2. Compensation and Benefits Human Resource Management

3. Compensation Hot topics Compensation Management Benefits

4. Hot or Warm Topics Executive compensation - Are corporate executives overpaid or underpaid? Sex discrimination and comparable worth Open vs. secret pay plans Skill-based compensation plans Team vs. individual pay

5. Executive Compensation (2005) RankName Company Pay ($mil)5-Yr Pay ($mil)RankNameCompany5-Yr Pay ($mil) 1 Richard D Fairbank Capital One 249.42 448.58Richard D Fairbank 2Terry S Semel Yahoo 230.55 258.29Terry S Semel 3 Henry R Silverman Cendant 139.96 279.21Henry R Silverman 4 Bruce Karatz KB Home 135.53 227.37Bruce Karatz 5 Richard S Fuld Jr Lehman Bros 122.67 375.81Richard S Fuld Jr 6 Ray R Irani Occidental Pet 80.73 198.44Ray R Irani 7 Lawrence J Ellison Oracle 75.33 868.93Lawrence J Ellison 8 John W Thompson Symantec 71.84 131.65John W Thompson 9 Edwin M Crawford Caremark Rx 69.66 161.85Edwin M Crawford 10 Angelo R Mozilo Countrywide 68.95 160.14Angelo R Mozilo 11 John T Chambers Cisco Systems 62.99 103.44John T Chambers 12 R Chad Dreier Ryland Group 56.47 150.22R Chad Dreier http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html

6. Executive Compensation (2008) Average compensation for 200 chief executives at America's largest public companies was $10.8 million Sanjay Jha Motorola $104.4 million Larry EllisonOracle$84.6 million Robert IgerWalt Disney$51.1 million Kenneth ChenaultAmerican Express$42.8 million Vikram PanditCitigroup$38.2 million Mark HurdHewlett-Packard$34.0 million Jack FuscoCalpine$32.7 million Rupert MurdochNews Corp.$30.1 million David CoteHoneywell International$28.7 million A.G. LafleyProcter & Gamble$25.6 million

7. CEO Compensation Compared to Average Production Worker 2007344 to 1 2006364 to 1 2005465 to 1 2004431 to 1 2003301 to 1 2001525 to 1 1990107 to 1 1982 42 to 1 1970 28 to 1 Since 1990, if the minimum wage rate had risen at the same rate as CEO pay, minimum wage would now be $23.03 instead of $7.25. http://money.cnn.com/2005/08/26/news/economy/ceo_pay/

8. Europe's 25 Highest-Paid CEOs(2005) 1. Lindsay Owen-Jones, L'Oreal (France), $28.3M 2. John Browne, BP (Britain), $14.0M 3. Arun Sarin, Vodaphone (Britain), $12.2M 4. Henri De Castries, AXA (France), $9.1M 5. Josef Ackermann, Deutsche Bank (Germany), $8.4M http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases/2 0050627H_europe.html

9. % ChangeCEO Pay/Relative to 1988-2005Worker Pay (2005)*US CEO (2005) Australia 292% 15.6 33% Belgium 157 18 46 Canada 152 23.1 49 France 197 22.8 56 Germany 187 20.1 55 Italy 232 25.9 53 Japan 8 10.8 25 Netherlands118 17.8 40 New Zealand -- 24.9 18 Spain 98 17.2 32 Sweden 304 19.2 44 Switzerland172 19.3 64 UK161 31.8 55 US16939 * Ratio of CEO compensation to the compensation of manufacturing production workers. Source: Authors’ analysis of Towers Perrin (1988, 2003, and 2005).

10. 2005 $31,858 $41,386 $9,528 77.0% 2004 * $32,285 $42,160 $9,875 76.6% 2003 $30,724 $40,668 $9,944 75.5% 2002 $30,203 $39,429 $9,226 76.6% 2001 $29,215 $38,275 $9,060 76.3% 2000 $27,355 $37,339 $9,984 73.3% 1999 $27,208 $37,701 $10,493 72.2% 1998 $27,290 $37,296 $10,006 73.2% 1997 $26,720 $36,030 $9,310 74.2% 1996 $25,919 $35,138 $9,219 73.8% 1995 $25,260 $35,365 $10,105 71.4% 1994 $25,558 $35,513 $9,955 72.0% 1993 $25,579 $35,765 $10,186 71.5% 1992 $25,791 $36,436 $10,645 70.8% The Wage Gap Over Time Year Women's Men's Dollar Percent Earnings Earnings Difference

