Presentation on theme: "Establishing Strategic Pay Plans"— Presentation transcript:
1 Establishing Strategic Pay Plans Chapter 11Establishing Strategic Pay PlansList the basic factors in determining pay rates.Explain in detail how to establish pay rates.Explain how to price managerial and professional jobs.Discuss competency-based pay and other current trends in compensation.
2 Employee Compensation IntroductionEmployee CompensationAll forms of pay or rewards going to employees and arising from their employmentFinancial CompensationAll forms of financial paymentDirect Financial PaymentPay in the form of wages, salaries, incentives, commissions, and bonusesIndirect Financial PaymentPay in the form of financial benefits such as insuranceNon-Financial CompensationThe satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the job is performed
3 Basic Factors in Determining Pay Rates 1Legal considerations in compensation2Union influences on compensation decisions3Competitive strategy, corporate policies, and compensationSalary CompressionA salary inequity problem, generally caused by inflation, resulting in longer-term employees in a position earning less than workers entering the firm todayGeographyLocation – average base pay – cost of living – market place – demand and supply … etc
4 Basic Factors in Determining Pay Rates 4Equity and its impact on pay ratesEquity theory of motivationStates that if a person perceives an inequity, the person will be motivated to reduce or eliminate the tension and perceived inequityExternal equityHow a job’s pay rate in one company compares to the job’s pay rate in other companies.Internal equityHow fair the job’s pay rate is, when compared to other jobs within the same companyIndividual equityHow 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 equityThe perceived fairness of the process and procedures to make decisions regarding the allocation of pay.Addressing equity issuesSalary surveys - Job analysis and job evaluation - Performance appraisal and incentive pay - Communications, grievance mechanisms, and employees’ participation
5 Establishing Pay Rates Steps in Establishing Pay Rates123Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity).4Determine the worth of each job in your organization through job evaluation (to ensure internal equity).5Group similar jobs into pay grades.Price each pay grade by using wage curves.Fine-tune pay rates.
6 Establishing Pay Rates Step 1The Salary SurveySalary SurveyAimed at determining prevailing wage ratesRole of Salary SurveyTo price benchmark jobs - To market-price wages for jobs - To make decisions about benefitsTools of Salary SurveyFormal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of informationData Sources for Salary SurveyEmployer Self-Conducted Surveys - Consulting Firm - Professional Associations - Government Agencies - The InternetBenchmark JobA job that is used to anchor the employer’s pay scale and around which other jobs are arranged in order of relative worth
7 Establishing Pay Rates Step 2Job EvaluationJob EvaluationA systematic comparison done in order to determine the worth of one job relative to anotherCompensable FactorsA fundamental, compensable element of a job, such as skills, effort, responsibility, and working conditions.Preparing for the Job EvaluationIdentifying the need for the job evaluation - Getting the cooperation of employees - Choosing an evaluation committee - Performing the actual evaluation
8 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)1- Ranking MethodThe simplest method of job evaluation that involves ranking each job relative to all other jobs, usually based on overall difficultySteps in Job RankingObtain job informationSelect and group jobsSelect compensable factorsRank jobsCombine ratings
9 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)2- Job Classification (Grading) MethodA method for categorizing jobs into groupsJob Classification (Grading) MethodRaters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposesClassClasses contain similar jobsGradeGrades are jobs similar in difficulty but otherwise differentHow Jobs are Classed?Jobs are classed by the amount or level of compensable factors they contain
10 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)3- Point MethodA number of compensable factors are identified and then the degree to which each of these factors is present on the job is determinedSteps of Point MethodStep 1Determine clusters of jobs to be evaluatedStep 2Collect job informationStep 3Select compensable factorsStep 4Define compensable factorsStep 5Define factor degreesStep 6Determine relative values of factorsStep 7Assign point values to factors and degreesStep 8Write the job evaluation manualStep 9Rate the jobs
11 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)Steps of Point Method
13 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)4- Factor Comparison MethodRanking jobs according to a variety of skill and difficulty factors, then adding up these ranking to arrive at overall numerical rating for each givinjobSteps of factor Comparison MethodStep 1Obtain the job informationStep 2Select key benchmark jobsStep 3Rank key jobs by factorsStep 4Distribute wage rate by factors (or points)Step 5Rank key jobs according to wages assigned to each factorStep 6Compare the two sets of rankings to screen out unusable key jobsStep 7Construct the job comparison scaleStep 8Use the job comparison scale
14 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)Steps of factor Comparison Method1. Mental RequirementsEither the possession of and/or the active application of the following:A. (inherent) Mental traits, such as intelligence, memory, reasoning, facility in verbal expression, ability to get along with people, and imagination.B. (acquired) General education, such as grammar and arithmetic; or general information as to sports, world events, etc.C. (acquired) Specialized knowledge such as chemistry, engineering, accounting, advertising, etc.2. SkillA. (acquired) Facility in muscular coordination, as in operating machines, repetitive movements, careful coordination, dexterity, assembling, sorting, etc.B. (acquired) Specific job knowledge necessary to the muscular coordination only; acquired by performance of the work and not to be confused with general education or specialized knowledge. It is very largely training in the interpretation of sensory impressions. Examples1. In operating an adding machine, the knowledge of which key to depress for a subtotal would be skill.2. In automobile repair, the ability to determine the significance of a knock in the motor would be skill.3. In hand-firing a boiler, the ability to determine from the appearance of the firebed how coal should be shoveled over the surface would be skill.
