Compensation

Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition

What does compensation (what you receive for your services) mean to you?

A Definition . . .
• All forms of
– financial return, – tangible services and – benefits

• that employees receive as part of their employment relationship

Components of a Total Compensation Program - 1
• Financial • Direct
– wages, salaries, commissions, bonuses

• Indirect
– insurance plans
• life, health, dental, disability

– social assistance benefits
• retirement plans, social security, workers’ comp

– paid absences
• vacations, holidays, sick leave

flextime.Components of a Total Compensation Program . working conditions. compressed work week.2 • Non-Financial • The Job – interesting. co-workers. challenging. flexible benefits programs . telecommuting. job sharing. advancement – feeling of achievement • Job Environment – policies. responsible – opportunity for recognition. supervision. status symbols.

Factors that Influence Wage Levels Conditions of Labor Market Area Wage Rates Cost of Living Compensation Policy of Organization Worth of Job WAGE MIX Employee’s Relative Worth Collective Bargaining Legal Requirements Employer’s Ability to Pay .

Designing a Compensation System Steps in the Decision Process .

Step 1 .Establish General Wage Level for Organization • Factors to consider: • Other firm’s rates • Union demands • Cost-of-living changes • Firm’s ability to pay .

Establish Wage Structure (The Pay for Each Job) • Results: – pay grades – rate ranges .• Employ a job evaluation system – – – – Ranking Job Classification Point System Factor Comparison Step 2 .

Step 3 .Establish Pay for Each Individual on Each Job • Inputs: • Performance appraisal information • Seniority system .

Techniques for Management . Compensation Objectives • II. Foundation Concepts • III.3 Basic Components • I.A Pay Model -.

Compensation Objectives .A Pay Model I.1 • Organization Performance • Labor Costs • Attitudes and Behaviors • Laws and Regulations .

experienced workforce.2 • Influence forms & procedures • For example: – if objective is pay for performance. merit pay plans – if objective is stable. Compensation Objectives .A Pay Model I. emphasize seniority-based pay . emphasize incentives.

A Pay Model II. among jobs • Employee Equity • Comparison: individuals doing same job for same organization . Foundation Concepts • Equity • External Equity • Comparison: outside organization • Internal Equity • Comparison: inside organization.

Equity Theory Equity Op/Ip = Oo/Io Under-reward Inequity Op/Ip < Oo/Io Over-reward Inequity Op/Ip > Oo/Io p = personal. benefits. o = comparison other I = Inputs effort. experience O = Outcomes pay. ability. perks .

Why does Equity Matter? What Behaviors are Likely to Occur when Inequity is Felt? .

A Pay Model III. Pay Structure • C. Techniques for Management • A. Pay Level • B. Individual Pay Rates .

A Pay Model III. Techniques for Management A. Pay Level • Defined: average rates paid by employer • Applicable concept: External Equity • 3 Pure Alternatives – lead competition – match competition – lag competition • Mechanism used: Market Wage Survey .

. Compile data received. Select organizations.Market Wage and Salary Surveys       Select key jobs. Determine wages and benefits to pay. Decide on information to collect: wages/benefits/pay policies. Determine relevant labor market.

Market Wage Levels •Which company is leading the market? •Which company is lagging the market? •What would the wage level line look like for a company that was meeting/matching the market? .

Techniques for Management B. Pay Structure • Defined: pay rates for different jobs within a single organization • Applicable concept: Internal Equity • Pay more for jobs with – greater qualifications – less desirable working conditions – more valuable output • Mechanism used: Job Analysis & Job Evaluation .A Pay Model III.

Job Evaluation • defined: the systematic evaluation of job descriptions • outcome: a hierarchy of organizational jobs according to their content and value to the organization • Methods: – – – – ranking classification factor comparison point method .

Job Ranking System Simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth .

Job Classification System System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades .

Point System Quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it .

Factor Comparison System Job evaluation system that permits the evaluation process to be accomplished on a factor-by-factor basis by developing a factor comparison scale .

and accountability – to evaluate executive and managerial positions .Hay Profile Method Job evaluation technique using three factors – knowledge. mental activity.

Techniques for Management C.A Pay Model III. Individual Pay Rates • Defined: pay rates for different individuals doing the same job within an organization • Applicable concept: Employee Equity • 2 Techniques – Flat Rate – Pay Ranges • Mechanisms used: Performance or Seniority .

Wage Curve Curve in a scattergram representing the relationship between relative worth of jobs and wage rates .

Components of the Wage Structure .

Pay Grades Groups of jobs within a particular class that are paid the same rate or rate range .

Elements of the Rate Range .

Technical.Common Pay Grade Ranges • Laborers & Trades. 40-100% . up to 20% • Clerical. Para-professional. Professionals 30-50% • Middle and Senior Level Management. 15-49% • First Level Supervisors.

Monitoring Compensation Costs • Compra-Ratio • Formula: Actual Average Pay for Grade Midpoint Pay for Grade • A compra ratio < 1 indicates lag • A compra-ratio > indicates excess .

How Would You Handle Outliers? An individual whose current pay is beyond the maximum of the pay grade for his/her job An individual whose current pay is below the minimum of the pay grade for his/her job .

Federal Wage Laws Davis-Beacon Act of 1931 Walsh-Healy Act of 1936 Fair Labor Standards Act of 1938 .

Nonexempt Employees Employees covered by the overtime provisions of the Fair Labor Standards Act .

Exempt Employees Employees not covered by the overtime provisions of the Fair Labor Standards Act .

should be paid the same .Comparable Worth The concept that male and female jobs that are dissimilar. but equal in terms of value or worth to the employer.

Wage-Rate Compression Compression of differentials between job classes. particularly the differential between hourly workers and their managers .

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