Establishing Strategic

11 Pay Plans

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-1
 Learning Objectives
1. List the basic factors determining
pay rates.
2. Define and give an example of how
to conduct a job evaluation.
3. Explain in detail how to establish a
market-competitive pay plan.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-2
 Learning Objectives
4. Explain how to price managerial
and professional jobs.
5. Explain the difference between
competency-based and traditional
pay plans.
6. List and explain six important trends
in compensation management.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-3
 List the basic factors
determining pay rates.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-4
 Basic Factors in
Determining Pay Rates

• Aligning total rewards with strategy

• Equity and its impact on pay rates
• Equity theory of motivation
• Addressing equity issues

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-5
 Legal Considerations in
Compensation
• Fair Labor Standards Act (1938)
• Exempt/nonexempt
• Equal Pay Act (1963)
• Employee Retirement Income
Security Act (1974)
• Other legislation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-6
 Other Factors
• Union influences on compensation
decisions
• Pay policies
• Geography

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-7
 Review
• Alignment with strategy
• Equity – external, internal
• Legal Considerations
• Union influences
• Pay policies
• Geography

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-8
 Define and give an example
of how to conduct
a job evaluation.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-9
 Job Evaluation Methods

• Compensable
factors
• Preparing for the
job evaluation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-10
 Job Evaluation Methods:
Ranking
1. Obtain job information
2. Select and group jobs
3. Select compensable factors
4. Rank jobs
5. Combine ratings

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-11
 Job Evaluation Methods
• Job classification
• Point method
o “Packaged” point
plans
• Computerized job
evaluations

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-12
 Review
• Compensable factors
• Preparation
• Ranking
• Classification
• Point method
• Computer-based

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-13
 Explain in detail how to
establish a market-
competitive pay plan.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-14
 How to Create a Market-
Competitive Pay Plan
• Choose benchmark jobs
• Select compensable factors
• Assign weights
• Convert percentages to points
• Define each factor’s degrees
• Determine degrees and assign points
for job factors
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-15
 How to Create a Market-
Competitive Pay Plan
• Review job descriptions and
specifications
• Evaluate the jobs
o What is a market competitive pay plan?
o What are wage curves?

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-16
 How to Create a Market-
Competitive Pay Plan
• Draw current (internal) wage curve
• Conduct market analysis: salary
surveys
o Commercial, professional, and
government
• Using internet to do compensation
surveys
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-17
 How to Create a Market-
Competitive Pay Plan
• Draw market (external) wage curve
• Compare and adjust
• Develop pay grades
• Establish rate ranges
• Address remaining jobs
• Correct out-of-line rates

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-18
 Review

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-19
 Explain how to price
managerial and professional
jobs.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-20
 Pricing Managerial and
Professional Jobs
• Compensating executives and
managers
• What determines executive pay?
o Elements of executive pay
o Managerial job evaluation
• Compensating professional
employees
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-21
 Review

• Executives
• Professionals
• Pay

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-22
 Explain the difference
between competency-based
and traditional pay plans.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-23
 Contemporary Topics in
Compensation
• Competency-based
pay
• What is it?
• Why use it?
• In practice
• The bottom line

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-24
 Review

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-25
 List and explain six important
trends in compensation
management.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-26
 Trends
• Broadbanding
• Actively managing
• Comparable worth
o The pay gap
• Board oversight
• Total rewards and tomorrow’s pay
programs
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-27
 Review
• Broadbanding
• Management
• Worth
• Boards
• Tomorrow

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-28
 All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 6-29