Human Resources Management 12e Gary Dessler

Human Resources Management 12e Gary Dessler
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

LEARNING OUTCOMES List the basic factors determining pay rates. Define and give an example of how to conduct a job evaluation. Explain in detail how to establish pay rates. Explain how to price managerial and professional jobs. Explain the difference between competency-based and traditional pay plans. Explain the importance today of broadbanding, comparable worth, and board oversight of executive pay. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Basic Factors in Determining Pay Rates
Human Resources Management 12e Gary Dessler Basic Factors in Determining Pay Rates Direct financial payments Indirect financial payments Employee Compensation Components Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Legal Considerations in Compensation
Human Resources Management 12e Gary Dessler Legal Considerations in Compensation Davis-Bacon Act (1931) Equal Pay Act (1963) Walsh-Healey Public Contract Act (1936) Employee Retirement Income Security Act Employee Compensation Title VII of the Civil Rights Act Age Discrimination in Employment Act Fair Labor Standards Act (1938) Americans with Disabilities Act This slide lists several legal factors that determine the design of any pay plan. The Family and Medical Leave Act The Social Security Act of 1935 (as amended) National Labor Relations Act of 1935 (Wagner Act) Workers’ Compensation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–2 Some Typical Exempt, Nonexempt Job Titles EXEMPT Attorneys Physicians Pharmacists Engineers Teachers Scientists Computer systems analysts General managers Personnel directors Accountants Purchasing agents NONEXEMPT Paralegals Accounting clerks Newspaper writers Working supervisor Management trainees Secretaries Clerical employees Specific categories of employees are exempt from the FLSA or certain provisions of the act, and particularly from the act’s overtime provisions—they are “exempt employees.” A person’s exemption depends on his or her responsibilities, duties, and salary. Figure 11-2 lists some examples of typically exempt and nonexempt jobs. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Corporate Policies, Competitive Strategy, and Compensation
Human Resources Management 12e Gary Dessler Corporate Policies, Competitive Strategy, and Compensation Aligned Reward Strategy The employer’s basic task: To create a bundle of rewards—a total reward package—that specifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy. The HR or compensation manager along with top management creates pay policies that are consistent with the firm’s strategic aims. The compensation plan should advance the firm’s strategic aims—management should produce an aligned reward strategy. This means creating a bundle of rewards—a total reward package including wages, incentives, and benefits—that aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–1 Developing an Aligned Reward Strategy Questions to Ask: What must our company do, (for instance in terms of improving customer service), to be successful in fulfilling its mission or achieving its desired competitive position? What are the employee behaviors or actions necessary to successfully implement this competitive strategy? What compensation programs should we use to reinforce those behaviors? What should be the purpose of each program in reinforcing each desired behavior? What measurable requirements should each compensation program meet to be deemed successful in fulfilling its purpose? How well do our current compensation programs match these requirements? Table 11-1 lists the sorts of questions to ask when developing an aligned reward strategy. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensation Policy Issues
Human Resources Management 12e Gary Dessler Compensation Policy Issues Pay for performance Pay for seniority The pay cycle Salary increases and promotions Overtime and shift pay Probationary pay Paid and unpaid leaves Paid holidays Salary compression Geographic costs of living differences Managers need to formulate pay policies covering a range of issues. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Equity and Its Impact on Pay Rates
Human Resources Management 12e Gary Dessler Equity and Its Impact on Pay Rates External equity Procedural equity Internal equity Individual equity Forms of Compensation Equity With respect to compensation, managers should address four forms of equity: external, internal, individual, and procedural. External equity refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies. Internal equity refers to how fair the job’s pay rate is when compared to other jobs within the same company (for instance, is the sales manager’s pay fair, when compared to what the production manager is earning?). Individual equity refers to the fairness of an individual’s pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individual’s performance. Procedural equity refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Addressing Equity Issues
