MODULE 1: BASICS OF

COMPENSATION MANAGEMENT

By
Sonam Gondlekar

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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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 Legal Considerations in Compensation

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

Walsh-Healey Public Employee Retirement

Contract Act (1936) Income Security Act (ERISA)

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)

Workers’ Compensation

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 Equity and Its Impact on Pay Rates

Forms of Equity

External Internal Individual Procedural

Equity Equity Equity Equity

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 Addressing Equity Issues

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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 The Salary Survey

Step 1. The Wage Survey:

Uses for Salary Surveys

To price To market- To make

benchmark price wages decisions
jobs for jobs about benefits

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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

Job Point Factor

Ranking
Classification Method Comparison

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 Establishing Pay Rates (cont’d)

Point Method

Step 3. Group
Similar Jobs Ranking Method
into Pay Grades

Classification Methods

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Pricing Managerial and Professional Jobs

Compensating Executives
and Managers

Executive
Base Short-term Long-Term
Benefits and
Pay Incentives Incentives
Perks

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Competency-Based Pay (cont’d)

Why Use Competency-

Based Pay?

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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Quantitative Job Evaluation Methods
• Factor Comparison Job Evaluation Method
Step 1. Obtain job information
Step 2. Select key benchmark jobs
Step 3. Rank key jobs by factor
Step 4. Distribute wage rates by factors
Step 5. Rank key jobs according to wages
assigned to each factor
Step 6. Compare the two sets of rankings to
screen out unusable key jobs
Step 7. Construct the job-comparison scale
Step 8. Use the job-comparison scale