11. 1991 $25,457 $36,440 $10,983 69.9% 1990 $25,451 $35,538 $10,087 71.6% 1989 $25,310 $36,855 $11,545 66.0% 1988 $24,774 $37,509 $12,735 66.0% 1987 $24,663 $37,389 $12,726 65.2% 1986 $24,479 $38,088 $13,609 64.3% 1985 $23,978 $37,131 $13,153 64.6% 1984 $23,453 $36,842 $13,389 63.7% 1983 $22,961 $36,106 $13,055 63.6% 1982 $22,367 $36,224 $13,857 61.7% 1981 $21,830 $36,854 $15,024 59.2% 1980 $22,279 $37,033 $14,754 60.2% 1979 $22,446 $37,622 $15,176 59.7% The Wage Gap Over Time Year Women's Men's Dollar Percent Earnings Earnings Difference

12. 1978 $22,617 $38,051 $15,005 59.4% 1977 $21,743 $36,901 $15,158 58.9% 1976 $21,738 $36,114 $14,376 60.2% 1975 $21,297 $36,207 $14,910 58.8% 1974 $21,419 $36,456 $15,037 58.8% 1973 $21,397 $37,381 $15,984 56.6% 1972 $21,185 $36,614 $15,429 57.9% 1971 $20,691 $34,771 $14,080 59.5% 1970 $20,567 $34,642 $14,075 59.4% 1969 $20,156 $34,241 $14,085 58.9% 1968 $18,836 $32,389 $13,553 58.2% 1967 $18,241 $31,568 $13,327 57.8% 1966 $17,874 $31,055 $13,181 57.6% 1965 $17,852 $29,791 $11,939 59.9% The Wage Gap Over Time Year Women's Men's Dollar Percent Earnings Earnings Difference http://www.pay-equity.org/info-time.html

13. Median Annual Earnings of Full- time Workers (Bureau of Labor Statistics, 2000 census) Physicians, surgeons$140,000 88,000 Lawyers 90,000 66,000 Judges, magistrates 88,000 50,000 Actuaries 80,000 56,000 Pharmacists 70,000 63,000 Teacher assistants 20,000 15,000 Cooks 17.000 15,000 MaleFemale http://gblakely.com/BADM553/censr-15.pdf

14. Compensation Goals Attracting good employees Retaining good employees Motivating employees Complying with the law Having a cost effective compensation system

15. Compensation and the Three Equities External Equity Attracting good employees Internal Equity Retaining good employees Individual or Employee Equity Motivating employees

16. External Equity Attracting good employees Labor Market Model Market Surveys http://salarysource.com/ http://swz.salary.com/ Pay strategy/policies

17. Internal Equity Retaining good employees Job Evaluation Techniques Ranking Jobs are compared to each other based on their overall worth to the company. The ‘worth’ of a job is usually measured by judgments of skill, effort, responsibility, and working conditions. The advantage of the ranking method is that it is simple. The disadvantages, similar to the ranking method of performance appraisal, are that the intervals between the ranks are assumed to be equal, the judgments are global, and as the number of jobs for evaluation increases it becomes increasingly difficult. Also, the evaluators must have knowledge of all jobs.

18. Classification method Jobs are classified into a grade/category structure. Each tier of the structure has a description and associated job titles. For example, the Westinghouse system had: –Grade 1 Unskilled ex. File clerk –Grade 2 Skilled ex. Typist, lathe operator –Grade 3 Interpretive ex. Chief clerk –Grade 4 Creative ex. Engineers, sales reps –Grade 5 Executive ex. Department heads –Grade 6 Administrative ex. Chief engineer, Director of R&D –Grade 7 Policy ex. Vice-president of Marketing Each job is assigned to the grade/category providing the closest match to the job. Standards are developed mainly along occupational lines. The standards help identify and describe key characteristics of occupations that are important for distinguishing different levels of work. Pay ranges are then assigned to grades. The advantages of this method are that it is simple and has been in use for many years. Its disadvantages include the fact that classification judgments are subjective, and the standard used for comparison may have built-in biases. Also, some jobs may fit into more than one grade/category or their descriptions are so broad that they do not relate to specific jobs.

19. Factor Comparison Select benchmark jobs. Sets of compensable factors are identified as determining the worth of jobs. The number of factors is usually four or five and typically relate to skill, responsibility, effort and working conditions. Jobs are then ranked on each factor. Wages are then allocated to the factors. The organization’s other jobs are then compared to the benchmark jobs and rates of pay for each of the other jobs. Factor comparison has the advantage that the value of the job is expressed in monetary terms, and the method is applicable to a wide range of jobs. The method’s disadvantages are that the pay points for each factor is based on subjective judgments.

