Professional Documents
Culture Documents
Chapter 8 - Rewarding Employees
Chapter 8 - Rewarding Employees
8
• COMPENSATION
■ Rewarding Employees
Earlier in our handbook we men- organization and that you would like • Problem-solving — The original,
tioned that a key function of owners current data. The librarian may refer self-starting thinking required to
and managers is to attract, retain you to various sources including the identify, define and resolve
and motivate employees. In Chapter Bureau of National Affairs Inc. problems.
1 we briefly discussed setting a pay (BNA), 1801 S. Bell St., Arlington,
range for employees and targeting VA 22202, (703) 341-4000, • Know-how — All skills needed for
pay for new employees. www.bna.com. acceptable job performance.
In this chapter, we will explore in For our discussion, we are assum- • Accountability — In this context,
more depth how to establish pay ing that the owner or manager has the effect the employee and job
and remain competitive. We will developed a job description or has a have on end results.
highlight what are typical incentives good idea of exactly what the job
and benefits so you can plan for entails using the job description Using these three value considera-
your organization. We will look at questionnaire outlined in Chapter 1. tions and what we established as
non-traditional benefits and incentives The primary requirements of and the typical wage for a job, we can
because there are alternatives to prerequisites for a job assist us in set a pay range. As we gather pay
pay-based rewards. And we will determining a job’s “weight.” This is information, we see that not all
discuss determining what employ- an indication of the job’s importance jobs pay the same amount. This is
ees want. We will see that money is and value to our organization. Three for a number of reasons, including
not always the primary motivator for factors contribute to weight: differing amounts assigned to the
many employees. factors above.
• Accountability — What are the
COMPENSATION major areas, employee groups The pay range would typically have a
and budgets the employee oversees? minimum amount that can be the
Determining what is a fair and com- lowest amount paid for the job we
petitive wage is not all that easy. • Authority — What is it that the found in our research. A midpoint
We can scan newspapers for what person and job influence and may be exactly the middle amount
others are paying; we can ask our what is the level of decision paid in the field (median), the aver-
contacts or even competitors what making? age paid (mean) or an amount we
they pay; and we can look else- set somewhere close to the middle
where for sources of pay data by • Responsibility — What are the of the range. The maximum of the
job, industry, geographic area, etc. primary activities, tasks and range is, as we would think, the top
objectives for the employee? amount paid by the field or what we
A useful source is the local library. feel is the top pay.
Take the time to speak with the To determine value and set the
librarian and explain that you are wage to pay, we can think of this a Pay for jobs changes from year to
establishing the pay for a job in your little differently and consider: year, generally as our economy
GRADE 1 PAY PER YEAR / HOURS PER YEAR = DOLLARS PER HOUR
review the alphabetical order listing
$15,603 / 2,080 = $7.50 and find “clerk.” You will see:
TITLE JB# #EE DOLLARS/ DOLLARS/ STR STR MKT STR MID STR
YEAR HOUR GRD MID PAY MID MKT MKT
Economic adjustment Adjustments to base pay often granted to a full grouping or class of jobs
to bring base pay in line with typical market amounts for the same job.
Incentive A planned cash award often closely tied to specific objectives which an
individual, group or organization attains. Incentive pay does not adjust
base pay.
Step-rate increase Repetitive increases to base pay generally associated with time on the
job, e.g.: every six months.
Cost-of-living adjustments (COLA) A standard increase to base pay which often is related to the
Consumer Price Index or similar economic indicator. (See
http://www.ssa.gov/OACT/COLA/latestCOLA.html)
employee or it may be an average tion planning, when any of How pay healthy is the store in the
of pay for all employees on a these ratios dips below 85%, example? Let’s look at the key
par ticular job. turnover and employee dissatis- numbers:
faction can be anticipated.
In respective order, these ratios Conversely, when any of the ratios Overall, MyStore fares well with the
concisely and objectively answer the exceed 115%, a company may be pay planning scheme.
key compensation questions: paying employees too much for the
job responsibilities. MyStore is at 102% on the first
How does MyStore Inc.’s actual ratio, which indicates the store pay
pay compare with established pay Experience indicates that the ideal is higher than the midpoint of the
ranges? quotient is 93% to maximize employee pay range.
motivation and cost effectiveness for
How does MyStore Inc.’s pay scale the typical 12- to 24-month pay plan- It is somewhat below on the second
compare with the market? ning cycle. These ratios should be ratio at 94%.
reviewed annually with current data.
How does MyStore Inc.’s actual pay On the third ratio, the one most
compare with the market? As an example for applying these people watch, MyStore is below the
ratios, consider the Table 8-2 market with its 95%.
As a rule of thumb in compensa-
Cash awards
Gift certificates
Merchandise
Individual travel
Group travel
Debit cards
EXECUTIVE PERKS
Insurance Payments (medical premiums, vision care, dental care, life insurance, etc.) appx. 25%
Payment for Time Not Worked (leaves, vacations, holidays, etc.) appx. 25%
Legally Required Contributions (Social Security, unemployment and workers’compensation) appx. 20%
Paid Rest Periods (coffee breaks, lunch periods, travel time) appx. 10%
Retirement Plans (pensions, 401(k) plans, etc.) appx. 15%
Miscellaneous Benefits (education assistance, child care, severance pay, etc. appx. 5%
U.S. Department of Labor, Bureau of Labor Statistics studies, (Washington, DC, U.S. Chamber of Commerce, 2004)
Table 8-6
MANDATED VS. DISCRETIONARY BENEFITS
DESIGNATION CLASSIFICATION BENEFIT
http://www.epi.org/content.cfm/
ib234 (State Minimum Wage table) VACATION TIME Table 8-8
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
EXECUTIVE EMPLOYEES
The recommended timing of promotion and merit increases is a 12-month period beginning whenever you
establish the pay scales and evaluation process.
The following table is a guide for determining how much of an increase to give to an employee while considering:
1. Appraisal rating 2. Position in the pay range 3. Time lapsed since last increase
The foregoing promotion and merit increases are merely guidelines based upon sound pay planning principles,
commitment to pay for performance and maximum cost effectiveness. Merit adjustments are defined as
increases to base pay within the current pay range. Promotions are increases to base pay that accompany an
employee moving between grades. Generally, promotions are two or more grades. Movement from one grade to
the next can be accomplished with economic adjustments or pay alignment adjustments. Other forms of pay
increases, e.g., bonuses, do not go into base pay.