© 2008 by Prentice Hall9-1 Broadbanding Technique that collapses many pay grades (salary grades) into few wide bands to improve organizational effectiveness Lateral employee development Develop employee skills and encourage team focus Employee attention directed away from vertical promotional opportunities

© 2008 by Prentice Hall9-2 Broadbanding and Its Relationship to Traditional Pay Grades and Ranges Average Pay Per Hour Grade 5 Grade 4 Grade 1 Grade 2 Grade 3 Job Worth LowHigh Band A Band B

© 2008 by Prentice Hall9-3 Employee as Determinant of Direct Financial Compensation Performance—Performance-based Pay Skills—Skilled-based Pay Competencies—Competency-based Pay Seniority Experience Membership in the organization Potential Political Influence Luck

© 2008 by Prentice Hall9-4 Performance-Based Pay Merit pay - Pay increase given to employees based on level of performance as indicated in appraisal Variable Pay - Compensation based on performance Bonus - Most common type of variable pay for performance. One-time financial award based on productivity Spot bonuses - Relatively small, gifts to employees for outstanding work or effort Piecework - Employees paid for each unit they produce

© 2008 by Prentice Hall9-5 Skill-Based Pay Compensates on basis of job-related skills and knowledge Employees and departments benefit when employees obtain additional skills Appropriate where work tends to be routine and less varied Must provide adequate training opportunities or system becomes demotivator

© 2008 by Prentice Hall9-6 Competency-Based Pay Rewards employees for capabilities they attain Competencies include skills but also involve other factors such as motives, values, attitudes, and self- concepts

© 2008 by Prentice Hall9-7 Seniority Length of time employee has been associated with company, division, department, or job Labor unions tend to favor seniority

© 2008 by Prentice Hall9-8 Experience Regardless of nature of job, very few factors have a more significant impact on performance than experience Dot-com world has changed attitude with regard to experience

© 2008 by Prentice Hall9-9 Membership in Organization Components of individual financial compensation are given to employees regardless of particular job they perform or level of productivity Maintains high degree of stability in workforce and recognizes loyalty

© 2008 by Prentice Hall9-10 Potential Organizations do pay some individuals based on potential Many young employees are paid well because of their potential

© 2008 by Prentice Hall9-11 Political Influence Should not be used to determine financial compensation To deny its existence would be unrealistic Person's pull or political influence may sway pay and promotion decisions

© 2008 by Prentice Hall9-12 Luck “It certainly helps to be in the right place at the right time.”

© 2008 by Prentice Hall9-13 Team-Based Pay If team is to function effectively, firms should provide reward based on overall team performance

© 2008 by Prentice Hall9-14 Company-Wide Pay Profit sharing - Distribution of predetermined percentage of firm’s profits to employees Gainsharing - Bind employees to firm’s productivity and provide incentive payment based on improved company performance Scanlon plan - Reward to employees for savings in labor costs resulting from employees’ suggestions

© 2008 by Prentice Hall9-15 Professionals Compensation Initially compensated for knowledge they bring to organization Maturity curves reflect relationship between professional compensation and years of experience