Human Resources Management 12e Gary Dessler Addressing Equity Issues Area wage and salary surveys Job analysis and job evaluation Performance appraisal and incentive pay Communications, grievance mechanisms, and employees’ participation Methods to Address Equity Issues Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees’ participation in developing the company’s pay plan to help ensure that employees view the pay process as transparent and procedurally fair. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Establishing Pay Rates
Human Resources Management 12e Gary Dessler Establishing Pay Rates Steps in Establishing Pay Rates 1 2 Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). 3 4 Determine the worth of each job in your organization through job evaluation (to ensure internal equity). 5 Group similar jobs into pay grades. The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps. Price each pay grade by using wave curves. Fine-tune pay rates. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step1: The Salary Survey
Human Resources Management 12e Gary Dessler Step1: The Salary Survey To price benchmark jobs To make decisions about benefits Uses for Salary Surveys To market-price wages for jobs It’s difficult to set pay rates if you don’t know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Sources for Salary Surveys
Human Resources Management 12e Gary Dessler Sources for Salary Surveys Self-Conducted Surveys Government Agencies Consulting Firms Sources of Wage and Salary Information Professional Associations The Internet Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–2 Some Pay Data Web Sites Sponsor Internet Address What It Provides Downside Salary.com Salary by job and zip code, plus job and description, for hundreds of jobs Adapts national averages by applying local cost-of-living differences Wageweb Average salaries for more than 150 clerical, professional, and managerial jobs Charges for breakdowns by industry, location, etc. U.S. Office of Personnel Management 09Tables/index.asp Salaries and wages for U.S. government jobs, by location Limited to U.S. government jobs Job Smart salary/sal-prof.php Profession-specific salary surveys Necessary to review numerous salary surveys for each profession cnnmoney.com Input your current salary and city, and this gives you comparable salary in destination city Based on national averages adapted to cost-of-living differences Table 11-2 shows some popular salary survey Web sites. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 2: Job Evaluation Skills Effort Responsibility Identifying Compensable Factors Working conditions Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization. Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Job Evaluation Process
Human Resources Management 12e Gary Dessler The Job Evaluation Process Preparing for the Job Evaluation 1 2 Identifying the need for the job evaluation 3 Getting the cooperation of employees 4 Choosing an evaluation committee Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation. Performing the actual evaluation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

How to Evaluate Jobs Ranking Job classification Point method Methods for Evaluating Jobs Factor comparison Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Methods: Ranking
Human Resources Management 12e Gary Dessler Job Evaluation Methods: Ranking Ranking each job relative to all other jobs, usually based on some overall factor. Steps in job ranking: Obtain job information. Select and group jobs. Select compensable factors. Rank jobs. Combine ratings. The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–3 Job Ranking by Olympia Health Care Ranking Order Annual Pay Scale 1. Office manager $43,000 2. Chief nurse 42,500 3. Bookkeeper 34,000 4. Nurse 32,500 5. Cook 31,000 6. Nurse’s aide 28,500 7. Orderly 25,500 Table 11-3 illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Methods: Job Classification
Human Resources Management 12e Gary Dessler Job Evaluation Methods: Job Classification Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes. Classes contain similar jobs. Administrative assistants Grades are jobs similar in difficulty but otherwise different. Mechanics, welders, electricians, and machinists Jobs are classed by the amount or level of compensable factors they contain. Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–4 Example of a Grade Level Definition This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart. Based on certain compensable factors, raters write a grade definition like that in Figure This one shows one grade description (GS-7) for the federal government’s pay grade system. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Methods: Point Method
Human Resources Management 12e Gary Dessler Job Evaluation Methods: Point Method A quantitative technique that involves: Identifying the degree to which each compensable factor is present in the job. Awarding points for each degree of each factor. Calculating a total point value for the job by adding up the corresponding points for each factor. The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 3: Grouping Jobs Point Method Ranking Method Classification Methods Grouping Similar Jobs into Pay Grades Once the committee has used job evaluation to determine the relative worth of each job, it can turn to the task of assigning pay rates to each job; however, it will usually want to first group jobs into pay grades using one of these three methods. A pay grade is comprised of jobs of approximately equal in difficulty or importance as established by job evaluation. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 4: Price Each Pay Grade
