1. Strategic Business Management Prepared & Presented By
Dr. Hesham Hemaya Private property do not duplicate with out
authorization
2. By the end of this course delegates will be able to:
Understand the objectives of Total Rewards Corporate culture and
compensation structure Organization strategy affecting pay policy
Job evaluation methods How to measure the Central Tendency How to
develop pay structure Objectives Human Resources Management2
3. What is Total Rewards ? Types of compensation Total rewards
refers to all forms of financial and nonfinancial returns that
employee receive from their employers. Human Resources Management3
Direct Base pay (salary) Differential pay (over time) Short-term
incentive pay Long-term incentive pay Pay programs for selected
employees Recognition and achievement awards (cash) Indirect
Legally required benefits Income replacement programs Disability
insurance Medical benefits Pay for time not worked Unpaid leave
(vacations) Recognition and achievement awards (noncash)
4. Note that the total rewards system an organization offers
goes beyond financial issues and incorporates all aspects of work
environments. Human Resources Management4 Reward Examples
Compensations (direct) Wages, commissions, bonuses Benefits
(indirect) Life insurance, disability coverage, health insurance,
vacations, noncash rewards Location City. Nearness to
transportation, restaurants Flexibility Work attire, work at home,
scheduled times Stability Rewards packages do not change
dramatically Work variety Opportunities to experience more skills
Advancement Opportunity to get ahead Work conditions Hazard-free
work place
5. Objectives of Total Rewards system Human Resources
Management5 Org. income must be spread over a variety of needs,
such as R&D, taxes, raw materials, marketing, and compensation.
HR professional must realize that there is no much money available
for pay systems, benefits, recognition programs. So assuming that
the total rewards system is legal and affordable then its basic
objectives is to provide both employer and employees with a system
that is: -Compatible with Org. mission and strategy -Compatible
with corporate culture -Appropriate with the work force -Internally
equity -Externally equity -Effective in recruiting and retaining
employees
6. Human Resources Management6 Org. strategy drive the balance
for these elements as followed : Organization mission and strategy
The developing of Total Rewards system must support the Org.
business plan which designed on the behalf of org. mission and
strategy. HR must consider other indicators such as where is the
org. in it's life cycle is it down sizing or expanding, acquiring,
or being acquired, profitable or not. A total reward system should
attract the right people to the right jobs. An employee must
generate sufficient revenue to cover expenses, generally if the
demand exceeds supply, this puts upward pressure on pay
levels.
7. Human Resources Management7 Corporate culture Compensation
system must fit the org. culture about employees which approach two
basic ways: Entitlement-Oriented Some org. caring, paternalistic
feeling and want employees to feel that they are a part of family
then employees a entitled to benefits such as: Health care
Disability insurance Employee assistance (development)
Contribution-Oriented Other org. see employees as contributors.
Their compensation program are more performance-driven such as:
Performance-based pay Incentives Profit share
8. Human Resources Management8 Contribution margin ratio
Contribution Margin Ratio = (Contribution Margin / Sales) 100 The
CM ratio is extremely useful since it shows how the contribution
margin will be affected by a change in total sales. Total Per Unit
Percent of Sales Sales $100,000 $250 100% Variable expenses 60,000
150 60% ------------ ------------ ----------- Contribution margin
$40,000 $100 40% - ------------ ----------- Less fixed expenses
35,000 ------------ Net operating income $5,000
9. Human Resources Management9 Profit= (Sales CM ratio) Fixed
Cost Sales Volume Percent of SalesPercent Expected Increase Sales
$100,000 $130,000 $30,000 10% Less variable expenses 60,000 78,000
18,000 60% --------- -------- -------- ------ Contribution margin
40,000 52,000 12,000 40% Less fixed expenses 35,000 35,000 0 ======
--------- -------- -------- Net operating income 5,000 17,000*
12,000
10. Human Resources Management10 Work Force The rewards program
must also fit the work force. An org. with entry level or unskilled
workers should have a different rewards package than a company with
experienced highly education workers. One way to keep in touch with
the employees needs is by conducting surveys to assess their
attitude and current and long-term needs.
