Professional Documents
Culture Documents
COMPENSATION
9-1
Compensation: An Overview
Compensation - Total of all rewards provided employees in return for services Direct financial compensation - Pay received in form of wages, salaries, bonuses, and commissions Indirect financial compensation (benefits) - All financial rewards not included in direct compensation Nonfinancial compensation - Satisfaction person receives from job itself or from psychological and/or physical environment in which person works
2008 by Prentice Hall 9-2
Compensation
Financial
Direct Indirect (Benefits)
Nonfinancial
The Job
Job Environment Sound Policies Wages Legally Required Benefits Skill Variety Task Capable Managers Salaries Social Security Identify Task Competent Employees Commissions Unemployment Compensation Significance Congenial Coworkers Bonuses Workers Compensation Autonomy Suitable Status Symbols Family & Medical Leave Feedback Working Conditions Voluntary Benefits Workplace Flexibility Payment for Time Not Worked Flextime Health Care Compressed Workweek Life Insurance Job Sharing Retirement Plans Customized Benefit Plans Disability Protection Telecommuting Employee Stock Option Plans Part-time Work Customized Benefit Plans More Work, Fewer Hours
9-3
Equity Theory
Motivation theory that people assess their performance and attitudes by comparing both their contribution to work and benefits they derive from it to contributions and benefits of comparison others whom they selectand who in reality may or may not be like them
9-4
9-6
Employee
Job Performance Skills Competencies Seniority Experience Organization Membership Potential Political Influence Luck
Labor Market
Compensation Surveys Expediency Cost of Living Labor Unions Economy Legislation
Pricing
Job
Job Analysis Job Descriptions Job Evaluation
2008 by Prentice Hall 9-7
9-8
Compensation Policies
Pay leaders - Pay higher wages and salaries Market rate, or going rate - Pay what most employers pay for same job Pay followers - Pay below market rate because poor financial condition or believe do not require highly capable employees
9-9
Organizational Level
Upper management often makes decisions to ensure consistency Extreme pressure to retain top performers may override desire to maintain consistency in pay structure
9-10
Ability to Pay
Organizations assessment of ability to pay is important factor in determining pay levels
9-11
Compensation Surveys
What are other firms paying? Geographic area of survey Specific firms to contact Jobs to include
2008 by Prentice Hall 9-13
Expediency
Managers in highly technical and specialized areas occasionally need to utilize nontraditional means to determine what constitutes competitive compensation for scarce talent and niche positions Need real-time information
9-14
Cost of Living
When prices rise over a period of time and pay does not, real pay is actually lowered Some firms index pay increases to inflation rate
2008 by Prentice Hall 9-15
Labor Unions
Mandatory collective bargaining between management and unions as wages, hours, and other terms and conditions of employment. Cost-of-living allowance has been disappearing
9-16
The Economy
Affects financial compensation decisions Depressed economy generally increases labor supply Cost of living often rises as economy expands
2008 by Prentice Hall 9-17
Performance-Based Pay
Merit pay - Pay increase given to employees based on level of performance as indicated in appraisal Variable Pay -: Bonus - Most common type of variable pay for performance. One-time financial award based on productivity Spot bonuses - Relatively small, gifts to employees for outstanding work or effort Piecework - Employees paid for each unit they produce
9-19
Skill-Based Pay
Compensates on basis of job-related skills and knowledge Employees and departments benefit when employees obtain additional skills Appropriate where work tends to be routine and less varied Must provide adequate training opportunities or system becomes demotivator
2008 by Prentice Hall 9-20
Competency-Based Pay
Rewards employees for capabilities they attain Competencies include skills but also involve other factors such as motives, values, attitudes, and selfconcepts
9-21
Seniority
Length of time employee has been associated with company, division, department, or job Labor unions tend to favor seniority
9-22
Experience
Regardless of nature of job, very few factors have a more significant impact on performance than experience Dot-com world has changed attitude with regard to experience
9-23
Membership in Organization
Components of individual financial compensation are given to employees regardless of particular job they perform or level of productivity Maintains high degree of stability in workforce and recognizes loyalty
9-24
Potential
Organizations do pay some individuals based on potential Many young employees are paid well because of their potential
9-25
Political Influence
Should not be used to determine financial compensation To deny its existence would be unrealistic Person's pull or political influence may sway pay and promotion decisions
2008 by Prentice Hall 9-26
Luck
9-27
Team-Based Pay
If team is to function effectively, firms should provide reward based on overall team performance
2008 by Prentice Hall 9-28
Company-Wide Pay
Profit sharing - Distribution of predetermined percentage of firms profits to employees Gainsharing - Bind employees to firms productivity and provide incentive payment based on improved company performance Scanlon plan - Reward to employees for savings in labor costs resulting from employees suggestions
2008 by Prentice Hall 9-29
Professionals Compensation
Initially compensated for knowledge they bring to organization Maturity curves reflect relationship between professional compensation and years of experience
9-30
9-32
Executive Compensation
9-33
9-35
Golden Parachutes
Perquisite that protects executives in event another company acquires firm or executive is forced to leave firm for other reasons
9-36
9-37
Job Evaluation
Firm determines relative value of one job in relation to another Ranking Classification Factor comparison Point Hay guide chart-profile method
2008 by Prentice Hall 9-39
Ranking Method
Simplest method Raters examine description of each job Jobs arranged in order according to value
2008 by Prentice Hall 9-40
Classification Method
Define number of classes or grades to describe group of jobs Compare job description with class description Class description that most closely agrees with job description determines job classification
2008 by Prentice Hall 9-41
Point Method
Numerical values assigned to specific job components Sum of values gives quantitative assessment of jobs relative worth Job factors selected according to nature of specific group of jobs
9-43
9-45
Weight
35% 25% 18% 17% 5%
1
35 25 18 17 5
9-46
Job Pricing
Placing dollar value on worth of job Pay grades - Grouping of similar jobs to simplify pricing jobs Wage curve - Fitting of plotted points to create smooth progression between pay grades Pay ranges - Minimum and maximum pay rate with enough variance between to allow for significant pay difference
2008 by Prentice Hall 9-48
Broadbanding
Technique that collapses many pay grades (salary grades) into few wide bands to improve organizational effectiveness Lateral employee development Develop employee skills and encourage team focus Employee attention directed away from vertical promotional opportunities
9-50
Grade 5
Grade 4 Grade 3 Grade 2 Grade 1 Band A
Band B
High
9-51
Employee Assistance Programme ESOP Flexitime Golden Handshake Overtime Flexible benefits Day Care Tuition Reimbursement Perquisites
2008 by Prentice Hall
Non-Traditional Benefits
9-52