2. PAY ADMINISTRATION Presented by: Jo Ann B. Maquilan-Sanchez

3. CONTROL SALARY LEVEL: BOTTOM UP Bottom-up Budgeting – requires managers to forecast the pay increases they will recommend during the upcoming plan year.

4. Process involved in BOTTOM UP Budgeting: 1. Instruct managers in compensation policies and techniques. – train managers in the concepts of a sound pay-for- performance policy and in standard company compensation techniques such as the use of pay increase guidelines and budgeting techniques. Also communicate the salary ranges and market data.

5. Process involved in BOTTOM UP Budgeting: 2. Study pay increase guidelines. – Review with the managers the purpose of increase guidelines and how to use them.

6. Process involved in BOTTOM UP Budgeting: 3. Distribute forecasting instructions and worksheets. – Furnish managers with the forms and instructions necessary to preplan increases.

7. Forecasting worksheets ensure that managers are at least aware of this information and that pay increases for any one period are part of a continuing message to individual employees, not some ad hoc response to short-term changes. ensure that managers are at least aware of this information and that pay increases for any one period are part of a continuing message to individual employees, not some ad hoc response to short-term changes. The result of the forecasting cycle is a budget for the upcoming plan year for each organization’s unit as well as estimated pay treatment for each employee. The budget does not lock in the manager to the exact pay change recommended for each employee. Rather it represents a plan, and deviations due to unforeseen changes such as performance improvements, unanticipated promotions, and the like are common. The result of the forecasting cycle is a budget for the upcoming plan year for each organization’s unit as well as estimated pay treatment for each employee. The budget does not lock in the manager to the exact pay change recommended for each employee. Rather it represents a plan, and deviations due to unforeseen changes such as performance improvements, unanticipated promotions, and the like are common.

8. Forecasting Worksheets This approach to pay budgeting requires managers to plan the pay treatment for each of their employees. It places the responsibility for pay management on the managers. The compensation manager takes on the role of advisor to operating management’s use of the system. This approach to pay budgeting requires managers to plan the pay treatment for each of their employees. It places the responsibility for pay management on the managers. The compensation manager takes on the role of advisor to operating management’s use of the system.

9. Process involved in BOTTOM UP Budgeting: 4. Provide consultation to managers – offer advice and salary information services to managers upon request.

10. Process involved in BOTTOM UP Budgeting: 5. Collect forecasts and verify data submitted – audit the increases forecasted to ensure that they do not exceed the pay guidelines and are consistent with appropriate ranges.

11. Process involved in BOTTOM UP Budgeting: 6. Compile statistical data for reports – prepare statistical data in order to feed back the outcomes of pay forecasts and budgets.

12. Process involved in BOTTOM UP Budgeting: 7. Analyze forecasts – examine each manager’s forecast and recommend changes based on noted inequities among different managers.

13. Process involved in BOTTOM UP Budgeting: 8. Review and revise forecasts and budgets with management – consult with managers regarding the analysis and recommended changes.

14. Process involved in BOTTOM UP Budgeting: 9. Submit final budget for approval – obtain top management approval of forecasts.

15. Process involved in BOTTOM UP Budgeting: 7. Analyze forecasts – examine each manager’s forecast and recommend changes based on noted inequities among different managers.

16. Process involved in BOTTOM UP Budgeting: 10. Conduct feedback with management – present statistical summaries of the forecasting data by department and establish unit goals.

17. Process involved in BOTTOM UP Budgeting: 11. Monitor budgeted versus actual increases – control the forecasted increases versus the actual increases by tracking and reporting periodic status to management.

18. VARIABLE PAY AS A COST CONTROL Variable pay depends on performance and is not “rolled into” employee’s base pay. The essence of variable pay is that it must be reearned each period, in contrast to conventional merit pay increases or across-the-board increases that are added to base pay each year and that increase the base on which the following year’s increase is calculated. Variable pay depends on performance and is not “rolled into” employee’s base pay. The essence of variable pay is that it must be reearned each period, in contrast to conventional merit pay increases or across-the-board increases that are added to base pay each year and that increase the base on which the following year’s increase is calculated. Increases added to the base pay have compounding effects on costs, and these costs are significant. Increases added to the base pay have compounding effects on costs, and these costs are significant.

19. VARIABLE PAY AS A COST CONTROL Conventional increases impact not only the average pay level but also the costs of all benefits contingent on base pay (e.g. pensions). Conventional increases impact not only the average pay level but also the costs of all benefits contingent on base pay (e.g. pensions). The greater the ratio of variable pay to base pay, the more variable (flexible) the organization’s labor costs. The greater the ratio of variable pay to base pay, the more variable (flexible) the organization’s labor costs. The greater the ratio of contingent to core workers and variable to base pay, the greater the variable component of labor costs, and the greater the options available to managers to control these costs. The greater the ratio of contingent to core workers and variable to base pay, the greater the variable component of labor costs, and the greater the options available to managers to control these costs.