Human Resources Management 12e Gary Dessler Step 4: Price Each Pay Grade The Wage Curve Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades. The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–5 Plotting a Wage Curve The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs. Figure 11-5 presents an example. Note that it shows pay rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis. The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job. Current pay rates falling above the rate range are “red circle,” “flagged,” or “overrates” which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 5: Fine-Tune Pay Rates
Human Resources Management 12e Gary Dessler Step 5: Fine-Tune Pay Rates Developing Pay Ranges Flexibility in meeting external job market rates Easier for employees to move into higher pay grades Allows for rewarding performance differences and seniority Correcting Out-of-Line Rates Raising underpaid jobs to the minimum of the rate range for their pay grade Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay grade Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–6 Wage Structure Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–4 Federal Government Pay Scales Table 11-4 shows the pay rates and steps for some federal government grades. As of the time of this pay schedule, for instance, employees in positions classified in grade GS-10 could be paid annual salaries between $45,095 and $58,622, depending on the level or step at which they were hired into the grade, the amount of time they were in the grade, and their merit increases (if any). Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

HR in Practice: Developing a Workable Pay Plan
Human Resources Management 12e Gary Dessler HR in Practice: Developing a Workable Pay Plan Simplified Approach: Conduct a wage survey Conduct a job evaluation Conduct once-a-year job appraisals Compile the compensation budget for upcoming year Developing a pay plan is as important in a small firm as a large one. Paying overly high wages may be unnecessarily expensive, and paying less may guarantee inferior help and high turnover. Furthermore, internally inequitable wage rates will reduce morale and cause employees to demand equity raises. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–7 Compensation Administration Checklist A good compensation administration program is comprehensive and flexible and ensures optimum performance from employees at all levels. The checklist in Figure 11-7 may be used to evaluate a company’s program. The more questions answered “yes,” the more thorough has been the planning for compensation administration. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pricing Managerial and Professional Jobs
Human Resources Management 12e Gary Dessler Pricing Managerial and Professional Jobs Base pay Executive benefits/perks Short-term incentives Long-term incentives Compensating Executives and Managers Compensation for a company’s top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or “perks.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pricing Managerial and Professional Jobs
Human Resources Management 12e Gary Dessler Pricing Managerial and Professional Jobs What Determines Executive Pay? CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in the short and long term. CEOs can have considerable influence over the boards that determine their pay. Firms pay CEOs based on the complexity of the jobs they fill. Shareholder activism and government oversight have tightened the restrictions on what companies pay top executives. Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay. For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employer’s ability to pay (total profit and rate of return), and the executive’s human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensating Professional Employees
Human Resources Management 12e Gary Dessler Compensating Professional Employees Employers can use job evaluation for professional jobs. Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification is most popular. Professional jobs are market-priced to establish the values for benchmark jobs. Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another question—how is “performance” to be defined and measured? Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-Based Pay Competencies Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance What is Competency-Based Pay? Paying for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds Competency-based pay means the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competency-, knowledge-, or skill-based pay. Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Why Use Competency-Based Pay?
