Hrm10e Chap12


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Hrm10e Chap12

  1. 1. Human Resource Management TENTH EDITON Compensation Strategies and Practices © 2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentation by Charlie Cook Chapter 12 SECTION 4 Compensating Human Resources Robert L. Mathis  John H. Jackson
  2. 2. Learning Objectives <ul><li>After you have read this chapter, you should be able to: </li></ul><ul><ul><li>Identify two general types of compensation and the components of each. </li></ul></ul><ul><ul><li>Give examples of two different compensation philosophies in organizations. </li></ul></ul><ul><ul><li>Discuss four strategic compensation design issues. </li></ul></ul><ul><ul><li>Describe three considerations affecting perceptions of pay fairness. </li></ul></ul><ul><ul><li>Identify the basic provisions of the Fair Labor Standards Act (FLSA). </li></ul></ul>
  3. 3. Learning Objectives (cont’d) <ul><ul><li>Define job evaluation and discuss four methods for of performing it. </li></ul></ul><ul><ul><li>Outline the process of building a wage and salary administration system. </li></ul></ul><ul><ul><li>Discuss how to establish a pay-for-performance system. </li></ul></ul>
  4. 4. Compensation Systems <ul><li>Objectives of an Effective Compensation System: </li></ul><ul><ul><li>Legal compliance with all appropriate laws and regulations </li></ul></ul><ul><ul><li>Cost effectiveness for the organization </li></ul></ul><ul><ul><li>Internal, external, and individual equity for employees </li></ul></ul><ul><ul><li>Performance enhancement for the organization </li></ul></ul>
  5. 5. Nature of Compensation <ul><li>Types of Rewards </li></ul><ul><ul><li>Intrinsic </li></ul></ul><ul><ul><ul><li>Intangible, psychological and social effects of compensation </li></ul></ul></ul><ul><ul><li>Extrinsic </li></ul></ul><ul><ul><ul><li>Tangible, monetary and nonmonetary effects of compensation </li></ul></ul></ul>
  6. 6. Components of A Compensation Program Figure 12 –1
  7. 7. Direct Compensation
  8. 8. Typical Division of HR Responsibilities: Compensation Figure 12 –2
  9. 9. Continuum of Compensation Philosophies Figure 12 –3
  10. 10. Compensation Approaches Figure 12 –4
  11. 11. Compensation Quartile Strategies Figure 12 –5
  12. 12. Decisions About Compensation Levels
  13. 13. Competency-Based Pay Maintenance of Competencies Limitations (How many?) Pricing Competencies Training Competency-Based Pay Systems KBP/SBP
  14. 14. Competency-Based Systems Outcomes Figure 12 –6
  15. 15. Individual vs. Team Rewards Distribute variable rewards at the team level Make system simple and understandable. Using Team-Based Reward Systems Use skill-based pay for the base. Use variable pay based on business entity performance Maintain a high degree of employee involvement
  16. 16. Perceptions of Pay Fairness
  17. 17. Equity Considerations in Compensation Figure 12 –7
  18. 18. Fair Labor Standards Act (FSLA) of 1938 Provisions of the Act Minimum wage requirement sets wage floor Child labor (under 14 years old) is prohibited Requires overtime payments for non-exempt employees Exempts highly-paid computer workers Requires overtime (1 ½) pay for hours over 40 hours Requires compensatory time at overtime (1 ½) pay rates
  19. 19. Wage/Hour Status Under Fair Labor Standards Act Figure 12 –8a
  20. 20. Wage/Hour Status Under Fair Labor Standards Act Figure 12 –8b
  21. 21. Wage/Hour Status Under Fair Labor Standards Act Figure 12 –8c
  22. 22. The IRS Test for Employees and Independent Contractors Figure 12 –9 Source: U.S. Internal Revenue Service.
