary increases and promotions • Overtime and shift payOvertime and shift pay • Probationary payProbationary pay • Paid and unpaid leavesPaid and unpaid leaves • Paid holidaysPaid holidays • Salary compressionSalary compression • Geographic costs of living differencesGeographic costs of living differences
- 5. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–5 Equity and Its Impact on Pay RatesEquity and Its Impact on Pay Rates External equity Procedural equity Internal equity Individual equity Forms of Compensation Equity
- 6. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–6 Addressing Equity IssuesAddressing Equity Issues Area wage and salary surveys Job analysis and job evaluation Performance appraisal and incentive pay Communications, grievance mechanisms, and employees’ participation Methods to Address Equity Issues
- 7. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–7 Establishing Pay RatesEstablishing Pay Rates 1 2 3 4 5 Steps in Establishing Pay Rates Determine the worth of each job in your organization through job evaluation (to ensure internal equity). Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). Group similar jobs into pay grades. Price each pay grade by using wave curves. Fine-tune pay rates.
- 8. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–8 Step1: The Salary SurveyStep1: The Salary Survey To price benchmark jobs To make decisions about benefits Uses for Salary Surveys To market-price wages for jobs
- 9. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–9 Sources for Salary SurveysSources for Salary Surveys Self- Conducted Surveys Government Agencies Consulting Firms Sources of Wage and Salary Information Professional Associations The Internet
- 10. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–10 Step 2: Job EvaluationStep 2: Job Evaluation Skills Effort Responsibility Identifying Compensable Factors Working conditions
- 11. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–11 The Job Evaluation ProcessThe Job Evaluation Process 1 Performing the actual evaluation Getting the cooperation of employees Preparing for the Job Evaluation Identifying the need for the job evaluation Choosing an evaluation committee 2 3 4
- 12. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–12 How to Evaluate JobsHow to Evaluate Jobs Ranking Job classification Point method Methods for Evaluating Jobs Factor comparison
- 13. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–13 Job Evaluation Methods: RankingJob Evaluation Methods: Ranking • Ranking each job relative to all other jobs, usuallyRanking each job relative to all other jobs, usually based on some overall factor.based on some overall factor. • Steps in job ranking:Steps in job ranking: 1.1. Obtain job information.Obtain job information. 2.2. Select and group jobs.Select and group jobs. 3.3. Select compensable factors.Select compensable factors. 4.4. Rank jobs.Rank jobs. 5.5. Combine ratings.Combine ratings.
- 14. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–14 Job Evaluation Methods:Job Evaluation Methods: Job ClassificationJob Classification • Raters categorize jobs into groups or classes of jobs thatRaters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes.are of roughly the same value for pay purposes. Classes contain similar jobs.Classes contain similar jobs. Administrative assistantsAdministrative assistants Grades are jobs similar in difficulty but otherwise different.Grades are jobs similar in difficulty but otherwise different. Mechanics, welders, electricians, and machinistsMechanics, welders, electricians, and machinists Jobs are classed by the amount or level of compensable factorsJobs are classed by the amount or level of compensable factors they contain.they contain.
- 15. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–15 Job Evaluation Methods: Point MethodJob Evaluation Methods: Point Method • A quantitative technique that involves:A quantitative technique that involves: Identifying the degree to which each compensable factor isIdentifying the degree to which each compensable factor is present in the job.present in the job. Awarding points for each degree of each factor.Awarding points for each degree of each factor. Calculating a total point value for the job by adding up theCalculating a total point value for the job by adding up the corresponding points for each factor.corresponding points for each factor.
- 16. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–16 Step 3: Grouping JobsStep 3: Grouping Jobs Point Method Ranking Method Classification Methods Grouping Similar Jobs into Pay Grades
- 17. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–17 Step 4: Price Each Pay GradeStep 4: Price Each Pay Grade • The Wage CurveThe Wage Curve Shows the pay rates paid for jobs in each pay grade, relative toShows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the jobthe points or rankings assigned to each job or grade by the job evaluation.evaluation. Shows the relationships between the value of the job asShows the relationships between the value of the job as determined by one of the job evaluation methods and thedetermined by one of the job evaluation methods and the current average pay rates for your grades.current average pay rates for your grades.