11. Human Resources Management11 External Equity Another
consideration when developing a total rewards program is to
maintain external equity to attract and retain employees. The
correct pay strategy will depends on how critical employees to the
org. success and the degree to which the org. can afford to fund to
that strategy. Companies compete for employees with others who
shares -Industry have similar product or service -Occupation same
experience or skills -Location same geographical; area
12. Human Resources Management12 Internal Equity Internal
equity means that unique jobs are fairly compensated which helps
the employer to: Meet employees needs for fair wage and adequate
benefits Recognize employees contributions to the org. Reward equal
work with equal pay Not discriminate against protected classes An
org. cannot effectively recruit or retain employees without
internal equity
13. Human Resources Management13 Recruitment and Retention If
org. finds that its turn-over ratio is above normal or unable to
attract suitable talents then the org. total rewards program must
be reviewed, taking into consideration there is also some factors
affecting this issue such managerial stuff, physical location,
14. Human Resources Management14 Develop a Pay Policy (Lead the
market) Increases ability to attract & retain employees Can be
more selective in hiring (Lagging behind the market) Reduces
ability to select Reduces labor expenses Increase turnover ratio
(Match the market) Reduces ability to select Reduces labor expenses
Note: Some org. uses mixed pay policies according to positions
15. Human Resources Management15 Compensation structure Job
Evaluation Job evaluation is a determination of the relative worth
and its value to the org. which done after job analyses. Job
Evaluation Methods 1- Non-quantitative establish a relative order
of jobs 2- Quantitative establish how much job is worth compared to
another job by using scaling system In both methods jobs are
compared to each other or to an outside standards. Non-Quantitative
Quantitative Job-to-Job comparison Job ranking Factor comparison
Job-to-predetermined standard comparison Job classification
Point-factor method Comparison of Job evaluation methods
16. Human Resources Management16 Non-Quantitative methods It is
evaluate the entire jobs and place them in order without a numeric
value, so one can tell Job A is more important than Job B but not
how much important. Job ranking method It is refer to establishing
a hierarchy of jobs from lowest to highest based on job overall
importance to the org. In this method a paired-comparison method
may be used in which each job is compared with every other job
being evaluated, then the job with largest number of greater than
ranking is the highest-ranked job, and so on. To make the
comparison you would: 1- Select the jobs to be rated 2- Compare
each job with the other jobs 3- Total favorable comparisons 4- Rank
jobs 5- Compare ranking Job ranking is an easily fairly quick,
inexpensive method for small org.
17. Human Resources Management17 Job classification method Job
classification involves in grouping jobs into predetermined number
of grades or classifications, each have a class description to use
for job comparisons. (SHRM) It is also a system for defining and
evaluating the duties, responsibilities, tasks, and authority level
of a job. without regard to the knowledge, skills, experience, and
education of the job holder. Classes may be described by naming
benchmark jobs that jobs fall into each class and are defined as
reference points. The benchmark jobs must have the following
characteristics: 1- The contents are well known, relatively stable
2- They represent the entire range of jobs to be evaluated 3- a
sizable portion of the work force is employed in these jobs 4-
External pay rates for these jobs are acceptable basis for setting
wages Job classification is good for large no. of jobs i.e. Large
organizations
18. Human Resources Management18 Quantitative methods
Quantitative job evaluation methods evaluate specific factors, use
a scale and provide a score indicates that how valuable one job
when compared to another. Point-factor method It is the most common
used job evaluation method which involving using compensable
factors to evaluate relative job worth Compensable factors reflects
which jobs are add value to the org. and aligned to the strategic
direction and culture of the business. The Hay plan compensable
factors The Hay system assigns three factors to determine the
relative value of a particular job to other jobs. The knowledge
required (Know how) Problem solving required Level of
accountability
19. Human Resources Management19 The Factor Evaluation System
(FES) Developed by US. Government and it includes factor such as:
The knowledge required (Skills) Supervisory control
(Responsibility) Complexity Scope and effect Personal contacts
Physical demand (Effort req.) Work environment (working conditions)
Compensable evaluation factors selected may vary among org. The
compensable factors should: Reflect the actual work being done.