20. VARIABLE PAY AS A COST CONTROL Although variability in pay and employment may be an advantage for managing labor costs, it may be less appealing from the standpoint of managing equitable treatment of employees. The inherent financial insecurity built into variable plans may adversely affect employee’s financial well-being and subsequently affect their behaviors at work and attitudes toward their employers. Although variability in pay and employment may be an advantage for managing labor costs, it may be less appealing from the standpoint of managing equitable treatment of employees. The inherent financial insecurity built into variable plans may adversely affect employee’s financial well-being and subsequently affect their behaviors at work and attitudes toward their employers. Managing labor cost is only one objective for managing compensation. Other objectives in the pay model include sustaining competitive advantage (productivity, total quality, customer service, and costs) and equitable treatment of employees. Managing labor cost is only one objective for managing compensation. Other objectives in the pay model include sustaining competitive advantage (productivity, total quality, customer service, and costs) and equitable treatment of employees.

21. INHERENT CONTROLS Two basic processes that served to control pay decision making: Two basic processes that served to control pay decision making: 1. Those inherent in the design of techniques 2. The formal budgeting process

22. Several Pay Techniques that served to control pay: 1. Job analysis and evaluation 2. Skill/competency-based plans 3. Policy lines 4. Range Minimums and Maximums

23. Several Pay Techniques that served to control pay: 1. Range minimums and maximums These ranges set the maximum and minimum dollars to be paid for specific work. These ranges set the maximum and minimum dollars to be paid for specific work. Range Maximum … Range Maximum … Represents the highest value the organization places on the output of the work. Represents the highest value the organization places on the output of the work. Example : All that the work produced in a particular job is worth to organization even if skills and knowledge possessed by the employees maybe more valuable for some in another job (job-based structures) Example : All that the work produced in a particular job is worth to organization even if skills and knowledge possessed by the employees maybe more valuable for some in another job (job-based structures) Reasons why pressures to pay above the range maximum (red circle rates) occur: Reasons why pressures to pay above the range maximum (red circle rates) occur: when employees with high seniority reach the maximum when employees with high seniority reach the maximum when promotion opportunities are scarce when promotion opportunities are scarce Range Minimum … Range Minimum … Represents the minimum value placed on the work (usually used for trainees) Represents the minimum value placed on the work (usually used for trainees) Reasons why range minimum occur: Reasons why range minimum occur: If outstanding employees receive a number of rapid promotions and rate adjustment have not kept up. If outstanding employees receive a number of rapid promotions and rate adjustment have not kept up.

24. Several Pay Techniques that served to control pay: 6. Compa-ratio Range midpoints – a compa-ratio is often calculated. This may be done for individual employees, for each range, for organization units, or for functions. Range midpoints – a compa-ratio is often calculated. This may be done for individual employees, for each range, for organization units, or for functions. Compa-ratio = Average rates actually paid Compa-ratio = Average rates actually paid Range midpoint Range midpoint Interpretation for compa-ratio result: Interpretation for compa-ratio result: Less than 1.00 – on average- employees in that range are paid below the midpoint. Less than 1.00 – on average- employees in that range are paid below the midpoint. managers are paying less than the intended policy (Reasons why this occur: majority of employees may be new or recent hires; they may be poor performers; promotion may be so rapid that few employees stay in the job long enough to get into the high end of the range) managers are paying less than the intended policy (Reasons why this occur: majority of employees may be new or recent hires; they may be poor performers; promotion may be so rapid that few employees stay in the job long enough to get into the high end of the range) Greater than 1.00 – on average – the rates exceed the intended policy Greater than 1.00 – on average – the rates exceed the intended policy (Reasons: majority of workers with high seniority, high performance, low turnover, few new hires, or low promotion rates) (Reasons: majority of workers with high seniority, high performance, low turnover, few new hires, or low promotion rates)

25. Several Pay Techniques that served to control pay: 2. performance evaluation 3. gain-sharing 4. salary increase guidelines These techniques also regulate manager’s pay decisions by guiding what managers do. Controls are imbedded in the design of these techniques to ensure that decisions are directed toward the pay system’s objectives. These techniques also regulate manager’s pay decisions by guiding what managers do. Controls are imbedded in the design of these techniques to ensure that decisions are directed toward the pay system’s objectives.

