1. Fundamentals of Human Resource Management
Eighth Edition
DeCenzo and Robbins
Chapter 11
Establishing Rewards and Pay Plans

2. Introduction
People do what they do to satisfy some need and they look for a payoff or reward.
The most obvious reward is pay, but there are many others, including:
promotions
desirable work assignments
peer recognition
work freedom

3. Introduction

4. Types of Reward Plans Intrinsic versus Extrinsic Rewards
Intrinsic rewards (personal satisfactions) come from the job itself, such as:
pride in one’s work
feelings of accomplishment
being part of a work team

5. Types of Reward Plans Intrinsic versus Extrinsic Rewards
Extrinsic rewards come from a source outside the job
include rewards offered mainly by management
Money
Promotions
Benefits

6. Types of Reward Plans Financial versus Nonfinancial Rewards
Financial rewards include:
wages
bonuses
profit sharing
pension plans
paid leaves
purchase discounts
Nonfinancial rewards emphasize making life on the job more attractive; employees vary greatly on what types they find desirable.

7. Types of Reward Plans
Performance-based versus Membership-Based Rewards
Performance-based rewards are tied to specific job performance criteria.
commissions
piecework pay plans
incentive systems
group bonuses
merit pay
Membership-based rewards such as cost-of-living increases, benefits, and salary increases are offered to all employees.

8. Compensation Administration
The process of managing a compensation program so that the organization can attract, motivate and retain competent employees who perceive that the program is fair.

9. Compensation Administration
Job evaluation – the process used to determine each job’s appropriate worth within the organization.
Based on job analysis information.

10. Compensation Administration
Government Influence on Compensation Administration
Fair Labor Standards Act: act which requires
minimum wage
overtime pay
record-keeping
child labor restrictions

11. Compensation Administration
Government Influence on Compensation Administration
Fair Labor Standards Act
Exempt employees
include professional and managerial employees
not covered under FLSA overtime provisions
Nonexempt employees
eligible for premium pay (time and one-half)
when they work more than 40 hours in a week

12. Compensation Administration
Government Influence on Compensation Administration
Equal Pay Act of 1963 act requires that men and women hired for the same job be paid the same.

13. Compensation Administration
Government Influence on Compensation Administration
Civil Rights Act:
broader than Equal Pay Act
prohibits discrimination on the basis of gender
used to support comparable worth concept
Salaries should be established on the basis of skill, responsibility, effort, and working conditions.

14. Job Evaluation and the Pay Structure
Use of job analysis information to determine the relative value of each job in relation to all jobs within the organization.
The ranking of jobs
Labor market conditions
Collective bargaining
Individual skill differences

15. Job Evaluation and the Pay Structure
Isolating Job Evaluation Criteria
Judgment is involved in defining what factors should be used to compare jobs.
Typical criteria:
mental requirements
supervisory control
complexity
physical demands
personal contacts

16. Job Evaluation and the Pay Structure
Isolating Job Evaluation Criteria
Typically jobs are grouped according to type and compared within their group
clerical jobs
sales jobs
professional jobs

17. Job Evaluation and the Pay Structure
Job Evaluation Methods
Ordering method: A committee places jobs in a simple rank order from highest (worth highest pay) to lowest.

18. Job Evaluation and the Pay Structure
Job Evaluation Methods
Classification method:
Jobs are placed in classification grades
Compare their descriptions to the classification description and benchmarked jobs
Look for a common denominator such as skills, knowledge, or responsibility

19. Job Evaluation and the Pay Structure
Job Evaluation Methods
Point method:
Jobs are rated and allocated points on several identifiable criteria, using clearly defined rating scales.
Jobs with similar point totals are placed in similar pay grades.
Offers the greatest stability.

20. Job Evaluation and the Pay Structure
Establishing the Pay Structure
Compensation surveys
Used to gather factual data on pay rates for other organizations
Information is often collected on associated employee benefits as well

21. Job Evaluation and the Pay Structure
Establishing the Pay Structure
Wage curves
Drawn by plotting job evaluation data (such as job points or grades) against pay rates (actual or from survey data).
Indicate whether the pay structure is logical

22. Job Evaluation and the Pay Structure
Establishing the Pay Structure
Wage structure
Designates pay ranges for groups of jobs which are
similar in value to the organization
grouped by their classifications, grades or points.
Results in a logical hierarchy of wages, consisting of ranges that overlap.

23. Special Cases of Compensation
Incentive Compensation Plans
Incentives can be added to the basic pay structure to provide rewards for performance.

24. Special Cases of Compensation
Incentive Compensation Plans
Individual Incentives include
merit pay plans (annual increase, based on performance)
piecework plans (pay based on number of units produced typically in a specified time period.)
time-savings bonuses and commissions

25. Special Cases of Compensation
Incentive Compensation Plans
Individual Incentives:
Work best where clear objectives can be set and tasks are independent.
Many organizations today require employees to place a percentage of their salary “at risk” so that merit pay does not become a substitute for automatic cost-of-living raises.

26. Special Cases of Compensation
Incentive Compensation Plans
Group Incentives
Incentives can be offered to groups, rather than individuals, when employees' tasks are interdependent and require cooperation.

27. Special Cases of Compensation
Incentive Compensation Plans:
Plant-wide Incentives:
Direct employee efforts toward organizational goals (such as cost reduction)
Scanlon Plan - supervisor and employee committees suggest labor-saving improvements
IMPROSHARE - formula is used to determine bonuses based on labor cost savings

28. Special Cases of Compensation
Paying for Performance
Pay is based on some measure of performance.
Common performance measures are:
piece-rate plans
gainsharing
wage incentive plans
profit sharing
lump sum bonuses

29. Special Cases of Compensation
Paying for Performance
Competency-based compensation
Rewarded for skills, knowledge and behaviors
leadership
problem solving
decision making
strategic planning
Broad-banding - pre-set pay levels that determine what people are paid based upon the type and level of competencies they possess.

30. Special Cases of Compensation
Team-Based Compensation
Incentives for empowered work teams to exceed established goals and share equally in rewards.
Depends on:
clarity of team purpose and goals
ability of the team to obtain needed resources
effective team communication skills and trust

31. Executive Compensation Programs
Salaries of Top Managers
Executive salaries, bonuses and stock options may seem high.
Top twenty CEOs average more than $100 million in total compensation.
Competition for executive talent raises the price of hiring an executive.
High salaries can be a motivator for executives and lower-level managers

32. Executive Compensation Programs
Supplemental Financial Compensation
Deferred bonuses – paid to executives over extended time periods, to encourage them to stay with the company.
Stock options – allow executives to purchase stock in the future at a fixed price.
Hiring bonuses – compensate for the deferred compensation lost when leaving a former company.

33. Executive Compensation Programs
Supplemental Nonfinancial Compensation: Perquisites
Perks may include:
paid life insurance
club memberships
company cars
expense accounts
interest-free loans
free financial
legal and tax counseling
mortgage assistance

34. Executive Compensation Programs
Supplemental Nonfinancial Compensation: Perquisites
Golden parachutes protect executives when a merger or hostile takeover occurs by providing severance pay or a guaranteed position.

35. International Compensation
Important to understand the statutory requirements of each country.
International compensation packages generally utilize the “balance-sheet approach,” using the four factors below:
Base Pay
Differentials
Incentives
Assistance Programs

36. International Compensation
Base Pay: The pay of employees in comparable jobs at home.
Differentials: Compensation given to offset higher costs of living abroad.

37. International Compensation
Incentives: Inducements given to encourage employees to accept overseas assignments.
Assistance Programs: Payment for expenses involved in moving a family abroad and in providing some services overseas.