- 18. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–18 Step 5: Fine-Tune Pay RatesStep 5: Fine-Tune Pay Rates • Developing Pay RangesDeveloping Pay Ranges Flexibility in meeting external job market ratesFlexibility in meeting external job market rates Easier for employees to move into higher pay gradesEasier for employees to move into higher pay grades Allows for rewarding performance differences and seniorityAllows for rewarding performance differences and seniority • Correcting Out-of-Line RatesCorrecting Out-of-Line Rates Raising underpaid jobs to the minimum of the rate rangeRaising underpaid jobs to the minimum of the rate range for their pay gradefor their pay grade Freezing rates or cutting pay rates for overpaid (“red circle”)Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay gradejobs to maximum in the pay range for their pay grade
- 19. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–19 HR in Practice:HR in Practice: Developing a Workable Pay PlanDeveloping a Workable Pay Plan • Simplified Approach:Simplified Approach: Conduct a wage surveyConduct a wage survey Conduct a job evaluationConduct a job evaluation Conduct once-a-year job appraisalsConduct once-a-year job appraisals Compile the compensation budgetCompile the compensation budget for upcoming yearfor upcoming year
- 20. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–20 Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs Base pay Executive benefits/perks Short-term incentives Long-term incentives Compensating Executives and Managers
- 21. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–21 Pricing Managerial and Professional JobsPricing Managerial and Professional Jobs • What Determines Executive Pay?What Determines Executive Pay? CEO pay is set by the board of directors taking into accountCEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, andfactors such as the business strategy, corporate trends, and where they want to be in the short and long term.where they want to be in the short and long term. CEOs can have considerable influence over the boards thatCEOs can have considerable influence over the boards that determine their pay.determine their pay. Firms pay CEOs based on the complexity of the jobs they fill.Firms pay CEOs based on the complexity of the jobs they fill. Shareholder activism and government oversight have tightenedShareholder activism and government oversight have tightened the restrictions on what companies pay top executives.the restrictions on what companies pay top executives. Boards are reducing the relative importance of base salary whileBoards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.boosting the emphasis on performance-based pay.
- 22. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–22 Compensating Professional EmployeesCompensating Professional Employees • Employers can use job evaluation for professional jobs.Employers can use job evaluation for professional jobs. • Compensable factors focus on problem solving,Compensable factors focus on problem solving, creativity, job scope, and technical knowledge andcreativity, job scope, and technical knowledge and expertise.expertise. • Firms use the point method and factor comparisonFirms use the point method and factor comparison methods, although job classification is most popular.methods, although job classification is most popular. • Professional jobs are market-priced to establish theProfessional jobs are market-priced to establish the values for benchmark jobs.values for benchmark jobs.
- 23. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–23 Why Use Competency-Based Pay?Why Use Competency-Based Pay? High-Performance Work Systems Strategic Aims Competency-Based Pay Supports Performance Management
- 24. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–24 Competency-Based Pay in PracticeCompetency-Based Pay in Practice • Main elements of skill/competency/knowledge–basedMain elements of skill/competency/knowledge–based pay programs:pay programs: 1.1. A system that defines specific skillsA system that defines specific skills 2.2. A process for tying the person’s pay to his or her skillA process for tying the person’s pay to his or her skill 3.3. A training system that lets employees seek and acquire skillsA training system that lets employees seek and acquire skills 4.4. A formal competency testing systemA formal competency testing system 5.5. A work design that lets employees move among jobs toA work design that lets employees move among jobs to permit work assignment flexibilitypermit work assignment flexibility
- 25. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–25 Competency-Based Pay: Pros and ConsCompetency-Based Pay: Pros and Cons • ProsPros Higher qualityHigher quality Lower absenteeismLower absenteeism Fewer accidentsFewer accidents • ConsCons Pay program implementation problemsPay program implementation problems Costs of paying for unused knowledge, skills, and behaviorsCosts of paying for unused knowledge, skills, and behaviors Complexity of programComplexity of program Uncertainty that the program improves productivityUncertainty that the program improves productivity
- 26. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–26 Special Topics in CompensationSpecial Topics in Compensation • BroadbandingBroadbanding Consolidating salary grades and ranges into a few wide levelsConsolidating salary grades and ranges into a few wide levels or “bands,” each of which contains a relatively wide range ofor “bands,” each of which contains a relatively wide range of jobs and salary levels.jobs and salary levels. Pros and ConsPros and Cons More flexibility in assigning workers to different job gradesMore flexibility in assigning workers to different job grades Provides support for flatter hierarchies and teamsProvides support for flatter hierarchies and teams Promotes skills learning and mobilityPromotes skills learning and mobility Lack of permanence in job responsibilities can be unsettlingLack of permanence in job responsibilities can be unsettling to new employees.to new employees.
