Dessler Ch7Compensating Employees

7/28/2019 Dessler Ch7Compensating Employees

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Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall 7- 1

A Framework for Human Resource

Management,

5th ed.

Gary Dessler


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Compensating Employees

Ch 7


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When you finish studying this chapter,

you should be able to:

Explain each of the five basic steps inestablishing pay rates.

Discuss four basic factors determining pay

rates. Compare andcontrast piecework and

team or group incentive plans.

List anddescribe each of the basicbenefits most employers might beexpected to offer.


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Introduction

Employee compensation- refers to all forms of pay or rewards going to

employees and arising from their employment

- direct financial payments- indirect payments


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Employee Compensation

Direct financial payments- payments in the form of wages, salaries,

incentives, commissions, and bonuses

Indirect payments- payments in the form of financial benefits like

employer-paid insurance and vacations


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Pay Factors

1. Legal2. Union

3. Policy

4. Equity


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Some Important Compensation Laws

Fair Labor Standards Act- contains minimum wage, maximum hours,

overtime pay, equal pay, record-keeping, and

child labor provisions covering the majority ofU.S. workers


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Some Important Compensation Laws(cont.)

Equal Pay Act- employees of one sex may not be paid wages

at a rate lower than that paid to employees of

the opposite sex for doing roughly equivalentwork


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Some Important Compensation Laws(cont.)

Title VII of the Civil Rights Act- makes it an unlawful practice for an employer

to discriminate against any individual with

respect to hiring, compensation, terms,conditions, or privileges of employmentbecause of race, color, religion, sex, ornational origin


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Some Important Compensation Laws (cont.)

Age Discrimination in Employment Act Americans with Disabilities Act

Family and Medical Leave Act


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How Unions Influence CompensationDecisions

National Labor Relations Act (NLRA) of1935

- granted employees the right to organize and

to bargain collectively


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Compensation Policies

A hospital might have a policy of startingnurses at a wage at least 20% above theprevailing market wage.

The average base pay for an executivesecretary ranges from $37,300 in

Albuquerque New Mexico to $41,900

(Tampa, Florida), $59,800 (New York,New York), and $60,100 (San Francisco,California).


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Equity and Its Impact on Pay Rates

External equity- pay must compare favorably with rates in

other companies, or an employer will find it

hard to attract and retain qualified employees


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Equity and Its Impact on Pay Rates(cont.)

Internal equity- each employee should view his or her pay as

equitable given other employees pay in the

organization


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How Employers Establish Pay Rates

1. Conduct a salary survey2. Employee committeedetermines the

worth of each job

3. Group similar jobs into pay grades4. Price each pay grade by using wage

curves

5. Develop rate ranges


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Step 1: Conduct the Salary Survey

Salary (or compensation) surveys- formal or informal surveys of what other

employers are paying for similar jobs

Used to price benchmark jobs

Collect data on benefits


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Step 2: Determine the Worth of Each Job

Job evaluation- formal and systematic comparison of jobs to

determine the worth of one job relative to

another Compensable factors

- factors that determine your definition of jobcontent, establish how the jobs compare toeach other, and set the compensation paid foreach job


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Job Evaluation Methods

Ranking method- ranks each job relative to all other jobs

Job classification

- manager categorizes jobs into groups basedon their similarity in terms of compensablefactors such as skills and responsibility


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Ranking Method of Job Evaluation

1. Obtain job information2. Select raters and jobs to be rated

3. Select compensable factors

4. Rank jobs

5. Combine ratings


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Job Evaluation Methods

Point method- involves identifying several compensable

factors, each having several degrees, and

then assigning points based on the number ofdegrees, to come up with an actual number ofpoints for each job

St 3 G Si il J b i t P


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Step 3: Group Similar Jobs into PayGrades

Pay grade- comprises jobs of approximately equal

difficulty or importance as determined by job

evaluation

St 4 P i E h P G d W


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Step 4: Price Each Pay GradeWageCurves

Wage curve- shows the average pay rates currently being

paid for jobs in each pay grade

Purpose of a wage curve is to show therelationship between (1) the value of the job asdetermined by one of the job evaluationmethods and (2) the current average pay rates

for the grades


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Plotting a Wage Curve


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Step 5: Develop Rate Ranges

May be 10 levels or steps and 10corresponding pay rates within each paygrade

Employer may fine-tune pay rates toaccount for any unique circumstances

P i i M i l d


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Pricing Managerial andProfessional Jobs

Emphasize nonquantifiable factors suchas judgment and problem solving

Tendency is to pay managers and

professionals based on their performance


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Executive Compensation Variance

Three main factors Job complexity

Ability to pay

Human capital

Pricing Managerial and


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Pricing Managerial andProfessional Jobs

Four main components: Base salary

Short-term incentives

Long-term incentives

Executive benefits and perks


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Strategy and Executive Pay

Identify the company's strategic direction,and translate this into specific businessgoals

List the skills and competencies yourprofessional employees should have toaccomplish these goals


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Strategy and Executive Pay (cont.)

Evaluate the extent to which the existingpay plan produces these skills andcompetencies

Design and implement the new pay plan


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Current Trends in Compensation

CompetencySkill-based pay- employee is paid for the range, depth, and

types of skills and knowledge he is capable ofusing rather than for the responsibilities of the

job currently held

Competencies

- demonstrable personal characteristics suchas knowledge, skills, and behaviors


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Current Trends in Compensation (cont.)