15 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)Steps of factor Comparison Method1.3. Physical RequirementsA. Physical effort, such as sitting, standing, walking, climbing, pulling, lifting, etc.; both the amount exercised and the degree of the continuity should be taken into account.B. Physical status, such as age, height, weight, sex, strength, and eyesight.4. ResponsibilitiesA. For raw materials, processed materials, tools, equipment, and property.B. For money or negotiable securities.C. For profits or loss, savings or methods’ improvement.D. For public contact.E. For records.F. For supervision.1. Primarily the complexity of supervision given to subordinates; the number of subordinates is a secondary feature. Planning, direction, coordination, instruction, control, and approval characterize this kind of supervision.2. Also, the degree of supervision received. If Jobs A and B gave no supervision to subordinates, but A received much closer immediate supervision than B, then B would be entitled to a higher rating than A in the supervision factor. To summarize the four degrees of supervision:Highest degree—gives much—gets littleHigh degree—gives much—gets muchLow degree—gives none—gets littleLowest degree—gives none—gets much
16 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)Steps of factor Comparison Method4.5. Working ConditionsA. Environmental influences such as atmosphere, ventilation, illumination, noise, congestion, fellow workers, etc.B. Hazards—from the work or its surroundings.C. Hours.
19 Establishing Pay Rates Step 2Job Evaluation (Job Evaluation Methods)5- Computerized Job EvaluationA computerized system that uses a structured questionnaire and statistical models to streamline the job evaluation processStep 3Group Similar Jobs into Pay GradesPay GradeA pay grade is comprised of jobs of approximately equal difficulty or importance as established by job evaluation
20 Establishing Pay Rates Step 4Price Each Pay GradeWage CurveShows the relationship between the value of the job and the average wage paid for this job
21 Establishing Pay Rates Step 5Fine Tune Pay RatesPay RangesA series of steps or levels within a pay grade, usually based upon years of service
22 Pricing Managerial and Professional Jobs Compensating Executives and ManagersComponents of Executives Compensation1Base salary2Short term incentives3Long term incentives4Executive benefitsWhat determines executive pay?Business strategy – Job complexity – Performance based payElements of executive payWhat ????Managerial job evaluationHow ????
23 Pricing Managerial and Professional Jobs Compensating Professional EmployeesApproachJob EvaluationImportant Compensable FactorsProblem solving, creativity, job scope, and technical knowledge and expertise.Methods UsedPoint method and factor comparison methodsHow?Professional jobs are market-priced to establish the values for benchmark jobs
24 Competency Based Pay Competency Based Pay Where the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holdsCompetenciesDemonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performanceWhy Use Competency Based Pay?1Support high-performance work systems2Support strategic aims3Support performance management
25 Competency Based Pay Competency Based Pay in Practice Main elements of skill/competency/knowledge–based pay programs:1A system that defines specific skills, and a process for tyingthe person’s pay to his or her skill.2A training system that lets employees seek and acquireskills3A formal competency testing system.4A work design that lets employees move among jobs topermit work assignment flexibilityCompetency Based Pay Pros, Cons, and ResultsHigher quality - Lower absenteeism and fewer accidentsImplementation problems - Cost implications - Complexity of program - Uncertainty of productivity results
26 Other Compensation Trends Broad-bandingConsolidating salary grades and ranges into just a few wide levels or “bands,”each of which contains a relatively wide range of jobs and salary levels.Broad-banding Pros, Cons, and UseWhat ????
27 Other Compensation Trends Comparable WorthRefers to the requirement to pay men and women equal wages for dissimilar jobs that are of comparable (rather than strictly equal) value to the employerSeeks to address the issue that women have jobs that are dissimilar to those of men and those jobs are often consistently valued less than men’s jobsWhat are the causes of the pay gap?Broad Oversight of Executive PayWhat ????Improving Productivity Through HRIS: Automating Compensation Administration