1. Pay, Compensation and Benefits
Tehzeeb Sakina Amir
HRM-session 8
Spring 2011-MBA

2. Main contents Pay – basic factors & equity Establishing Pay rates
Pricing managerial & executive jobs
Competency based pay
Pay for performance

3. Compensation
All forms of pay/rewards going to employees and arising from their employment
Direct financial payments – salary, bonus, incentives etc
Indirect financial payments – insurance, health
Legal considerations in compensation
Minimum pay/wage
Maximum hours, safety, working conditions etc

4. Pay – equity
Equity theory of motivation – balance between input and rewards
External equity – different companies
Internal equity – fairness of job pay rate as compare to other jobs within the same company
Individual equity - fairness of an individual pay as compare to his coworkers
Procedural equity – fairness in procedures
Salary Compression – a salary inequity problem generally caused by inflation, resulting in longer-term employees in a position earning less than workers entering the firm again

5. Pay – equity How equity issues are handled:
Salary surveys to maintain external equity
Use job analysis and job evaluation to maintain internal equity
Performance appraisal & incentive pay to maintain individual equity
Use communication, grievance handling mechanisms, employee participation to maintain procedural equity
Salary compressions can be handled by:
Having more aggressive merit pay plans
Supervisors has authority to recommend ‘equity’ adjustments

6. Establishing Pay rates
Establishing pay rates while ensuring equity – five steps
The Salary Survey
Benchmark jobs – a job that is used to anchor the employer’s pay scale and around which other jobs are arranged in order of relative worth.
Formal & informal salary surveys
Archived data on salary
Using internet to do surveys

7. Establishing Pay rates
Job Evaluation – to determine worth of one job relative to another, jobs are compared through:
Intuitive approach
Compensable factor – like skills, efforts, responsibility, working conditions

8. Establishing Pay rates
Preparing Job Evaluation requires close cooperation among supervisors, HR, employees and union reps. Working closely, they:
Identify the need for job evaluation (work stoppages, high turnover)
Getting employees to cooperate
Make a job evaluation committee
Selection of best evaluation method

9. Establishing Pay rates
Methods of job evaluation:
Ranking – ranking each job relative to all other jobs, usually based on overall difficulty
Obtain job information through job analysis or job description
Select and group jobs (by departments or in clusters)
Select compensable factors – use one factor while ranking
Rank jobs
Combine ratings of multiple raters

10. Establishing Pay rates
Methods of job evaluation:
Job classification – categorizing jobs into groups
Classes – similar jobs
Grades – similar in difficulty otherwise jobs are different in nature
Grade Definition – written descriptions f the level of say responsibility & knowledge required by jobs in each grade.

11. Establishing Pay rates
Methods of job evaluation:
Point Method – in which number of compensable factors are identified and then the degree to which each of these factors is present on the job is determined.
Factor Comparison - ranking jobs according to variety of skills & difficulty factors, then adding up these rankings to arrive at an overall numerical rating for each given job.

12. Establishing Pay rates
Group similar jobs into pay grades
PAY GRADE – is comprised of jobs of approximately equal difficulty or importance as established by Job Evaluation
Price Each Pay Grad
WAGE CURVES – shows the relationship between value of the job and the average wage paid for this job.
Fine-tune Pay Rates
PAY RANGES – a series of steps or levels within a pay grade, usually based on years of service

13. Pricing Managerial, Professional & Executives
Harder to quantify factors – problems solving, judgments, etc
It consists of four elements:
Base pay - fixed
Short term incentives – on short term goal achievements
Long term incentives - stocks
Executive benefits & perks – insurance, health, retirement pension plan with out deductions
Compensating managerial & professional employees

14. Competency-based Pay
Where the organization pays for the employee’s range, depth & types of skills & knowledge, rather than for the job title he holds
It uses one or both:
Pay for knowledge
Skill-based Pay
Employees build job competencies + pay is more person oriented than job oriented

15. Competency-based Pay It contains four main elements:
A system for defining specific skills & a process for tying the person’s pay to his skill level
A training system that lets employees seek & acquire skills
A formal competency testing system
A work design that lets employees move among jobs to permit work assignment flexibility

16. Reasons for Competency based pay
Good part:
Support High Performance Work Systems
Support strategic aims
Support performance management
Bad part:
Implementation problems
High cost specially when skills are not used

17. Compensation trends Traditional Changing trends Focus on seniority
Emphasis on job duties
Narrowly defined pay ranges & jobs
Changing trends
Focus on contribution, performance & value
Emphasis on person’s skills
Focus on organization overall strategy
Broader jobs & Pay ranges

18. Important Trends Broad-banding Comparable Worth
Broad Oversight of Executive Pay
Automating Compensation Administration

19. Broad-banding
Consolidating salary grades and ranges into just a few wide levels or bands each of which contains a relatively wide range of jobs and salary levels.
Pros & Cons
Greater flexibility, useful where flat hierarchical structures exist
Unsettling for new employees

20. Comparable Worth
The concept by which women who are usually paid less than men can claim than men in comparable rather than strictly equal jobs are paid more.
Women starting salary are traditionally low
Women receives low raises as compare to men
Women switch jobs not as frequently as men

21. Trends Broad Oversight of Executive Pay
Board of directors and lawyers
Automating Compensation Administration
Quick to update
Eliminate costs of manual processing
Easy to keep a check
Automated administered pay actions

22. Pay for Performance

23. Motivation & Money
Fredrick Taylor popularized financial incentives – financial rewards paid to employees whose performance exceeds some predetermined standards. Taylor contributed:
Fair day’s work – standards of output based on scientific analysis
Scientific management – based on improving work methods through observation & analysis
Use of incentive pay