Compensation OS352 HRM Fisher March 30, 2005

2 Agenda  Case study assignment  SAP Exercise 3  In-class writing  Pay system design  Internal vs. external equity

3 Case Study Assignment  Read Harvard Business Review case study “When Salaries Aren’t Secret”  Answer two questions Relationship with equity theory Recommendation for actions the company should take  Approximately 2-3 pages long  Due Wednesday April 6 in class

4 SAP Exercise 3  Accessing and using performance appraisal information  Limited to Division 1 of NCCC  Assignment due Friday April 8, 3:00, my office

5 In-class writing  What is the difference between internal and external equity approaches to compensation?  Which is more important?

6 Consider the following pay structure… North Country Cabinet Company JobAnnual Salary President$15,000 Maintenance mechanic$130,000 Production supervisor$20,000 Milling operator$75,000 What ’ s wrong with this picture? Why?

7 Pay System Goals  Support strategic objectives May include organizational change  Attract, retain, motivate employees  Fairness  Compliance  What are we paying for? Skills? Performance? Time at the office?

8 Fair Labor Standards Act  Minimum wage  Overtime Must be paid to non-exempt employees for hours worked over 40 per week Exempt employees (management, professionals, administrative) not eligible for overtime Hourly employees tend to be non-exempt, but guidelines for determining this are complex  Child labor  Does not mandate vacation, holiday, or sick pay, pay raises, or fringe benefits

9 Equal Pay Act  Equal pay for equal work  Covers only differences between men and women Other protected classes covered under Civil Rights Act more generally  What are legitimate reasons for paying people in the same job differently?

Median Annual Earnings of Year-Round, Full-Time Workers All Men All Women $37,339 (100%) $27,355 (73%) Men Women White $38,869 White $28,080 Black $30,409 Black $25,117 Asian & Pacific Asian & Pacific Islander $40,946* Islander $31,156* Hispanic $24,638 Hispanic $20,527 * Due to the small size of the survey sample, these data may not be representative. Source: US. Census Bureau, Current Population Reports, Series P-60

11 Pay Differences by Occupation Occupation Men Women Computer Programmer$59,852$52,312 HR Managers$65,468$49,816 Lawyers$88,920$65,260 Physical Therapists$49,660$46,800 Receptionists$23,608$24,076 Annual salaries based on Bureau of Labor Statistics weekly earnings data.

12 Forms of Compensation  Base wage or salary (fixed)  Performance-based (variable or at-risk) Merit Incentives Commissions Piece rates  Attraction and retention bonuses  Benefits

13 A question of equity  Internal vs. external – what is the difference?  Strategic decisions related to external equity: Lead Lag Meet the market  In-class writing question: Which is more important? Can you maintain both?

14 Job Evaluation  Assessing the relative internal worth of the organization’s jobs.  Note: Job evaluation is not the same thing as performance evaluation.

15 Two Common Job Evaluation Methods  Ranking Method Compare one job with the others Simplest and quickest job evaluation approach Most useful for a small number of jobs Downsides of using this method?  Point method Assigns a numeric score to a job based upon levels of compensable factors in job Highly stable, valid over time Hay system is one of the most popular

16 Compensable Factors  The characteristics of a job that the organization values and chooses to pay for  Examples: Degree of responsibility Years of schooling or experience Discretion in performing work  How can compensable factors be determined? What data would be used?

17 Back to the example  How would you evaluate the four jobs: Using the ranking method? Based on Hay factors?  Remember, Hay profiles are based on know-how, problem solving, and accountability Company president Production supervisor Maintenance mechanic Milling operator

18 For next class  Topics: More on pay structures Rewards in addition to base pay Return exam  Read Chapter 12 How do rewards fit within the overall pay structure? Links with motivation theories