26. Other examples of controls designed into the pay techniques: 1. Mutual sign-offs on job descriptions required of supervisors and subordinates 2. Slotting new jobs into the pay structure via job evaluation which help ensure that jobs are compared on the same factors. 3. Organization-wide performance management system intended to ensure that all employees are evaluated on similar factors. 4. Analyzing costs Costing out wage proposals is commonly done prior to recommending pay increases. Costing out wage proposals is commonly done prior to recommending pay increases. Also used in preparation for collective bargaining Also used in preparation for collective bargaining

27. Other examples of controls designed into the pay techniques: 5. Using Computers can analyze almost every aspect of compensation information can analyze almost every aspect of compensation information can provide analysis and data that will improve the administration of the pay system (easily compare past estimates to what actually occurred, e.g. the percentage of employees that actually did receive a merit increase and the amount)- Spreadsheet programs can simulate alternate wage proposals and compare their potential effects. can provide analysis and data that will improve the administration of the pay system (easily compare past estimates to what actually occurred, e.g. the percentage of employees that actually did receive a merit increase and the amount)- Spreadsheet programs can simulate alternate wage proposals and compare their potential effects. Have wider applications to compensation administration besides costing. (e.g. computerized job analysis and job evaluation) Have wider applications to compensation administration besides costing. (e.g. computerized job analysis and job evaluation) Can also evaluate salary survey data and simulate the cost impact of incentive and gain-sharing options. Can also evaluate salary survey data and simulate the cost impact of incentive and gain-sharing options.

28. COMMUNICATION or Marketing? Employees’ perceptions about the pay system are shaped through the treatment they receive from managers about the formal communication programs about their pay and performance, and participation in the design of the system. Employees’ perceptions about the pay system are shaped through the treatment they receive from managers about the formal communication programs about their pay and performance, and participation in the design of the system.

29. COMMUNICATION or Marketing? Salaries of the top executives in publicly held corporations are published in prospectuses and often in annual financial reports. Salaries of the top executives in publicly held corporations are published in prospectuses and often in annual financial reports. Most employees are not told what their coworkers are being paid. Most employees are not told what their coworkers are being paid. The literature on compensation management usually exhorts employers to communicate pay information; however, there is no standard approach on what to communicate to individuals about their own pay or that of their colleagues. The literature on compensation management usually exhorts employers to communicate pay information; however, there is no standard approach on what to communicate to individuals about their own pay or that of their colleagues.

30. Marketing Approach (like selling products to costumers, the pay system is a product, and employees and managers are the customers). (like selling products to costumers, the pay system is a product, and employees and managers are the customers). Include consumer attitude surveys about the product, snappy advertising about the pay policies, and elaborate videotapes expounding policies and strengths. Include consumer attitude surveys about the product, snappy advertising about the pay policies, and elaborate videotapes expounding policies and strengths. Aims to directly manage expectations and attitudes about pay. Aims to directly manage expectations and attitudes about pay.

31. Contrast between Marketing Approach and Communication Approach Marketing Approach Communication Approach Focuses on the quality and advantages of overall policies and is silent on specifics suchas range, maximums, increase guides, and the like. tends to provide technical details

32. Reasons for communicating pay information: 1. Pay delivers a strong message – considerable resources have been devoted to designing a system that is intended to motivate effective performance and encourage productivity. Pay system influence work behaviors and attitudes, managers and employees. 2. Employees seem to misperceive the pay system. (they tend to overestimate the pay of those with lower level jobs and to underestimate the pay of those in higher level jobs. They tend to think that the pay structure is more compressed than it actually is. “if differentials are underestimated, their motivational value is diminished.”

33. Communication There is some evidence to suggest that the goodwill engendered by the act of being open about pay may also affect employees’ attitudes toward pay. There is some evidence to suggest that the goodwill engendered by the act of being open about pay may also affect employees’ attitudes toward pay. Employees in companies with open pay communication policies are as inaccurate in estimating pay differentials as those in companies in which pay secrecy prevails. However, they tend to express higher satisfaction with their pay and their pay system. Employees in companies with open pay communication policies are as inaccurate in estimating pay differentials as those in companies in which pay secrecy prevails. However, they tend to express higher satisfaction with their pay and their pay system.

34. Intended and Unintended Consequences in Pay Communication: 1. If the pay system is not based on work-related or business-related logic, then the wisest course is probably to avoid formal communication until the system is put in order. But avoiding this is not synonymous with avoiding communication. 2. Achieving a fair and equitable pay system requires active involvement and feedback from managers and employees. An open policy helps ensure that employees understand how their pay is determined. 3. Providing accurate pay information may cause some initial short-term concerns among employees. Employees probably have rationalized a set of relationships between their pay and the perceived pay and efforts of others. Receiving accurate data may require those perceptions to be adjusted.

