Chapter 11

Establishing Rewards and Pay Plans

Introduction
There are many work motivators, including  promotions  desirable work assignments  peer recognition  work freedom but the focus in this chapter is pay.

they all help maintain employee commitment

Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins

Chapter 11, slide 2

DeCenzo/Robbins Chapter 11.Rewards Review Intrinsic Financial participation in decision making Extrinsic Non-financial greater job freedom more responsibility opportunities for growth diversity of activities Performance based Implied membership-based Explicit membership-based assigned parking space preferred assignments business cards own secretary impressive title bonuses cost of living increase labor market adjustment protection Program pay for time not worked piecework commission profit sharing services/ perks incentive plans merit pay plans time-in-rank increase Fundamentals of Human Resource Management. 10/e. slide 3 .

such as:  pride in one’s work  feelings of accomplishment  being part of a work team extrinsic rewards come from a source outside the job.Types of Reward Plans Intrinsic versus Extrinsic Rewards intrinsic rewards (personal satisfactions) come from the job itself. 10/e. slide 4 . mainly by management: money promotions benefits Fundamentals of Human Resource Management. DeCenzo/Robbins Chapter 11.

employees vary greatly on what types they like Fundamentals of Human Resource Management.Types of Reward Plans Financial versus Nonfinancial Rewards financial rewards:  wages  bonuses  profit sharing  pension plans  paid leaves  purchase discounts nonfinancial rewards: make life on the job more attractive. slide 5 . 10/e. DeCenzo/Robbins Chapter 11.

DeCenzo/Robbins Chapter 11. slide 6 . benefits. and salary increases are offered to all employees Fundamentals of Human Resource Management.Types of Reward Plans Performance-based versus Membership-Based  performance-based rewards are tied to specific job performance criteria      commissions piecework pay plans incentive systems group bonuses merit pay  membership-based rewards such as cost-of-living increases. 10/e.

nytimes. DeCenzo/Robbins Chapter 11.salaryexpert. slide 7 .com http://salary.com/ Fundamentals of Human Resource Management. which defines the appropriate worth of each job.com/ http://www. fair compensation program attracts motivates retains competent employees. 10/e. Both employees and employers can research compensation facts and issues at www.Compensation Administration Companies derive their compensation programs from job evaluation.salary. An effective.

DeCenzo/Robbins Chapter 11. 10/e. slide 8 .Compensation Administration The Fair Labor Standards Act requires  minimum wage  overtime pay  record-keeping  child labor restrictions exempt employees include professional and managerial employees not covered under FLSA overtime provisions nonexempt employees eligible for premium pay when they work more than 40 hours in a week Fundamentals of Human Resource Management.

Compensation Administration Equal Pay Act of 1963 requires that men and women hired for the same job be paid the same. 10/e. effort. and working conditions Fundamentals of Human Resource Management. slide 9 . Civil Rights Act:  broader than Equal Pay Act  prohibits discrimination on the basis of gender  salaries established based on skill. DeCenzo/Robbins Chapter 11. responsibility.

Job analysis information determines the relative value. DeCenzo/Robbins Chapter 11. 10/e. or rank. of each job in the organization. Other pay structure factors: labor market conditions collective bargaining individual skill differences Fundamentals of Human Resource Management.Job Evaluation and the Pay Structure Job evaluation helps set pay structure. Job evaluation means using the information in job analysis to systematically determine the value of each job in relation to all jobs within the organization. slide 10 .

10/e. No definite or consistent standards for justify the ranking. DeCenzo/Robbins Chapter 11. slide 11 .Job Evaluation and the Pay Structure Job Evaluation Methods ordering method A committee places jobs in a simple rank order from highest (worth highest pay) to lowest. Fundamentals of Human Resource Management. Limitation: enable to manage when there are large number of jobs.

DeCenzo/Robbins Chapter 11. responsibility). sales jobs. knowledge. For example Clerical jobs. 10/e. Look for a common denominator (skills.classification method Jobs placed in grades to compare their descriptions to the benchmarked jobs. shop jobs etc. slide 12 . Limitations: Difficulty of writing classification descriptions Fundamentals of Human Resource Management.

slide 13 . costly & time consuming to Develop.  Jobs with similar point totals are placed in similar pay grades.  Offers the greatest stability. 10/e. Fundamentals of Human Resource Management. DeCenzo/Robbins Chapter 11. Limitations: Point method is complex.point method  Jobs are rated and allocated points on several criteria.

