1. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 1 Managing compensation Chapter 12

2. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-2 Managing compensation  Objectives ÙList the major decision areas and concepts in employee compensation management. ÙDescribe the major administrative tools used to manage employee compensation. ÙExplain the importance of competitive labour- market and product-market forces in compensation decisions. ÙDiscuss the significance of process issues, such as communication, in compensation management.

3. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-3 Managing compensation  Objectives ÙDescribe new developments in the design of pay structures. ÙExplain the reasons for the controversy over executive pay. ÙDescribe the regulatory framework for pay in Australia.

4. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-4 Compensation: key terms  Pay structure ÙThe relative pay of different jobs (job structure) ÙHow much they are paid (pay level)

5. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-5 Equity theory  People evaluate the fairness of their situations by comparing them with those of other people. Outputs p Inputs p, or = Outputs o Inputs o

6. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-6

7. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-7 Job evaluation  An administrative procedure used to measure job worth.  Job evaluation is used to design job structures.

8. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-8 Job evaluation  Key concepts: ÙDistributive justice (also distributive fairness). The perception that rewards are distributed in relation to contribution. ÙProcedural justice (also procedural fairness). A concept of justice focusing on the methods used to determine the outcomes received.

9. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-9 Market pressures  Product-market competition  Labour-market competition

10. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-10 Market pay surveys  Key questions to address: ÙWhich employers should be included in the survey? ÙWhich jobs are included in the survey? ÙIf multiple surveys are used, how are all the rates of pay weighted and combined?

11. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-11 Issues in market pay surveys  Award restructuring (structural efficiency principle)  Key jobs and non-key jobs

12. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-12 Developing a job structure

13. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-13 Developing a pay structure  Pay-policy line ÙA mathematical expression that describes the relationship between a job’s pay and its job evaluation points.  Pay grade ÙJobs of similar worth or content grouped together for pay administration purposes. ÙRange spread Üthe distance between the minimum and maximum amounts in a pay grade.

14. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-14 Pay grade 1234512345 MinimumMaximumMinimumMaximumMidpoint Job evaluation points rangeFortnightly pay rate range 100 150 200 250 300 150 200 250 300 350 $1740 $2648 $3555 $4463 $5370 $2175 $3310 $4444 $5579 $6713 $2610 $3971 $5333 $6694 $8056 Table 12.7 Sample pay grade structure

15. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-15 Monitoring compensation costs  Compa-ratio ÙAn index of the correlation between actual and intended pay. Grade compa-ratio = Actual average pay for grade Pay midpoint for grade

16. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-16 Important processes in compensation  Participation  Communication

17. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-17 Current challenges in compensation  Problems with job-based pay structures  Responses to these problems: ÙDelayering and banding ÙPaying the person: skill-based pay

18. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-18 Comparing the competitiveness of the Australian labour force  Average hourly labour costs (cash and benefits)  Instability of country differences in labour costs  Skill levels  Productivity  Non-labour factors

19. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-19 Executive pay in Australia  Accountability and relationship to organisational performance  Governance  Design and structure

20. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-20 Source: P.J. Holland, P.J. Dowling & P.A. Innes, CEO compensation in Australia: Is there a relationship between principles, policies and practices?, Asia Pacific Journal of Human Resources, 39(3), 2001, p. 50. Figure 12.5 A comparison of CEO pay and stock-market-based indicators

21. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-21 Government regulation of compensation  Minimum wage  Wage laws  Wage determination  Restructuring and efficiency principle  Award restructuring  Enterprise bargaining principle

22. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-22 Summary  Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay.  Pay benchmarking surveys and job evaluation are two administrative tools widely used in managing the pay-level and job-structure components of the pay structure, which influence employee social comparisons.

23. Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 12-23 Summary (continued)  The nature of pay structures is undergoing a fundamental change in many organisations.  How a new program is designed, decided on, implemented and communicated is perhaps just as important as its core characteristics.