Skill-based pay programs- employer defines specific skills, and has a

method for determining the persons pay

based on his or her skill competencies


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Current Trends in Compensation (cont.)

Broadbanding- collapsing salary grades and ranges into just

a few wide levels or bands, each of whichcontains a relatively wide range of jobs andsalary levels


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Board Oversight of Executive Pay

Has our compensation committee thoroughlyidentified its duties and processes?

Is our compensation committee beingappropriately advised?

Are there particular executive compensationissues that our committee should address?

Do our procedures demonstrate diligence and

independence? Is our committee appropriately communicating

its decisions?


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Incentive Plans

Individual incentive programs- give performance-based pay to individual

employees who meet their individualperformance standards

Variable pay

- refers to group pay plans that tie payments to

productivity


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Piecework Plans

Piecework- pay is tied directly to what the worker

produces

- paid a piece rate for each unit he or sheproduces


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Team or Group Incentive Plans

Companies often want to pay groups onan incentive basis, such as when theywant to encourage teamwork

Main disadvantage is that each workers

rewards are not based just on his own

efforts


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Incentives for Managers and Executives

Stock option- the right to purchase a specific number of

shares of company stock at a specific priceduring a period of time


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Incentives for Salespeople

Most companies pay their salespeople acombination of salary and commissions

Typically a 70% base salary/30% incentivemix


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Auto-dealers Compensation

Compensation for car salespeople rangesfrom a high of 100% commission to asmall base salary with commission

Commission is generally based on the netprofit on the car

It encourages the salesperson to hold firm

on the retail price, and to push after-saleproducts

Non-Tangible and Recognized-Based


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Non-Tangible and Recognized-BasedAwards

Studies show that recognition has apositive impact on performance, eitheralone or in conjunction with financial

rewards


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Online Award Programs

Recognition programs are expensive toadminister

Firms partner with online incentive firms to

expedite process


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Incentive Plans

Merit pay- any salary increase awarded to an employee

based on his or her individual performance

Profit-sharing plan- most employees receive a share of the

companys annual profits

I i Pl


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Incentive Plans

Employee stock ownership plan (ESOP)- a corporation contributes shares of its own

stockor cash to be used to purchase suchstockto a trust established to purchaseshares of the firms stock for employees

B d b d St k O ti


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Broad-based Stock Options

With companies now having to show stockoptions as an expense when awarded,some firms feel awarding stock instead of

stock options is a more direct andimmediate way of linking pay toperformance

I ti Pl


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Incentive Plans

Gainsharing plans- want to encourage improved employee

productivity by sharing resulting financialgains with employees

S l Pl


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Scanlon Plan

1. Philosophy of cooperation2. Identity

3. Competence

4. Involvement system

5. Sharing of benefits formula

E i t Ri k P Pl


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Earnings-at-Risk Pay Plans

Earnings-at-risk pay plans- some portion of the employee's base salary is

at risk

HRIS d P d ti it


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HRIS and Productivity

Enterprise Incentive Management (EIM)software is used to automate the planningand management of incentive plans

E l B fit


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Employee Benefits

Benefits- defined as all the indirect monetary and

nonmonetary payments an employee receivesfor continuing to work for the company

P f Ti N t W k d


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Pay for Time Not Worked

Supplemental pay benefits- typically one of an employers most expensive

benefits

- holidays, vacations, sick leave, and jury duty

P f Ti N t W k d ( t )


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Pay for Time Not Worked (cont.)

Severance pay- a one-time separation payment

Worker Adjustment and Retraining Act of

1989

I B fit


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Insurance Benefits

Workers compensation- aimed at providing sure, prompt income and

medical benefits to work-related accidentvictims or their dependents

The Pregnanc Discrimination Act


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The Pregnancy Discrimination Act

Pregnancy Discrimination Act- requires employers to treat women affected

by pregnancy, childbirth, or related medicalconditions the same as any employee notable to work, with respect to all benefits,including sick leave and disability benefits,and health and medical insurance

Insurance Benefits


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Insurance Benefits

COBRA Comprehensive OmnibusBudget Reconciliation Act

- requires most employers to make available to

terminated employees continued healthbenefits for a period of time

Cost Control


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Cost Control

Cost containment specialists Online administration

Defined benefits

Deductibles Outsourcing

Wellness programs

Claims audits Medical tourism

Long-term care

Retirement Benefits


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Retirement Benefits

Social Security Retirement benefits

Death benefits

Disability payments

Pension Plans


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Pension Plans

Defined benefit pension plan- contains a formula for determining retirement

benefits so that the actual benefits to bereceived are defined ahead of time

Pension Plans


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Pension Plans

Defined contribution plan- specifies what contribution the employer will

make to a retirement or savings fund set upfor the employee

Employee Service Benefits


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Employee Service Benefits

Employee Assistance Programs (EAPs)- formal employer program for providing

employees with counseling and advisoryservices

Employee Services and Family-Friendly


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p y y yBenefits

Flexible benefits plans- initially called cafeteria plans because

employees could spend their benefitsallowances on a choice of benefits options

Employee Leasing


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Employee Leasing

Employee leasing- leasing firm becomes the legal employer and

handles all employee-related paperwork

Strategy and HR


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Strategy and HR

Employers today want to ensure that theircompensation plans (1) add value in termsof (2) promoting the employee

performance that is required for (3)achieving the firms strategic goals.


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