Reward

Management

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–1

LEARNING OUTCOMES
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 pay rates.
4. Explain how to price managerial and professional jobs.
5. Explain the difference between competency-based and
traditional pay plans.
6. Explain the importance today of broadbanding,
comparable worth, and board oversight of executive
pay.

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–2

 Basic Factors in Determining
Pay Rates

Employee Compensation
Components

Direct financial Indirect financial

payments payments

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 Legal Considerations in Compensation

Davis-Bacon Act (1931) Equal Pay Act (1963)

Walsh-Healey Public Employee Retirement

Contract Act (1936) Income Security Act

Title VII of the 1964 Employee Age Discrimination in

Civil Rights Act Compensation Employment Act

Fair Labor Standards Act Americans with

(1938) Disabilities Act

The Family and Medical The Social Security Act of

Leave Act 1935 (as amended)

National Labor Relations

Workers’ Compensation
Act of 1935 (Wagner Act)

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 FIGURE 11–1
Independent Contractor

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 FIGURE 11–2 Some Typical Exempt, Nonexempt Job Titles

EXEMPT NONEXEMPT
Attorneys Paralegals
Physicians Accounting clerks
Pharmacists Newspaper writers
Engineers Working supervisor
Teachers Management trainees
Scientists Secretaries
Computer systems analysts Clerical employees
General managers
Personnel directors
Accountants
Purchasing agents

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 FIGURE 11–3 Who Is Exempt? Who Is Not Exempt?

Step 1: Step 2: Step 3:

Salary Basis Test Yes Exemption Applicability Yes Job Analysis

Is the employee paid at Does the employee perform any A thorough analysis of
least $455 per week of the following types of duties/jobs? the job duties must be
($23,660 per annum), performed to determine
Executive—management is the exempt status. An
*not subject to reduction
employee’s primary duty exempt position must
due to variations in
quantity/quality of work Administrative—employee performing pass both the salary
performed? nonmanual office work basis and the duties
Professional/creative—employee tests.
*The computer
professional exemption whose work requires highly advanced
has a salary basis test of knowledge/education; creative and
$455 per week or $27.63 artistic professional
per hour. The outside Computer professional—employee
sales exemption is not involved in design or application of
subject to the salary basis computers and related systems
test.
Outside sales—employee making sales
or taking orders which influence sales
No outside of the employer's premises

No

Employee is Nonexempt Employee is Nonexempt

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Corporate Policies, Competitive Strategy,
and Compensation
• Aligned Reward Strategy
 The employer’s basic task:
 To create a bundle of rewards—a total reward package—
that specifically elicits the employee behaviors that the firm
needs to support and achieve its competitive strategy.
 The HR or compensation manager along with top management
creates pay policies that are consistent with the firm’s strategic
aims.

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–8

 TABLE 11–1 Developing an Aligned Reward Strategy

Questions to Ask:

1. What must our company do, (for instance in terms of improving

customer service), to be successful in fulfilling its mission or
achieving its desired competitive position?
2. What are the employee behaviors or actions necessary to
successfully implement this competitive strategy?
3. What compensation programs should we use to reinforce those
behaviors? What should be the purpose of each program in
reinforcing each desired behavior?
4. What measurable requirements should each compensation
program meet to be deemed successful in fulfilling its purpose?
5. How well do our current compensation programs match these
requirements?

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–9

Compensation Policy Issues
• Pay for performance
• Pay for seniority
• The pay cycle
• Salary increases and promotions
• Overtime and shift pay
• Probationary pay
• Paid and unpaid leaves
• Paid holidays
• Salary compression
• Geographic costs of living differences

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 Equity and Its Impact on Pay Rates

Forms of Compensation
Equity

External Internal Individual Procedural

equity equity equity equity

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 Addressing Equity Issues

Area wage and salary surveys

Job analysis and job evaluation

Methods to
Address Equity
Issues
Performance appraisal and incentive pay

Communications, grievance mechanisms,

and employees’ participation

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Establishing Pay Rates

Steps in Establishing Pay Rates

Conduct a salary survey of what other employers are

1
paying for comparable jobs (to help ensure external equity).

2
Determine the worth of each job in your organization
through job evaluation (to ensure internal equity).

3 Group similar jobs into pay grades.

4 Price each pay grade by using wave curves.

5 Fine-tune pay rates.

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 11–13

 Step1: The Salary Survey

Uses for Salary Surveys

To make
To price To market-price
decisions about
benchmark jobs wages for jobs
benefits

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 Sources for Salary Surveys

Sources of Wage and

Salary Information

Self-
Consulting Professional Government The
Conducted
Firms Associations Agencies Internet
Surveys

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 TABLE 11–2 Some Pay Data Web Sites

Sponsor Internet Address What It Provides Downside

Salary.com Salary.com Salary by job and zip code, Adapts national
plus job and description, averages by applying
for hundreds of jobs local cost-of-living
differences

Wageweb www.wageweb.com Average salaries for more than Charges for

150 clerical, professional, and breakdowns by
managerial jobs industry, location, etc.

U.S. Office of www.opm.gov/oca/ Salaries and wages for U.S. Limited to U.S.
Personnel 09Tables/index.asp government jobs, by location government jobs
Management

Job Smart http://jobstar.org/tools/ Profession-specific salary Necessary to review

salary/sal-prof.php surveys numerous salary
surveys for each
profession

cnnmoney.com cnnmoney.com Input your current salary and Based on national

city, and this gives you averages adapted
comparable salary in to cost-of-living
destination city differences

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 Step 2: Job Evaluation

Identifying Compensable Factors

Working
Skills Effort Responsibility
conditions

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 The Job Evaluation Process

Preparing for the Job Evaluation

1 Identifying the need for the job evaluation

2 Getting the cooperation of employees

3 Choosing an evaluation committee

4 Performing the actual evaluation

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 How to Evaluate Jobs

Methods for Evaluating Jobs

Job Factor
Ranking Point method
classification comparison

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Job Evaluation Methods: Ranking
• Ranking each job relative to all other jobs, usually
based on some overall factor.
• Steps in job ranking:
1. Obtain job information.

2. Select and group jobs.

3. Select compensable factors.

4. Rank jobs.

5. Combine ratings.

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