20. Point Method The point method is an extension of the factor comparison method. Usually between eight and fourteen compensable factors (typically related to skill, effort, responsibility, and working conditions) are identified as determining the worth of jobs. Factors are divided into degrees Points are assigned the degrees Benchmark jobs are compared to market rates

21. Individual or Employee Equity Motivating performance

22. JOB ATTRIBUTE RANKING Please rank, from 1 to 10 in order of importance, with 1 being the most important, the following job attributes. In the first column indicate the rank in terms of your own preferences and in the second column indicate how you think others will rank these same job attributes. Your RankingOthers' Ranking Advancement__________ Benefits__________ Company__________ Co-workers__________ Hours__________ Pay__________ Job Security__________ Supervisor__________ Type of Work__________ Working Conditions__________

23. JOB ATTRIBUTE RANKING The following median rankings are based on the responses of 39,788 job applicants (Minneapolis Gas Company). (Minneapolis Gas Company). MEN WOMEN MEN WOMEN SelfOthersSelfOthers Advancement3.33.85.34.3 Benefits6.85.28.05.9 Company4.56.84.67.1 Co-workers6.07.75.27.3 Hours7.65.46.95.0 Pay5.62.16.02.1 Job Security2.53.64.95.4 Supervisor6.37.45.37.0 Type of Work3.34.91.53.5 Working Conditions7.96.96.56.8

24. What Do Workers Want From Their Jobs? Supervisors Workers Good working conditions 4 9 Feeling "in" on things 10 2 Tactful disciplining 7 10 Full appreciation for work done 8 1 Management loyalty to workers 6 8 Good wages 1 5 Promotion and growth with company 3 7 Sympathetic understanding of personal problems 9 3 Job security 2 4 Interesting work 5 6 1 = most important in job 10 = least important in job (From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)

25. What do new graduates value in jobs? Company culture 6.2 Advancement opportunities 6.0 Nature of work (e.g., challenging)5.9 Training provided 5.7 Work/non-work balance 5.5 Monetary compensation 5.3 Benefits 5.2 Location 5.0 Vacation time 4.6 Level of job security 3.9 Size of company 3.7 International assignments 3.3 Rated on seven point scale (1 = not important to 7 = very important). Source: Human Resource Management (2003), 42, p. 23-37.

26. What do applicants with college degrees want in jobs? 19931978 Type of work 2.2 1.5 Advancement 4.6 3.6 Co-workers 5.1 5.2 Company 5.7 4.4 Security 5.8 5.5 Location 6.2 Supervisor 6.35.5 Pay 6.3 5.2 Working conditions 7.27.2 Benefits 7.47.9 Hours 9.38.0 1993 sample = 623, 1978 sample = 4,535 Source: Journal of Occupational & Organizational Psychology (2003), 66, p. 71-81

27. Individual or Employee Equity Motivating performance At the individual level Pluses and minuses Methods/techniques At the organization level Pluses and minuses Methods/techniques

28. Compensation and the Legal Environment The Fair Labor Standards Act of 1938 Minimum Wage Exempt vs. Non-exempt and overtime http://www.ewin.com/articles/exneot.htm http://www.dol.gov/elaws/esa/flsa/screen75. asp The Equal Pay Act of 1963

29. Benefits The Cost of Benefits Mandatory Workers’ Compensation https://www.brickstreet.com/default.aspx https://www.brickstreet.com/default.aspx Unemployment Insurance Family Medical Leave Social Security http://www.ssa.gov/http://www.ssa.gov/ Retirement income Disability income Medicare Survivor benefits 2011 rates –Social security 6.2% on first $106,800 (4.2 in 2011) –Medicare 1.45% unlimited

30. Benefits Non-mandatory Insurance Health –Cost escalation –COBRA –HIPAA –Types of health insurance »Traditional indemnity plans »HMO »PPO Retirement ERISA (1974) –Vesting »Full vesting after 5 years »20% per year after 3 years –Fiduciary standards –Pension Benefit Guarantee Corporation Defined benefit Defined contribution –401(k), 403(b) »http://invest-faq.com/articles/ret-plan-401k.htmlhttp://invest-faq.com/articles/ret-plan-401k.html –IRA –SEP –Keogh http://www.dallasfed.org/ca/wealth/3.html http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

31. Benefits continued Paid time off Employee services