Compensation

Employee’s Perspective What compensation do you seek? Direct Money Indirect Benefits

Employer’s Perspective What do you compensate? Individual Characteristics: Ability Training Education Job: Responsibility Critical function Job content

Employer’s Perspective What factors influence your compensation policy? Supply and demand skills Unions Ability to pay Cost of living increases Government (FLSA, min. wage) Strategy

Influence of Equity External Market wages Internal Perceived equity

Develop a Job Hierarchy A. Job Evaluation 1. Preliminary planning 2. Select a plan 3. Develop the plan 4. Evaluate jobs, NOT PEOPLE

Pricing Jobs "The acceptability of job evaluation hinges in large part on whether the results are consistent with the ranking of the same jobs in the external labor market."

Pricing Jobs A. Use key or benchmark jobs Jobs that are relatively stable in content and found in many organizations Compare your internal analysis to external wages B. Conduct wage survey to examine external wages

Pricing Jobs C. Use points from job evaluation as a predictor Use predictor to determine wages for non-key positions Non-key positions: jobs that have no similar “comparison job” outside of the organization

Develop a Pay Structure A. Pay on the basis of individual jobs or grades? B. Utilize single rates or a rate change?

Inequities Comparable worth Salary compression

Pricing Managerial and Professional Jobs Not easy because there are fewer quantifiable factors Managers are often compensated for long term performance Are executives overpaid?

Financial Incentives "The basic aim of an incentive should be to encourage good performance by linking performance and rewards, and this in turn requires valid, accurate performance appraisals.”

Incentives for Production Employees Piecework Group incentive plans Attendance Annual bonus

Incentives for Mangers and Executives Stock options Long-term incentives

Organization Incentive Plans Profit sharing plans ESOP – Employee Stock Options Plan Cost savings plan SCANLON and Gainsharing

Potential Incentive Plan Problems Worker doesn’t believe that plan will lead to rewards. Unfair standards – too high or unattainable Changing standards – obtain top management commitment to maintain standards

Recommendations 1. Ensure that efforts and rewards are directly related. 2. Incentive rewards are understandable and calculable. 3. Use accurate and effective standards. 4. Guarantee those standards.

Performance Evaluation

Performance Measurement Purposes A. Administrative decisions Promotion Training Compensation Transfer, demotion, and separation

Performance Measurement Purposes B. Employee feedback and development Roles Strengthens E  P and P  O relationships Allows behavior change

Performance Measurement Purposes C. Evaluations of policies and programs Selection and promotion decisions Aiding in validation of selection tools Helping to determine if programs are effective (e.g. training) D. Defense of policies Use to show job relatedness (performance)

Performance Measurement Issues A. Identifying performance dimensions Most jobs are multi-dimensional Use job analysis to assess performance Errors similar to job analysis B. Establish performance standards Determine legitimate standards Don’t set standards too high or low

Performance Measures A. Comparative methods 1. Ranking 2. Forced distribution 3. Problems with comparative evaluations: No indication of potential performance Little specific feedback No feedback about where to improve

Performance Measures B. Absolute methods 1. Trait rating scale Central tendency problems Doesn’t capture specific behaviors 2. BARS (Behaviorally Anchored Rating Scales) Complex and costly Not applicable to a broad group of jobs Avoids contamination and deficiency errors 3. MBO – set for individuals, not jobs

Measures of Physical Output

Administrative Challenges A. Components that influence the performance appraisal process 1. Appraiser (rater) 2. Appraisee (ratee) 3. Method 4. Purpose of evaluation 5. Motivation to appraise

Administrative Challenges B. Rater errors 1. Unreliability 2. Leniency 3. Severity 4. Central tendency 5. Recency 6. Halo

Administrative Challenges C. EEO Not only for your selection Show that method isn’t discriminating Validate performance appraisal procedures

Trends in PA Research 1. Focused on the accuracy of appraisal and improving method. 2. Focused on rater errors and reduction of errors. 3. Current focus: cognitive processes and interpretation and evaluation of performance.