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Cash, Bonuses, Insurance,

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Presentation on theme: "Cash, Bonuses, Insurance,"— Presentation transcript:

1 Cash, Bonuses, Insurance,
Compensation Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition

2 What does compensation (what you receive for your services) mean to you?
compensation means different things to different people: >return on effort >reward for satisfactory or outstanding work >indicative of value attached to skills and abilities >return on investment in education and training >source of personal wealth >important determinant of economic and social well being

3 A Definition . . . All forms of
financial return, tangible services and benefits that employees receive as part of their employment relationship

4 Components of a Total Compensation Program - 1
Financial Direct wages, salaries, commissions, bonuses Indirect insurance plans life, health, dental, disability social assistance benefits retirement plans, social security, workers’ comp paid absences vacations, holidays, sick leave

5 Components of a Total Compensation Program - 2
Non-Financial The Job interesting, challenging, responsible opportunity for recognition, advancement feeling of achievement Job Environment policies, supervision, co-workers, status symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs

6 Factors that Influence Wage Levels
Conditions of Labor Market Compensation Policy of Organization Area Wage Rates WAGE MIX Worth of Job Determining the wage offered an employee is a function of both internal and external factors (referred to as the “wage mix”). Internal factors include: Employer’s Compensation Policy. Each employer views compensation as one of the variables under their control and so uses pay as a tool for accomplishing organization goals. In general, companies may lead, match, or trail pay standards relative to the competition and/or combine base pay with incentives to reward specific goal-based accomplishment. Worth of a Job. Where a formal compensation system is lacking, pay is set on the subjective opinion of the responsible party’s evaluation of the worth of a job. Employee’s Relative Worth. The differential contributions and accomplishments of different employees (both hourly and salaried), may be reflected in different levels of pay, often within a given range for an employment level. Employer’s Ability to Pay. All organizations have finite budgets and compensation is limited to what is available. External factors include: Conditions of the Labor Market. The labor market reflects the forces of supply and demand for qualified labor within an area. Area Wage Rates. The company should be aware of the prevailing wage rates being paid in the area of operation. Cost of Living. Inflation increases the cost of living and compensation rates have to be adjusted upward periodically. A common benchmark is the consumer price index (CPI), compiled by the federal government. Collective Bargaining. Collective bargaining pools the power of the labor force in an effort to negotiate an increase in real wages (pay increases above the CPI). Legal Requirements. Legislative actions, such as minimum wage laws, typically set a floor for compensation, at least for hourly employees. Cost of Living Employee’s Relative Worth Collective Bargaining Employer’s Ability to Pay Legal Requirements

7 Designing a Compensation System
Steps in the Decision Process

8 Step 1 - Establish General Wage Level for Organization
Factors to consider: Other firm’s rates Union demands Cost-of-living changes Firm’s ability to pay

9 Step 2 - Establish Wage Structure (The Pay for Each Job)
Employ a job evaluation system Ranking Job Classification Point System Factor Comparison Results: pay grades rate ranges

10 Step 3 - Establish Pay for Each Individual on Each Job
Inputs: Performance appraisal information Seniority system

11 A Pay Model -- 3 Basic Components
I. Compensation Objectives II. Foundation Concepts III. Techniques for Management

12 A Pay Model I. Compensation Objectives - 1
Organization Performance Labor Costs Attitudes and Behaviors Laws and Regulations Facilitate Organization Performance Control Labor Costs Influence Employee Attitudes and Behaviors attract retain motivate Comply with Laws and Regulations Fair Labor standards Act sets minimum wage exempt/non-exempt; 1 1/2 for OT ages of employees Equal Pay Act equal pay for equal work Comparable Worth?

13 A Pay Model I. Compensation Objectives - 2
Influence forms & procedures For example: if objective is pay for performance, emphasize incentives, merit pay plans if objective is stable, experienced workforce, emphasize seniority-based pay

14 A Pay Model II. Foundation Concepts
Equity External Equity Comparison: outside organization Internal Equity Comparison: inside organization, among jobs Employee Equity Comparison: individuals doing same job for same organization >Equity = building block foundation on which pay systems are designed >Review equity theory: outcomes to inputs External Equity Comparison: outside organization 2 issues: are rates competitive enough to attract/retain employees control HR costs so org prices remain competitive Internal Equity Comparison: inside organization, among jobs does 1 job require more/less skill or experience than another is output of one job more/less value than that of another Employee Equity Comparison: individuals doing same job for same organization should all employees receive the same pay?

15 Under-reward Inequity
Equity Theory Equity Op/Ip = Oo/Io Under-reward Inequity Op/Ip < Oo/Io Over-reward Inequity Op/Ip > Oo/Io p = personal, o = comparison other I = Inputs effort, ability, experience O = Outcomes pay, benefits, perks

16 Why does Equity Matter? What Behaviors are Likely to Occur when Inequity is Felt?
Reducing one’s own inputs Increasing one’s outcomes Leaving the situation

17 A Pay Model III. Techniques for Management
A. Pay Level B. Pay Structure C. Individual Pay Rates

18 A Pay Model III. Techniques for Management A. Pay Level
Defined: average rates paid by employer Applicable concept: External Equity 3 Pure Alternatives lead competition match competition lag competition Mechanism used: Market Wage Survey Market Wage Survey -- >done by interview, mailed questionnaire, telephone >done by org or consultants KEY FACTORS: benchmark job work content relatively stable over time held by large # of employees free of discriminatory patterns not subject to recent surpluses/shortages job description employers to include geographic area to cover data gathered median minimum maximum average

19 Market Wage and Salary Surveys
Select key jobs. Determine relevant labor market. Select organizations. Decide on information to collect: wages/benefits/pay policies. Compile data received. Determine wages and benefits to pay.

