© 2008 by Prentice Hall9-1 Cost of Living When prices rise over a period of time and pay does not, real pay is actually lowered Some firms index pay increases to inflation rate

© 2008 by Prentice Hall9-2 Labor Unions Mandatory collective bargaining between management and unions as “wages, hours, and other terms and conditions of employment.” Cost-of-living allowance has been disappearing

© 2008 by Prentice Hall9-3 The Economy Affects financial compensation decisions Depressed economy generally increases labor supply Cost of living often rises as economy expands

© 2008 by Prentice Hall9-4 Compensation Legislation Davis-Bacon Act of 1931 Walsh-Healy Act of 1936 Fair Labor Standards Act of 1938, as Amended

© 2008 by Prentice Hall9-5 Davis-Bacon Act of 1931 First national law to deal with minimum wages Federal construction contractors with projects over $2000 to pay at least prevailing wages in area Secretary of Labor sets the prevailing wage at union wage, regardless of what average wage is in affected locality

© 2008 by Prentice Hall9-6 Walsh-Healy Act of 1936 Companies with federal supply contracts exceeding $10,000 pay prevailing wages Requires 1½ times regular pay rate for hours over 8 per day or 40 per week

© 2008 by Prentice Hall9-7 Fair Labor Standards Act of 1938, as Amended Most significant law affecting compensation Establishes minimum wage Requires overtime pay and record keeping Provides standards for child labor

© 2008 by Prentice Hall9-8 Exempt and Nonexempt Employees Exempt employees - Categorized as executive, administrative, professional employees and outside salespersons Nonexempt employees - Those in jobs not conforming to above definition Most employees who earn less than $23,660 will be considered nonexempt no matter what their duties are

© 2008 by Prentice Hall9-9 Job as Determinant of Direct Financial Compensation Job itself continues to be factor, especially in firms that have internal pay equity as primary consideration Organizations pay for value they attach to certain duties, responsibilities, and other job-related factors such as working conditions

© 2008 by Prentice Hall9-10 Job Analysis and Job Descriptions Before organization can determine relative difficulty or value of jobs, must first define content Done by job analysis/job descriptions

© 2008 by Prentice Hall9-11 Job Evaluation Firm determines relative value of one job in relation to another Ranking Classification Factor comparison Point Hay guide chart-profile method

© 2008 by Prentice Hall9-12 Ranking Method Simplest method Raters examine description of each job Jobs arranged in order according to value

© 2008 by Prentice Hall9-13 Classification Method Define number of classes or grades to describe group of jobs Compare job description with class description Class description that most closely agrees with job description determines job classification

© 2008 by Prentice Hall9-14 Factor Comparison Method Five universal job factors - Mental requirements, skills, physical requirements, responsibilities, and working conditions Raters need not keep entire job in mind as they evaluate; instead, they make decisions on separate aspects or factors of job

© 2008 by Prentice Hall9-15 Point Method Numerical values assigned to specific job components Sum of values gives quantitative assessment of job’s relative worth Job factors selected according to nature of specific group of jobs