Human Resources Management 12e Gary Dessler Why Use Competency-Based Pay? High-Performance Work Systems Strategic Aims Competency-Based Pay Supports Performance Management Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. Paying for competencies encourages employees to develop the competencies the companies require to achieve their strategic aims. Paying for measurable and influence-able competencies provides a focus for the employer’s performance management process. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-Based Pay in Practice
Human Resources Management 12e Gary Dessler Competency-Based Pay in Practice Main elements of skill/competency/knowledge–based pay programs: A system that defines specific skills A process for tying the person’s pay to his or her skill A training system that lets employees seek and acquire skills A formal competency testing system A work design that lets employees move among jobs to permit work assignment flexibility In practice, any skill/competency/knowledge-based pay program generally contains these five main elements. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-Based Pay: Pros and Cons
Human Resources Management 12e Gary Dessler Competency-Based Pay: Pros and Cons Pros Higher quality Lower absenteeism Fewer accidents Cons Pay program implementation problems Costs of paying for unused knowledge, skills, and behaviors Complexity of program Uncertainty that the program improves productivity Competency-based pay has adherents and its detractors. Competency-based pay increases compensation costs in paying employees for unused or outdated knowledge, skills and behaviors. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Special Topics in Compensation
Human Resources Management 12e Gary Dessler Special Topics in Compensation Broadbanding Consolidating salary grades and ranges into a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. Pros and Cons More flexibility in assigning workers to different job grades Provides support for flatter hierarchies and teams Promotes skills learning and mobility Lack of permanence in job responsibilities can be unsettling to new employees. Broadbanding means collapsing salary grades into a few wide levels or bands, each of which contains a relatively wide range of jobs and pay levels. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–8 Broadbanded Structure and How It Relates to Traditional Pay Grades and Ranges Figure 11-8 illustrates how a company’s previous six pay grades are now consolidated into two broad grades or “broadbands.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Comparable Worth Concept: Employers should be required to pay men and women equal wages for dissimilar jobs that are of comparable (rather than strictly equal) value to the employer. Basis: Seeks to address the issue that women have jobs that are dissimilar to those of men and those jobs are often consistently valued less than men’s jobs. Question at Hand: Who will get to make final decisions on the comparability of jobs? Employers Courts Comparable worth refers to the requirement to pay men and women equal wages for jobs that are of comparable (rather than strictly equal) value to the employer. Women tend to predominate in lower-paid (lesser-valued) jobs. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Pay Gap Factors Lowering the Earnings of Women: Women’s starting salaries are traditionally lower. Salary increases for women in professional jobs do not reflect their above-average performance. In white-collar jobs, men change jobs more frequently, enabling them to be promoted to higher-level jobs over women with more seniority. In blue-collar jobs, women tend to be placed in departments with lower-paying jobs. Women in the United States earn only about 77% as much as men, although the gap is narrowing a bit. These factors may help explain the lower earning for females. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Board Oversight of Executive Pay
Human Resources Management 12e Gary Dessler Board Oversight of Executive Pay Factors Influencing Executive Compensation FASB requirements for expensing of stock options at fair market value. U.S. government’s “pay czar” overseeing certain pay awards in firms which had U.S. treasury loans. Increased SEC reporting requirements for compensation-related information. Increased executive liability for accuracy in corporate financial reporting under the Sarbanes Oxley Act. Shareholder activism protesting excessive executive compensation due to lack of independence by executive board compensation committees. There are various reasons why boards are clamping down on executive pay. The economic downturn that began around 2008 exposed the enormous disconnect between what many executives were earning and their performance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Improving Productivity Through HRIS: Automating Compensation Administration Benefits of Compensation Automation: Allows for quick updating of compensation programs Eliminates costs of formerly manual processes Coordinates centralized compensation budgets to prevent overages in compensation and raises Can integrate and automatically administer other pay actions Today, companies use server-based intranet compensation planning programs to keep track of who can spend what, and who is spending what. This Web-based method has many advantages. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