20 Market Wage Levels Which company is leading the market?
Company A’s Wage Level Market Wage Level Company B’s Wage Level Which company is leading the market? Which company is lagging the market? What would the wage level line look like for a company that was meeting/matching the market?

21 A Pay Model III. Techniques for Management B. Pay Structure
Defined: pay rates for different jobs within a single organization Applicable concept: Internal Equity Pay more for jobs with greater qualifications less desirable working conditions more valuable output Mechanism used: Job Analysis & Job Evaluation Effects of Structure: experts argue that equitable pay structures are related to everything from employee performance to strikes Effects employee decisions to join stay leave organization whether or not to invest in additional training required for promotions, new jobs

22 Job Evaluation defined: the systematic evaluation of job descriptions
outcome: a hierarchy of organizational jobs according to their content and value to the organization Methods: ranking classification factor comparison point method

23 Standard for Comparison
Unit of Comparison Other Jobs Fixed Criteria Whole Job Ranking Classification Job Factors Factor Comparison Point

24 Job Ranking System Simplest and oldest system of job
evaluation by which jobs are arrayed on the basis of their relative worth

25 Job Classification System
System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades

26 Point System Quantitative job evaluation procedure
that determines the relative value of a job by the total points assigned to it

27 Factor Comparison System
Job evaluation system that permits the evaluation process to be accomplished on a factor-by-factor basis by developing a factor comparison scale

28 Hay Profile Method Job evaluation technique using three
factors – knowledge, mental activity, and accountability – to evaluate executive and managerial positions

29 A Pay Model III. Techniques for Management C. Individual Pay Rates
Defined: pay rates for different individuals doing the same job within an organization Applicable concept: Employee Equity 2 Techniques Flat Rate Pay Ranges Mechanisms used: Performance or Seniority Flat Rate common in union contracts distrust of evaluation system Pay Ranges set limits on rates an employer will pay for a particular job design: 1) develop classes or grades groups of jobs considered substantially similar for pay purposes 2) set midpoints, maximums, minimums Next issue: progression through the ranges criteria? seniority, merit

30 Wage Curve Curve in a scattergram representing
the relationship between relative worth of jobs and wage rates

31 Components of the Wage Structure

32 Pay Grades Groups of jobs within a particular class
that are paid the same rate or rate range

33 Elements of the Rate Range

34 Common Pay Grade Ranges
Laborers & Trades, up to 20% Clerical, Technical, Para-professional, 15-49% First Level Supervisors, Professionals 30-50% Middle and Senior Level Management, %

35 Monitoring Compensation Costs
Compra-Ratio Formula: A compra ratio < 1 indicates lag A compra-ratio > indicates excess Actual Average Pay for Grade Midpoint Pay for Grade pay structure represents policy, but practice may not always coincide >1 way to examine the correspondence is to compute a Compra-Ratio >the actual average pay for grade/midpoint pay for grade >provides a direct assessment of the degree to which actual pay is consistent with the pay policy a CR of less than 1 suggests that actual pay is LAGGING behind policy a CR of more than 1 suggests that pay and costs exceed policy

36 How Would You Handle Outliers?
An individual whose current pay is beyond the maximum of the pay grade for his/her job An individual whose current pay is below the minimum of the pay grade for his/her job

37 Fair Labor Standards Act of 1938
Federal Wage Laws Davis-Beacon Act of 1931 Compensation management is subject to state and federal regulation. On the state level, a majority of states have minimum wage laws or wage boards that fix minimum wage rates on an industry-by-industry basis. On the federal level, three principal acts of legislation affect wages: Davis-Beacon Act of Also called the Prevailing Wage Law, this law requires that the minimum wage paid to persons employed on federal public works projects worth more than $2,000 be at least equal to the prevailing rates and that overtime be 1.5 times this rate. “Prevailing” is defined as the rate paid to at least 30 percent of the workers in the area. In areas where there is a mixture of both union and non-union labor, this 30 percent rule is controversial. If the union represents at least 30 percent of the labor force, then federal contracts there might pay significantly higher wages than are received by the majority of workers. Walsh-Healy Act of Called the Public Contracts Act, Walsh-Healy covers workers employed on government contract work for supplies, equipment, and materials greater than $10,000. The act requires employers to pay employees at least the prevailing rates and overtime of 1.5 times the regular rate for work beyond 8 hours a day and 40 hours a week. The wage rate computation must also include any bonuses or incentive payments part of the employee’s total earnings. Walsh-Healy also restricts child and convict labor practices. Fair Labor Standards Act of 1938 (as amended). Called the Wage and Hour Act, this bill and amendments cover those employees engaged in the production of goods for interstate and foreign commerce. Major provisions are concerned with minimum wage and overtime payments, child labor, and equal rights. Walsh-Healy Act of 1936 Fair Labor Standards Act of 1938

38 Nonexempt Employees Employees covered by the overtime
provisions of the Fair Labor Standards Act

39 Exempt Employees Employees not covered by the overtime
provisions of the Fair Labor Standards Act

40 Comparable Worth The concept that male and female jobs
that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same

41 Wage-Rate Compression
Compression of differentials between job classes, particularly the differential between hourly workers and their managers

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