Human Resource

Management
ELEVENTH EDITION
1
GARY DESSLER

Part 4 | Compensation

Chapter
11

Establishing Strategic Pay Plans

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After studying this chapter, you should be able to:

1. List the basic factors in determining pay rates.

2. Explain in detail how to establish pay rates.
3. Explain how to price managerial and professional jobs.
4. Discuss competency-based pay and other current
trends in compensation.

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 Basic Factors in Determining
Pay Rates

Employee
Compensation

Direct Financial Indirect Financial

Payments Payments

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 Equity and Its Impact on Pay Rates
equity theory of motivation: people are motivated to maintain a balance between what they perceive as their contribution
and their rewards.

Forms of Equity

Internal Individual
External Equity Equity Procedural
Equity
How fair the job’s
payrate is, when
Fairness of an Equity
individuals pay as
compared to other jobs Perceived fairness of
How one job’s payrate compared to what his or
within the same the processes and
in one company her coworkers are
company. Eg. procedures used to
compares to the job’s earning for the same or
Comparison of sales make decisions
payrate in other very similar jobs in the
managers pay n regarding the allocation
companies company, based on
production managers of pay.
each persons
pay.
performance
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 Addressing Equity Issues

Salary Surveys
Survey on what other employers are paying

Job Analysis and

Job Evaluation
Methods to Help maintain internal equity

Address Equity
Issues Performance Appraisal
and Incentive Pay
Maintain individual equity

Communications, Grievance
Mechanisms, and Employees’
Participation
Helps employee view pay process as procedurally fair

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 The Salary Survey

Step 1. The Wage Survey:

Uses for Salary Surveys

To market-
To price price wages To make
benchmark for jobs decisions
jobs www.Salary.co about benefits
m

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 Sources for Salary Surveys

Sources of Wage and

Salary Information

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

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 Establishing Pay Rates (cont’d)

Skills

Effort
Step 2. Job Evaluation:
Identifying
Compensable Factors
Responsibility

Working Conditions

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 Establishing Pay Rates (cont’d)

Methods for
Evaluating Jobs

Point
Ranking Job Method Factor
Rank each job relative Classification Determine the degree to Comparison
to all other jobs. Based which the jobs you are Computerised job
Categorize job into
on overall factors like evaluating contain evaluation
groups. Govt style of
job difficulty selected compensable
pay system.
factors. Each factor has
diff points.

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 Pricing Managerial and Professional Jobs

Compensating Executives
and Managers

Short-term Executive
Base Long-Term
Incentives Benefits and
Pay Incentives
Cash or stock bonuses Perks
Fix pay. Guaranteed for achieving short term Stock options. Be part
bonus goal. Yearly sales of the organization. Retirement pension
target. plans.

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 Competency-Based Pay (cont’d)

Why Use Competency-

Based Pay?
Company pays for the employees range, depth
and types of skills/knowledge compared to
position or title

Support High- Support

Support
Performance Performance
Strategic Aims
Work Systems Management

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Other Compensation Trends
• Broadbanding
 Consolidating salary grades and ranges into just a
few wide levels or “bands,” each of which contains a
relatively wide range of jobs and salary levels.
 Pro and Cons
 More flexibility in assigning workers to different job grades.
 Provides support for flatter hierarchies and teams.
 Promotes skills learning and mobility.
 Lack of permanence in job responsibilities can be unsettling
to new employees.

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Factors that affect wage n salary structure
• Aligning total rewards with strategy
• Equity and its impacts on pay rates
• Government legislation and public policy
• Labour supply and demand
• Going wages and salaries
• Union demand
• etc

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 KEY TERMS

employee compensation compensable factor

direct financial payments ranking method
indirect financial payments job classification (or grading) method
Davis-Bacon Act (1931) classes
Walsh-Healey Public Contract Act grades
(1936) grade definition
Title VII of the 1964 Civil Rights Act point method
Fair Labor Standards Act (1938) factor comparison method
Equal Pay Act (1963) pay grade
Employee Retirement Income wage curve
Security Act (ERISA)
pay ranges
salary compression competency-based pay
salary survey
competencies
benchmark job
broadbanding
job evaluation comparable worth
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