K E Y T E R M S employee compensation direct financial payments indirect financial payments Davis-Bacon Act (1931) Walsh-Healey Public Contract Act (1936) Title VII of the 1964 Civil Rights Act Fair Labor Standards Act (1938) Equal Pay Act (1963) Employee Retirement Income Security Act (ERISA) salary compression salary survey benchmark job job evaluation compensable factor ranking method job classification (or grading) method classes grades grade definition point method factor comparison method pay grade wage curve pay ranges competency-based pay competencies broadbanding comparable worth Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Quantitative Job Evaluation Methods
Human Resources Management 12e Gary Dessler Quantitative Job Evaluation Methods Factor Comparison Job Evaluation Method Step 1. Obtain job information Step 2. Select key benchmark jobs Step 3. Rank key jobs by factor Step 4. Distribute wage rates by factor Step 5. Rank key jobs according to wages assigned to each factor Step 6. Compare the two sets of rankings to screen out unusable key jobs Step 7. Construct the job-comparison scale Step 8. Use the job-comparison scale The factor comparison technique is a quantitative job evaluation method. It has many variations and appears to be the most accurate, the most complex, and one of the most widely used job evaluation methods. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–A1 Sample Definitions of Five Factors Typically Used in the Factor Comparison Method 1. Mental Requirements Either the possession of and/or the active application of the following: A. (inherent) Mental traits, such as intelligence, memory, reasoning, facility in verbal expression, ability to get along with people, and imagination. B. (acquired) General education, such as grammar and arithmetic; or general information as to sports, world events, etc. C. (acquired) Specialized knowledge, such as chemistry, engineering, accounting, advertising, etc. 2. Skill Requirements A. (acquired) Facility in muscular coordination, as in operating machines, repetitive movements, careful coordinations, dexterity, assembling, sorting, etc. B. (acquired) Specific job knowledge necessary to the muscular coordination only; acquired by performance of the work and not to be confused with general education or specialized knowledge. It is very largely training in the interpretation of sensory impressions. Examples 1. In operating an adding machine, the knowledge of which key to depress for a subtotal would be skill. 2. In automobile repair, the ability to determine the significance of a knock in the motor would be skill. 3. In hand-firing a boiler, the ability to determine from the appearance of the firebed how coal should be shoveled over the surface would be skill. 3. Physical Requirements A. Physical effort, such as sitting, standing, walking, climbing, pulling, lifting, etc.; both the amount exercised and the degree of the continuity should be taken into account. B. Physical status, such as age, height, weight, sex, strength, and eyesight. For the factor comparison method, these compensable factors are usually (1) mental requirements, (2) skill requirements, (3) physical requirements, (4) responsibility, and (5) working conditions. Typical definitions of each of these five factors are presented in Figure 11-A1. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–A1 Sample Definitions of Five Factors Typically Used in the Factor Comparison Method (cont’d) 4. Responsibilities A. For raw materials, processed materials, tools, equipment, and property. B. For money or negotiable securities. C. For profits or loss, savings or methods’ improvement. D. For public contact. E. For records. F. For supervision. 1. Primarily the complexity of supervision given to subordinates; the number of subordinates is a secondary feature. Planning, direction, coordination, instruction, control, and approval characterize this kind of supervision. 2. Also, the degree of supervision received. If Jobs A and B gave no supervision to subordinates, but A received much closer immediate supervision than B, then B would be entitled to a higher rating than A in the supervision factor. To summarize the four degrees of supervision: Highest degree—gives much—gets little High degree—gives much—gets much Low degree—gives none—gets little Lowest degree—gives none—gets much 5. Working Conditions A. Environmental influences such as atmosphere, ventilation, illumination, noise, congestion, fellow workers, etc. B. Hazards—from the work or its surroundings C. Hours For the factor comparison method, these compensable factors are usually (1) mental requirements, (2) skill requirements, (3) physical requirements, (4) responsibility, and (5) working conditions. Typical definitions of each of these five factors are presented in Figure 11-A1. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–A1 Ranking Key Jobs by Factors1 Mental Requirements Physical Skill Responsibility Working Conditions Welder 1 4 2 Crane operator 3 Punch press operator Security guard 11 is high, 4 is low. Table 11-A1 shows the tabled results of the process in which evaluators are asked to rank the key jobs on each of the five factors (mental requirements, physical requirements, skill requirements, responsibility, and working conditions). This ranking procedure is based on job descriptions and job specifications. Each committee member usually makes this ranking individually, and then a meeting is held to develop a consensus on each job. This table shows how each key job ranks on each of the five compensable factors. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–A2 Ranking Key Jobs by Wage Rates1 Hourly Wage Requirements Working Conditions Mental Physical Skill Responsibility Welder $9.80 4.00 (1) 0.40 (4) 3.00 (1) 2.00 (1) 0.40 (2) Crane operator $5.60 1.40 (3) 1.80 (3) 0.20 (4) Punch press operator $6.00 1.60 (2) 1.30 (3) 2.00 (2) 0.80 (2) 0.30 (3) Security guard $4.00 1.20 (4) 1.40 (2) 0.40 (3) 0.60 (1) 11 is high, 4 is low. Table 11-A2 shows the rank for each job, factor by factor, but the ranking is based on the wages assigned to each factor. For example, for the “mental requirements” factor, the welder job ranks first, whereas the security guard job ranks last. Each member of the committee first makes this distribution working independently. Then the committee meets and arrives at a consensus concerning the money to be assigned to each factor for each key job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–A3 Comparison of Factor and Wage Rankings Mental Requirements Physical Skill Responsibility Working Conditions A1 $2 Welder 1 4 2 Crane operator 3 Punch press operator Security guard 1Amount of each factor based on step 3. You now have two sets of rankings for each key job. One was your original ranking (from step 3). This shows how each job ranks on each of the five compensable factors. The second ranking reflects for each job the wages assigned to each factor. You can now draw up a table like the one in Table 11-A3. 2Ratings based on distribution of wages to each factor from step 5. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–A4 Job (Factor)-Comparison Scale Value Mental Requirements Physical Requirements Skill Requirements Responsibility Working Conditions 0.20 Crane Operator 0.30 Punch Press Operator 0.40 Welder Sec. Guard 0.60 0.80 1.00 (Plater) 1.20 1.30 1.40 (Inspector) 1.50 1.60 1.70 1.80 2.00 2.20 2.40 3.00 4.00 Once you’ve identified the usable, true key jobs, the next step is to set up the job-comparison scale (Table 11-A4). (Note that there’s a separate column for each of the five comparable factors.) To develop it, you’ll need the assigned wage tables from steps 4 and 5. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Point Method of Job Evaluation
Human Resources Management 12e Gary Dessler The Point Method of Job Evaluation Step 1. Determine clusters of jobs to be evaluated Step 2. Collect job information Step 3. Select compensable factors Step 4. Define compensable factors Step 5. Define factor degrees Step 6. Determine relative values of factors The point method requires identifying several compensable factors (like skills and responsibility), each with several degrees, and also the degree to which each of these factors is present in the job. A different number of points are usually assigned for each degree of each factor. So once you determine the degree to which each factor is present in the job, you need only add up the corresponding number of points for each factor and arrive at an overall point value for the job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 11–A2 Example of One Factor (Complexity/Problem Solving) in a Point Factor System Level Point Value Description of Characteristics and Measures Seldom confronts problems not covered by job routine or organizational policy; analysis of data is negligible. Benchmark: Telephone operator/ receptionist. 1 40 Follows clearly prescribed standard practice and demonstrates straightforward application of readily understood rules and procedures. Analyzes noncomplicated data by established routine. Benchmark: Statistical clerk, billing clerk. 2 80 Frequently confronts problems not covered by job routine. Independent judgment exercised in making minor decisions where alternatives are limited and standard policies established. Analysis of standardized data for information of or use by others. Benchmark: Social worker, executive secretary. 3 120 Exercises independent judgment in making decisions involving nonroutine problems with general guidance only from higher supervision. Analyzes and evaluates data pertaining to nonroutine problems for solution in conjunction with others. Benchmark: Nurse, accountant, team leader. 4 160 Uses independent judgment in making decisions that are subject to review in the final stages only. Analyzes and solves nonroutine problems involving evaluation of a wide variety of data as a regular part of job duties. Makes decisions involving procedures. Benchmark: Associate director, business manager, park services director. 5 200 Uses independent judgment in making decisions that are not subject to review. Regularly exercises developmental or creative abilities in policy development. Benchmark: Executive director. Definitions for each degree for the compensable factor “complexity” are shown in Figure 11-A2. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

TABLE 11–A5 Evaluation Points Assigned to Factors and Degrees First-Degree Points Second-Degree Third-Degree Fourth-Degree Fifth-Degree Decision making 41 82 123 164 204 Problem solving 35 70 105 140 174 Knowledge 24 48 72 96 Once the point manual is complete, the actual evaluations can begin. Raters (usually the committee) use the manual to evaluate jobs. Each job based on its job description and job specification is evaluated factor by factor to determine the number of points that should be assigned to it. First, committee members determine the degree (first degree, second degree, and so on) to which each factor is present in the job. Table 11-A5 shows corresponding points (as shown in) that were previously assigned to each of these degrees. Finally, they add up the points for all factors, arriving at a total point value for the job. Raters generally start with rating key jobs and obtain consensus on these. Then they rate the rest of the jobs in the cluster. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler

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