35. IMPORTANT ISSUES RELATED TO STRUCTURING THE COMPENSATION FUNCTION 1. Centralization and Decentralization Decentralization – refers to a management strategy of giving separate organization units the responsibility to design and administer their own systems. Decentralization – refers to a management strategy of giving separate organization units the responsibility to design and administer their own systems. Examples: TRW and GE, have small corporate compensation staffs (3 or 4 professionals). Their primary responsibility is to manage the systems by which executives and the corporate staff are paid. These professionals operate in a purely advisory capacity to other organization subunits. The subunits in turn, may employ compensation specialists. Or they may choose to employ only personnel generalists rather than compensation specialists, and may turn to outside compensation consultants to purchase the expertise required on specific compensation issues. Examples: TRW and GE, have small corporate compensation staffs (3 or 4 professionals). Their primary responsibility is to manage the systems by which executives and the corporate staff are paid. These professionals operate in a purely advisory capacity to other organization subunits. The subunits in turn, may employ compensation specialists. Or they may choose to employ only personnel generalists rather than compensation specialists, and may turn to outside compensation consultants to purchase the expertise required on specific compensation issues. Centralization- locates the design and administration responsibility in a single corporate unit. Centralization- locates the design and administration responsibility in a single corporate unit. Examples: AT &T and Pacific Gas Electric, has large corporate staffs whose responsibility is to formulate pay policies and design the systems. Administration of these policies and systems falls to those working in various units, who often are personnel generalists. Such an arrangement runs the risk of formulating policies and practices that are well tuned to overall corporate needs but less well tuned to each unit;s particular needs and circumstances. Examples: AT &T and Pacific Gas Electric, has large corporate staffs whose responsibility is to formulate pay policies and design the systems. Administration of these policies and systems falls to those working in various units, who often are personnel generalists. Such an arrangement runs the risk of formulating policies and practices that are well tuned to overall corporate needs but less well tuned to each unit;s particular needs and circumstances.

36. IMPORTANT ISSUES RELATED TO STRUCTURING THE COMPENSATION FUNCTION 2. Flexibility within Corporate-wide Principles This will answer all the issues in decentralization by developing corporatewide principles or guidelines that all must meet. This will answer all the issues in decentralization by developing corporatewide principles or guidelines that all must meet. 3. Reengineering and Outsourcing Reengineering the compensation function involves changing the process of paying people. It means reshaping the compensation function to make it more client or customer focused. Reengineering the compensation function involves changing the process of paying people. It means reshaping the compensation function to make it more client or customer focused. The basic question asked during reengineering is, “Does each specific activity (technique) directly contribute to our objectives (to our competitive advantage)?” The basic question asked during reengineering is, “Does each specific activity (technique) directly contribute to our objectives (to our competitive advantage)?” The next question is “Should we be doing the specific activity in- house, or can others do it more effectively, that is, should we outsource it?” The next question is “Should we be doing the specific activity in- house, or can others do it more effectively, that is, should we outsource it?” Outsourcing is a viable alternative in the compensation (and benefits) field as organizations struggle to cease doing activities that do not directly contribute to objectives. Employee benefits are a major candidate for outsourcing. Outsourcing is a viable alternative in the compensation (and benefits) field as organizations struggle to cease doing activities that do not directly contribute to objectives. Employee benefits are a major candidate for outsourcing. Cost saving is the apparent major short-term advantage of outsourcing. Cost saving is the apparent major short-term advantage of outsourcing. Disadvantages of outsourcing includes: less responsiveness to unique and specific employee-manager problems, less control over decisions that are often critical to all employees (their pay), and information leaks to rivals and competitors. Disadvantages of outsourcing includes: less responsiveness to unique and specific employee-manager problems, less control over decisions that are often critical to all employees (their pay), and information leaks to rivals and competitors.

37. SUMMARY 1. Administration includes control: control of the way managers decide individual employee’s pay as well as control of overall costs of labor. 2. Some controls are designed into fabric of the system (inherent controls, range maximums and minimums, and etc.) 3. The salary budgeting and forecasting processes impose additional controls. 4. The formal budgeting processes focuses on controlling labor costs and generating the financial plan for the system. 5. The budget sets the limits within which the rest of the system operates. 6. Pay systems are tools, and like any tools, they need to be evaluated in terms of usefulness in achieving an organization’s objectives.

38. THANK YOU FOR LISTENING! _____________________ Have a Blessed Day! ____________ END OF REPORT