- 27. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–27 The Pay GapThe Pay Gap • Factors Lowering the Earnings of Women:Factors Lowering the Earnings of Women: 1.1. Women’s starting salaries are traditionally lower.Women’s starting salaries are traditionally lower. 2.2. Salary increases for women in professional jobs do notSalary increases for women in professional jobs do not reflect their above-average performance.reflect their above-average performance. 3.3. In white-collar jobs, men change jobs more frequently,In white-collar jobs, men change jobs more frequently, enabling them to be promoted to higher-level jobs overenabling them to be promoted to higher-level jobs over women with more seniority.women with more seniority. 4.4. In blue-collar jobs, women tend to be placed inIn blue-collar jobs, women tend to be placed in departments with lower-paying jobs.departments with lower-paying jobs.
- 28. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–28 Improving Productivity Through HRIS:Improving Productivity Through HRIS: Automating CompensationAutomating Compensation AdministrationAdministration• Benefits of Compensation Automation:Benefits of Compensation Automation: Allows for quick updating of compensation programsAllows for quick updating of compensation programs Eliminates costs of formerly manual processesEliminates costs of formerly manual processes Coordinates centralized compensation budgets to preventCoordinates centralized compensation budgets to prevent overages in compensation and raisesoverages in compensation and raises Can integrate and automatically administer other pay actionsCan integrate and automatically administer other pay actions
Editor's Notes
- Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance.
- The compensation plan should advance the firm’s strategic aims—management should produce an aligned reward strategy. This means creating a bundle of rewards—a total reward package including wages, incentives, and benefits—that aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy.
- Managers need to formulate pay policies covering a range of issues.
- With respect to compensation, managers should address four forms of equity: external, internal, individual, and procedural. External equity refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies. Internal equity refers to how fair the job’s pay rate is when compared to other jobs within the same company (for instance, is the sales manager’s pay fair, when compared to what the production manager is earning?). Individual equity refers to the fairness of an individual’s pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individual’s performance. Procedural equity refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.”
- Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees’ participation in developing the company’s pay plan to help ensure that employees view the pay process as transparent and procedurally fair.
- The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps.
- It’s difficult to set pay rates if you don’t know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey.
- Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies.
- Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization. Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job.
- Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation.
- Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison.
- The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.”
- Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different.
- The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job.
- Once the committee has used job evaluation to determine the relative worth of each job, it can turn to the task of assigning pay rates to each job; however, it will usually want to first group jobs into pay grades using one of these three methods. A pay grade is comprised of jobs of approximately equal in difficulty or importance as established by job evaluation.
- The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation.
- Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates.
- Developing a pay plan is as important in a small firm as a large one. Paying overly high wages may be unnecessarily expensive, and paying less may guarantee inferior help and high turnover. Furthermore, internally inequitable wage rates will reduce morale and cause employees to demand equity raises.
- Compensation for a company’s top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or “perks.”
- For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employer’s ability to pay (total profit and rate of return), and the executive’s human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance.
- Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another question—how is “performance” to be defined and measured?
- Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. Paying for competencies encourages employees to develop the competencies the companies require to achieve their strategic aims. Paying for measurable and influence-able competencies provides a focus for the employer’s performance management process.
- In practice, any skill/competency/knowledge-based pay program generally contains these five main elements.
- Competency-based pay has adherents and its detractors. Competency-based pay increases compensation costs in paying employees for unused or outdated knowledge, skills and behaviors.
- Broadbanding means collapsing salary grades into a few wide levels or bands, each of which contains a relatively wide range of jobs and pay levels.
- Women in the United States earn only about 77% as much as men, although the gap is narrowing a bit. These factors may help explain the lower earning for females.
- Today, companies use 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.