Results in a logical hierarchy of wages. 10/e. DeCenzo/Robbins Chapter 11. Indicates whether pay structure is logical.Job Evaluation and the Pay Structure Establishing the Pay Structure compensation surveys wage curves wage structure Used to gather factual data on pay rates for other organizations. in overlapping ranges. Designates pay ranges for jobs of similar value. Information is often collected on associated employee benefits as well. Drawn by plotting job evaluation data (such as job points or grades) against pay rates (actual or from survey data). slide 14 . Fundamentals of Human Resource Management.

lead.Job Evaluation and the Pay Structure External factors also influence pay structure. 10/e. or lag) collective bargaining (unions) employees must know how the pay structure is derived Fundamentals of Human Resource Management. DeCenzo/Robbins Chapter 11. geographic differences (local supply and demand) labor supply (low supply = higher wages and vice versa) competition (HR can match. slide 15 .

DeCenzo/Robbins Chapter 11.Special Cases of Compensation Incentive Compensation Plans individual organization-wide group incentives can be added to the basic pay structure to provide rewards for performance Fundamentals of Human Resource Management. 10/e. slide 16 .

slide 17 . 10/e. based on performance) piecework plans (pay based on number of units produced typically in a specified time period) time-savings bonuses and commissions these work best where clear objectives are set and tasks are independent Fundamentals of Human Resource Management.Special Cases of Compensation Individual Incentives merit pay plans (annual increase. DeCenzo/Robbins Chapter 11.

If the performance targets are not carefully selected.hrdm. De-emphasizes individual performance. adverse results may occur. Since rewards are controllable by individuals. See: http://www.htm Fundamentals of Human Resource Management.net/en/group_incentive. Requires open communication with employees on costs. rather than individuals.Special Cases of Compensation Group Incentives Incentives can be offered to groups. which can result in excessive peer pressure. The program can be integrated with other corporate initiatives and leads to improved communication and employee relations Disadvantages Can be costly to install and administer. DeCenzo/Robbins Chapter 11. profitability. Advantages Focuses the group on specific performance targets. the programs can be very motivational. etc. slide 18 . 10/e. when employees' tasks are interdependent and require cooperation.

formula is used to determine bonuses based on labor cost savings.scanlonleader. See http://www. DeCenzo/Robbins Chapter 11.php/Plans-ect.html IMPROSHARE . slide 19 .Special Cases of Compensation Organization-wide Incentives direct employee efforts toward organizational goals (such as cost reduction) Scanlon Plan ./Plans-ect.supervisor and employee committees suggest labor-saving improvements. 10/e.qualitydigest.html Fundamentals of Human Resource Management.com/jul/gainshre.org/index. See http://www.

10/e. slide 20 . Fundamentals of Human Resource Management. DeCenzo/Robbins Chapter 11. knowledge and behaviors  leadership  problem solving  decision making  strategic planning  Broad-banding: pre-set pay levels that determine what people are paid based on their type and level of competency.Special Cases of Compensation Paying for Performance  Competency-based compensation  Rewarded for skills.

DeCenzo/Robbins Chapter 11.Special Cases of Compensation Team-Based Compensation  incentives for empowered work teams to exceed established goals and share equally in rewards  depends on:  clarity of team purpose and goals  ability of the team to obtain needed resources  effective team communication skills and trust Fundamentals of Human Resource Management. slide 21 . 10/e.

DeCenzo/Robbins Chapter 11. slide 22 . 10/e.Executive Compensation Programs Supplemental Financial Compensation deferred bonuses – paid to executives over extended time periods. to encourage them to stay with the company stock options – allow executives to purchase stock in the future at a fixed price hiring bonuses – compensate for the deferred compensation lost when leaving a former company Fundamentals of Human Resource Management.

DeCenzo/Robbins Chapter 11. legal and tax counseling perks may include postretirement consulting contracts mortgage assistance expense accounts company cars supplemental disability insurance Fundamentals of Human Resource Management. 10/e.Executive Compensation Programs Supplemental Nonfinancial Compensation Perquisites club memberships paid life insurance supplemental retirement accounts interestfree loans free financial. slide 23 .

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