  23. 23. Other Laws Affecting Compensation <ul><li>Davis-Bacon Act of 1931 </li></ul><ul><ul><li>Required payment of “prevailing wage” by firms engaged in federal construction projects. </li></ul></ul><ul><li>Walsh-Healy Public Contracts Act and the Service Contracts Act </li></ul><ul><ul><li>Extended the payment of “prevailing wage” to service contracts </li></ul></ul><ul><ul><li>Required overtime payment for any employee hours worked over eight hours in one day; applies only to to federal contracts, not the private sector. </li></ul></ul>
  24. 24. Pay and Gender <ul><li>Equal Pay Act of 1963 </li></ul><ul><ul><li>Requires that men and women be paid the same for performing substantially similar jobs with limited non-gender exceptions (e.g., merit and seniority). </li></ul></ul><ul><li>Issue of Pay Equity </li></ul><ul><ul><li>Similarity in pay for all jobs requiring comparable level of knowledge, skills, and abilities, even if actual duties and market rates differ significantly. </li></ul></ul>
  25. 25. Compensation Administration Process Figure 12 –10
  26. 26. Job Evaluation <ul><li>Job Evaluation </li></ul><ul><ul><li>The systematic determination of the relative worth of jobs within an organization. </li></ul></ul><ul><li>Benchmark Job </li></ul><ul><ul><li>A job found in many organizations and performed by several individuals who have similar duties that are relatively stable and require similar KSAs. </li></ul></ul>
  27. 27. Job Evaluation Factor Comparison Ranking Classification Point Method Job Evaluation Methods
  28. 28. Job Evaluation Point Chart Figure 12 –11
  29. 29. Legal Issues and Job Evaluation Job Evaluation Americans with Disabilities Act Job evaluations may not identify job functions related to physical demands as essential Gender Issues Traditional job evaluations place less weight on knowledge, skills, and working conditions for female-dominated jobs
  30. 30. Developing Pay Surveys Select Employers with Comparable Jobs Determine Jobs to be Surveyed Decide What Information Is Needed Conduct Survey
  31. 31. Pay Structures <ul><li>Market Line </li></ul><ul><ul><li>The line on a graph showing the relationship between the job value, as determined by job evaluation points, and pay survey rates. </li></ul></ul><ul><li>Common Pay Structures </li></ul><ul><ul><li>Hourly and salaried </li></ul></ul><ul><ul><li>Office, plant, technical, professional, managerial </li></ul></ul><ul><ul><li>Clerical, information technology, professional, supervisory, management, and executive </li></ul></ul>
  32. 32. Establishing Pay Structures Figure 12 –12
  33. 33. Pay Structures (cont’d) <ul><li>Pay Grades </li></ul><ul><ul><li>A grouping of individual jobs having approximately the same job worth. </li></ul></ul><ul><li>Broadbanding </li></ul><ul><ul><li>The practice of using fewer pay grades having broader pay ranges that in traditional systems. </li></ul></ul><ul><ul><li>Benefits </li></ul></ul><ul><ul><ul><li>Encourages horizontal movement of employees </li></ul></ul></ul><ul><ul><ul><li>Is consistent with trend towards flatter organizations </li></ul></ul></ul><ul><ul><ul><li>Creates a more flexible organization </li></ul></ul></ul><ul><ul><ul><li>Encourages competency development </li></ul></ul></ul><ul><ul><ul><li>Emphasizes career development </li></ul></ul></ul>
  34. 34. Traditional Pay Structure vs. Broadbanding Figure 12 –13
  35. 35. Pay Scattergram Figure 12 –14
  36. 36. Typical Pay Range Widths Figure 12 –15
  37. 37. Example of Pay Grades and Pay Ranges Figure 12 –16
  38. 38. Pay Rate Issues <ul><li>Rates Out of Range </li></ul><ul><ul><li>Red-Circled Employees </li></ul></ul><ul><ul><ul><li>An incumbent (current jobholder) who is paid above the range set for the job. </li></ul></ul></ul><ul><ul><li>Green-Circled Employees </li></ul></ul><ul><ul><ul><li>An incumbent who is paid below the range set for the job. </li></ul></ul></ul><ul><li>Pay Compression </li></ul><ul><ul><li>A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small. </li></ul></ul>
  39. 39. Issues Involving Pay Increases <ul><li>Seniority </li></ul><ul><ul><li>Time spent in an organization or on a particular job. </li></ul></ul><ul><ul><li>Used to determine eligibility for organizational rewards and benefits. </li></ul></ul><ul><li>Maturity Curve </li></ul><ul><ul><li>A curve that depicts the relationship between experience and pay rates. </li></ul></ul><ul><ul><li>Assumption is that as experience increases, proficiency and performance increase. </li></ul></ul>
  40. 40. Issues Involving Pay Increases <ul><li>Cost-of-Living Adjustments (COLA) </li></ul><ul><ul><li>A percentage increase in wages that allows employees to maintain the same real wages in a period of economic inflation. </li></ul></ul><ul><ul><li>Adjustments are tied to changes in an economic measure (e.g., the Consumer Price Index). </li></ul></ul><ul><li>Lump-Sum Increases (LSI) </li></ul><ul><ul><li>A one-time payment of all or part of a yearly pay increase. </li></ul></ul><ul><ul><li>Lump-sum payments do not increase base wages </li></ul></ul>
  41. 41. Pay Adjustment Matrix Figure 12 –17
  42. 42. Compa-Ratio Example <ul><li>Compa-ratio </li></ul><ul><ul><li>The pay level divided by the midpoint of the pay range. </li></ul></ul>