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Total Rewards and Compensation

Total Rewards  Monetary and non-monetary rewards used to attract, motivate, and retain employees Rewards System Strategic Objectives  Legal compliance  Cost effectiveness  Internal and external equity for employees  Recognizing contribution to maximize performance and manage talent

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Compensation Approaches
Traditional Approach
• Compensation primarily base pay • Bonuses for executives only • Fixed benefits tied to seniority • Pay grade progression based on organizational promotions • One organization-wide pay plan for all employees

Total Rewards Approach
• Variable pay used with base pay • Annual/long-term incentives provided to all employees • Flexible and portable benefits offered • Knowledge-based broadbands determine pay grades • Multiple pay plans consider job family, location, and business units

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Total Rewards Components

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Compensation Philosophies 4 .

HR Metrics for Compensation 5 .

Typical Division of HR Responsibilities: Compensation 6 .

Compensation System Design Issues Fairness Internal Equity    Procedural Distributive Interactional External Equity Privacy Transparency 7 .

Market Competitiveness and Compensation Lead the market Meet the market Lag the market 8 .

Compensation Quartile Strategies 9 .

More Compensation System Design Issues Identification of the required competencies Progression and compensation of employees Limitations on who can acquire more competencies CompetencyBased Pay Systems Training in the appropriate competencies Certification and maintenance of competencies 10 .

Team Rewards Team How to develop compensation programs that build on the team concept.More Compensation System Design Issues Individual vs. Individual How to compensate the individuals whose performance may also be evaluated on team achievements. 11 .

Possible Components of Global Employee Compensation 12 .

Legal Constraints on Pay Systems Minimum wage Child labor Exempt vs. nonexempt status Overtime 13 .

Exempt Status Under the FLSA 14 .

Compensation for Overtime Work Common Overtime Issues Compensatory Time Off Incentives for Non-exempts Training Time Travel Time 15 .

Legislation Affecting Compensation Compensation and the Law Davis-Bacon Act Walsh-Healy Act McNamara-O’Hara Act Equal Pay Act of 1963 and Pay Equity State and Local Laws Garnishment Laws 16 .

Compensation Administration Process Pay Structure  Pay grades  Pay ranges 17 .

Compensable Factor   Job value common among a group of jobs. 18 .Valuing Jobs with Job Evaluation Methods Job Evaluation Means used to identify the relative worth of jobs within an organization. Something for which an organization chooses to compensate an employee.

Examples of Compensable Factors for Different Job Families 19 .

Job Evaluation Methods Job Evaluation Methods Point Method Ranking Method Classification Method FactorComparison Method 20 .

Job Evaluation Methods Point method Ranking method Classification method Factor-comparison method 21 .

• The market data’s scope (range of sources) is a concern. 22 . • Ties organizational pay levels to the external job market. • A specific job may differ from a “matching” job in the survey. without “internal” job evaluation distortion.” • Tying pay levels to market data can lead to wide fluctuations.Valuing Jobs Using Market Pricing Market Pricing  Using market data to identify the relative value of jobs based on what other firms pay for similar jobs. • Communicates to employees that the compensation system is “market linked. Advantages Disadvantages • It relies on market survey data.

Pay Surveys Collection of data on compensation rates for workers performing similar jobs in other organizations. Internet-Based Pay Surveys 23 . Benchmark Jobs  Jobs found in many organizations.

managerial Clerical. information technology. and executive Groupings of individual jobs having approximately the same job worth. Hourly and salaried Common Pay Structures    Office. supervisory. 24 Pay Grades  .Pay Structures Job Family  Group of jobs with common organizational characteristics. management. professional. professional. plant. technical.

Compensation Administration Process 25 .

26   . Market Line  Shows relationship between job value as determined by job evaluation points and job value based on pay survey rates. Shows distribution of pay for surveyed jobs Linear trend line to be developed by the leastsquares regression method.More on Pay Structures Market Banding  Grouping jobs into pay grades based on similar market survey amounts.

Market-Banded Pay Grades Example (Bank) 27 *Computed by averaging the pay survey summary data for the jobs in each pay grade. .

Example of Pay Grades and Pay Ranges 28 .

 Benefits Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency development Emphasizes career development 29 .Pay Ranges Broadbanding  Using fewer pay grades having broader pay ranges that in traditional systems.

Individual Pay Rates Out of Range   Red-Circled Employee An incumbent (current jobholder) who is paid above the range set for the job. Pay Compression  Pay differences among individuals with different levels of experience and performance in the organization are reduced. Green-Circled Employee An incumbent who is paid below the range set for the job. 30 .

35 (current pay) 100  89 (Compa -ratio) 15. Employee J  $13.00 (midpoint) 31 .Pay Adjustment Matrix 89 Compa-ratio  The pay level divided by the midpoint of the pay range.

Standardized Pay Adjustments Standardized Pay Increases Seniority Cost-of-Living Adjustments (COLA) Across-theBoard Increases Lump-Sum Increases (LSI) 32 .