Reward Systems

Intrinsic Rewards Status Growth

Responsibility

Extrinsic Rewards Non-financial (office, staff, title, etc.) Financial (direct and indirect compensation)

Financial Rewards: Indirect Compensation

Protection Programs
Examples: pensions, health coverage, life insurance, social welfare programs

Public Private
Mandatory versus Voluntary Contributory versus Non-contributory

Financial Rewards: Indirect Compensation

Pay for Time Not Worked (at work and off work)
Examples: breaks, meal time, transit time, medical leave, military leave, education leave, vacation

Services and Perquisites

General
(Examples: financial services, counseling, dining discounts) Limited (Examples: automobile, cellular phone, clothing allowance, gym membership)

Financial Rewards: Direct Compensation

Base Pay

Incentives
Cost-of-Living Adjustments (COLAs) Merit Pay

Compensation System Objectives

External Competitiveness Internal Equity Legal Compliance Motivational Soundness Linkages to Performance Cost Effectiveness Culture Creating

Total Comp Policy Planning: Key Issues

1. Degree of income protection and replacement to be provided for employees, for dependents and for retirees. 2. Provisions (if any) to be made for income supplementation benefits. 3. Relation of benefits to job level. 4. Recognition for seniority. 5. Recognition for performance or productivity. 6. Ers responsibility for costs of ee benefits, dependent benefits, and retiree benefits.

7. Basis and use of external comparisons. 8. Effect of union settlements on benefits for nonrepresented employees. 9. Application of plans to ees of acquired orgs. 10. Coverage for part-time employees. 11. Employee choice and plan flexibility. 12. Responsibility for planning and managing the plans/programs.

Compensation Laws & Regs

Wages Wage Controls Payment Schedules Pay Increases Overtime Incentive Pay Wage Adjustments (longevity, education, etc.) Bonuses Contracts Work Agreements Child Labor Benefits

Basic Compensation Markets

Blue Collar Labor
Professional Supervisory and Managerial Entertainers and Athletes

External Influences on Compensation

Supply of Labor Demand for Labor Org Location Economic State Competition Union Influence Product/Service Demand

Internal Influences on Compensation

Organization Size Willingness to Pay Ability to Pay Tradition Unionization Job Itself Employer Prestige Work Force Character Desired Employee Quality Ratio of Labor Costs to Total Costs

Organizational Compensation System Requirements

Maximize ability to attract and retain qualified employees Be within ability to pay Allow organization to remain competitive

Compensation Terminology
Wage versus Salary

Exempt versus Nonexempt

Assigning Pay to Jobs

Job Pricing = placing a monetary value on the worth of a job to the organization
RULE: Each job is worth only so much to the organization OPTIONS: 1. Flat Rates 2. Pay Ranges

Pay Considerations
Prevailing wages and salaries Collective bargaining Economic realities Worth of position/job Worth of employee Difficulty in filling job Priority of work in organization

Basic Compensation Decisions

Wage level decisions compared to other organizations Wage structure decisions comparing job to job Individual wage decisions comparing individuals in same jobs

Wage Level Decisions

Lead Competition Match Competition
Lag Competition

Wage Structure Decisions

System for assigning value to jobs within an organization
Ranking Classification Point/Factor

Wage Structures
Rankings Each job in relation to other from most important to least important

Classification Jobs sorted by requirements, responsibilities

Point/Factor Jobs evaluated and sorted by objective factors

Ranking System
Job A - President Job B Vice President Job C1 Treasurer/CFO Job C2 Manager of Operations/COO Job D Sales Manager Job E Salesperson Job F Order Entry Clerk Job G Cleaning Crew Member

Classification System
Grade 1 2 3 4 5 6 Step Step Step Step Step Step Step 1 2 3 4 5 6 7
15,625 16,146 16,666 17,183 18,009 19,039 19,543 17,568 17,985 18,567 19,060 19,841 20,408 20,975 19,168 19,807 20,446 21,085 21,724 22,363 23,002 22,235 23,057 23,669 24,386 25,430 26,110 26,833 24,878 25,681 26,484 27,287 28,090 28,982 29,876 27,731 28,626 29,521 31,011 32,206 33,104 34,891

Point/Factor Systems
Job A = 100 Job B = 110 points Job C = 160 points Job D = 180 points Job E = 200 points Job F = 220 points
Job P = 430 points

Pay Adjustments
Fixed Rate Increases
step increases, flat dollar increases

Percentage Increases
across the board, competitive percent

Incentives

Levels of Incentives
Individual
Group Company-wide Executive

Individual Incentive Plans

Piecework Payment
(Straight and Differential) Standard Hour Commissions Bonuses Skills-based Pay Non-financial Awards

Group Incentive Plans

Piece-rate Systems
Standard Hour Plans Group Bonuses Profit Sharing

Company-wide Incentives
Profit Sharing
(Cash Plan or Deferred Plan)

Gainsharing

Stock Ownership Plans (ESOP)

Executive Incentives
Salaries Stock Options

Long-term Incentive Plan Payouts

Directors Fees Perquisites

Executive Compensation
Organization Boeing Tenet Healthcare Dell Computer Disney Household Intl GE Salary & Bonus 2,684,000 Long-term Company Comp Performance 1,245,000 -128%

116,400,000 72,000,000 +63% 82,300,000 14,500,000 5,000,000 6,900,000 37,500,000 -13.2% 48,000,000 -60% 41,300,000 -50% 43,000,000 -39%

Directors Fees
Board Member Compensation Fees Insurance Travel Stocks Retirement contributions

Board Fees
Bear Sterns Investments PM Industries Pepsico American Express Coca-cola Georgia Pacific Microsoft $150,000 $ 85,000 $ 78,000 $ 67,500 $ 61,000 $ 53,000 $ 42,000

Perquisites
Memberships Company car/limo Corporate Travel Corporate Jet/Yacht Clothing Allowance Free Parking Dining Privileges No/low Cost Loans Memberships: Gym, Golf & Social Clubs Entertainment Expenses Season Tickets to Sporting Events Financial and Legal Counseling Education/seminar Funding Funding for Family Education

Perquisites (Perks) continued

Kidnapping & Ransom Insurance & Services Housing Allowance or Accommodations Living Accommodations Away from Home Company Credit Cards Special Relocation Allowances Spouse/family Travel
Golden Parachute/Severance Package

Golden Parachute
In effect if acquisition or forced to leave Typical severance package: 2-3 x annual salary and bonus accelerated vesting of options Example: Mattel Corporation Package=5 years salary and bonuses = $26.4 mil Purchase office furniture & equipment for $1.00 Forgiveness of $4.2mil personal loan Forgiveness of $3mil home loan Cash of $3.31mil to cover taxes on loans Received $47mil, plus options

Executive Pay Decisions

Daily Dilbert, 29 October, 2005

HRM Crises of Finances: HRM Implications

Bankruptcies Acquisitions and Mergers Scandals with officers/managers Private & Corporate Lawsuits Government investigations and charges Arrests and convictions Tragedies
workplace accidents & illnesses travel accidents work-related accidents EXAMPLE: Air France Concorde/SST crash Union Carbide Bophol, India, chemical spill Merrill Lynch 9/11 Twin Towers crashes

Evaluation of Incentives
Attention getter? Understandable? Establishes culture through values? Improves communication? Pays when it should?
(achievements versus failures)

Improves individual performance? Improves organizational performance?