© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9–2 Learning Objectives After studying this chapter, you should be able to: 1.Describe the basic issues involved in developing a compensation strategy 2.Discuss how organizations develop a wage and salary structure 3.Identify and describe the basic issues involved in wage and salary administration 4.Discuss the basic considerations in understanding benefit programs 5.Identify and describe mandated benefits 6.Identify and describe nonmandated benefits 7.Discuss contemporary issues in compensation and benefits

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–3 What Is Compensation? The set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization.

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–4 What are Benefits? Rewards Incentives Items of Value Purposes of Benefits

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–5 Beyond the Book: Components of the Compensation System

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–6 Understanding the Basic Purposes of Compensation Internal Equity External Equity Legal Standards Developing a Compensation Strategy Pay Surveys

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–7 Organizational Considerations: Linking Compensation to Performance Motivation Productivity Controlling costs Organizational objectives Retention

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–8 Example of a Pay Survey

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–9 Wages Versus Salaries WagesWages  Is hourly compensation paid to operating employees; basis for wages is time. SalarySalary  is income paid to an individual on the basis of performance, not on the basis of time.

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–10 Strategic Options for Compensation Levels Which pay level is a firm on the decline likely to choose?

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–11 Overall strategy of the organization Overall ability of organization to pay Ability to attract and retain employees Strength of union influence Determinants of an Organization’s Compensation Strategy

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–12 Determining What to Pay Point system Classification system Job Evaluation Methods Factor- comparison method

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–13 Establishing a Classification System for Job Evaluation Group sets of jobs into gradesGroup sets of jobs into grades Rank grades at level of importance to the organizationRank grades at level of importance to the organization Determine how many categories or classifications to use for grouping jobsDetermine how many categories or classifications to use for grouping jobs

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–14 Job-Classification System

Using a Point System for Job Evaluation Compensable FactorsCompensable Factors  Job skills  Physical effort  Working conditions  Responsibility and authority Point ManualPoint Manual  Defines points assigned to the increasing degrees of compensable factors for which the organization willing to provide payment © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–15

Using the Factor-Comparison Method for Job Evaluation 1.Define comparison factors to be used 2.Identify benchmark or key jobs in the organization 3.Rank benchmark jobs on each compensation factor 4.Allocate benchmark’s job wage to each job factor based on the relative importance of the job factor 5.Prepare two sets of ratings based on ranking and assigned wages to determine evaluator consistency 6.Develop a job-comparison chart to rate other jobs in the organization as compared to the benchmark jobs © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–16

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–17 Factors Affecting Internal Pay Levels Pay-for-KnowledgePay-for-Knowledge  Compensating employees for learning specific information Skill-based PaySkill-based Pay  Rewards employees for acquiring new skills SenioritySeniority  A maturity curve specifies the amount of annual increase a person will receive for time on the job with the firm.

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–18 Wage and Salary Administration The ongoing process of managing a wage and salary structure; managers must be sensitive to these costs and must be vigilant about managing them properly.

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–19 Understanding Compensation Pay Secrecy Pay compression Pay Inversion Wage and Salary Administration Issues

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–20 The Nature Of Benefits Programs Rising Costs Global Differences Employee Preferences Benefits Issues

Purposes of Benefit Programs Efficiency Wage TheoryEfficiency Wage Theory  An organization saves money when its benefits and compensation package attracts better-qualified people and motivates its employees to work harder and remain with the organization. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–21

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–22 Types of Benefits Mandated BenefitsMandated Benefits  Unemployment insurance  Social Security  Workers’ Compensation Nonmandated BenefitsNonmandated Benefits  Private pension plans  Defined benefit plans  Defined contribution plans  Paid time off  Health insurance Other BenefitsOther Benefits  Wellness programs  Life-cycle benefits  Child-care programs  Elder-care  Employee assistance  Cafeteria-style benefits  Spousal equivalents

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–23 Minimum Annual Vacation by Law in Different Countries

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–24 Executive Compensation Components Base SalaryBase Salary Incentive PaymentsIncentive Payments  Usually a bonus based on company performance PerquisitesPerquisites

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–25 Cash Bonuses For Some CEOs Lloyd Blankfein (Goldman Sachs)$12.60 million$ 7.00 million James Gorman (JP Morgan)$13.00 million$10.50 million Howard Schultz (Starbucks)$22.00 million$16.00 million Robert Diamond (Barclays PLC)$ 3.25 million$ 1.70 million Phillipe Dauman (Viacom) – BUT his total compensation fell from $84.5 million to $43 million $12.00 million$20.00 million

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–26 Legal Issues in Compensation and Benefits Fair Labor Standards Act (FLSA)Fair Labor Standards Act (FLSA)  Includes provisions for the minimum wage, overtime, comp time, and child labor  HR managers must adhere to overtime laws Employee Retirement Income Security Act (ERISA)Employee Retirement Income Security Act (ERISA)  Vesting provisions guarantee employee rights to receive earned benefits from PBGC- insured pension plans

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–27 Evaluating Compensation Policies To attract and retain good employees, organizations should provide reasonable compensation and appropriate benefits to its employeesTo attract and retain good employees, organizations should provide reasonable compensation and appropriate benefits to its employees Organizations should keep employees well-informed about the value, extent, and costs of benefits that the organization providesOrganizations should keep employees well-informed about the value, extent, and costs of benefits that the organization provides