Supported by documents (job description) Reinforce the org.
strategy and culture Be valued by all affected parties
(stakeholders) Being reviewed annually
20. Human Resources Management20 FACTOR POINTS % TOTAL LEVELS
Knowledge 50-1850 41.3 9 Supervisory Control 25-650 14.5 5
Guidelines 25-650 14.5 5 Complexity 25-450 10.0 6 Scope/effect
25-450 10.0 6 Personal Contact 10-110 2.5 4 Purpose Of Contact
20-220 4.9 4 Phys Demand 5-50 1.1 3 Work Environment 5-50 1.1 3
Total Points 4480
21. Human Resources Management21 As an example for just one
compensable factor skill it may have many degrees which is
reflected by the assigned points. Degree Levels points 1 Knowledge
of simple, routine tasks. Skills to operate simple equipment req.
no previous training or experience 60 2 Knowledge of basic
procedures . Skills to operate equipment req. moderate degree of
experience or previous training 120 3 Knowledge of standardized,
moderately complex. Skill to operate varied equipment req. training
and experience 180 4 Knowledge of technical or special procedures
to perform assignments req. considerable training and experience
240 5 Knowledge of an extensive body of procedures which req.
special skills based on extensive training and experience 300
22. Human Resources Management22 example for Job, C Factor
Degree/Points for Job C 1 2 3 4 5 Factor Totals Skill 60 120 180
240 300 120 Responsibility 60 120 180 240 300 240 Effort 50 100 150
200 -- 150 Working Conditions 30 60 100 -- -- 60 Supervision 20 40
60 80 100 40 Total 0 220 150 240 0 610
23. Human Resources Management23 220 300 400 500 600 700 800
900 1000 Job A Job B Job C Job B Job E Based on the assigned points
Job C relative worth can be compared to the other jobs in the range
which is the goal of point-factor analysis. The total points also
assign the pay grade for example if an org. define that grade 4
jobs is located between 520 to 619 points, then job C (610 points)
would be a grade 4 which determine the pay range.
24. Human Resources Management24 Factor comparison method This
method is more complex and rarely used, it involves the ranking of
each job by each selected compensable factor and then identify
dollar value for each level of each factor to develop pay rate for
a job. Skill Responsibility Effort Working condition Supervision
5.40 $/h A A A 4.80 $/h A A 4.20 $/h B B B B 3.90 $/h B From this
example Job A = 5.40+4.80+5.40+4.80+5.40 = 25.80 $/h Job B =
4.20+4.20+4.20+4.20+3.90 = 20.70 $/h This method is best use when
wages are not frequently changed and the org. uses a flat rate for
each job.
25. Human Resources Management25 Market-Based Evaluation
Evaluating the jobs on their market values is not true evaluation
system, market rates can be used to developed a Job-worth hierarchy
around benchmark rates. The key points of comparison when matching
jobs with compotators are duties, scope, reporting relationship not
titles the mach must be Focused on industry or specific job With in
markets of same size, profitability, sales, geographical area
Local, regional, or national Advantages Considering external
competition leading to internal equity Suited to org. where its
vital to maintain competitive market position Disadvantages Needs
available data for a significant no. of org. Jobs Do not recognize
internal job importance Less defensible than job content
approach
26. Human Resources Management26 Pay surveys collect a valuable
information on market rates which includes: -Incentive plans
-Overtime pay -Stating wage rates -Base pay -Pay ranges -Shift
differentials -Vacations system
27. Human Resources Management27 Internal Vs. External Surveys
Once the org. decided that a pay survey is needed a decision must
be made as to how the survey should be conducted. Internal survey
External survey When org. have the resources and expertise and want
to maximize the control over the survey they may choose to develop
their own internal survey (in- house) The advantage of in-house
survey is the ability to control the design, data analysis and
reporting specifically as needed. Org. may contract w out side
consultant while the org. still maintain control. If org. choose to
use external survey it must be certain about how the data was
generated and when it was collected. Tow sources of data are
available 1- Published compensation survey 2- Professional out
source such SHRM, Hay, ..
28. Human Resources Management28 Choosing between Internal
& External surveys Choosing can be determined by several
factors such as: The internal time and expertise req. The
relevance/match of external survey to the org. jobs The
availability of the data survey The expense associated with the
survey type Data Analysis Survey data analysis must based on the
circumstances of their market, products, and employees. First
survey data must be verified and may need to be aged/or leveled.
Aged data Assume that market rates movement is 3% per year so if we
used a data aged by one year we have to increase the rate by same
percentage. Non identical jobs If the data survey is similar but
not identical the job can be waited or leveled to better mach
29. Human Resources Management29 Measure of Central Tendency CT
Measures of CT are another way for analyzing pay survey data, there
are three measures of CT mean, median, mode, weighted average along
with quartiles and percentiles. Mean/Average Un weighted average
Gives equal weight to every company's salary in the survey with no
regards for other factors (such as the No. of incumbents) so it
provides only the average salary data for a particular job rather
than the actual. Weighted average Gives another picture of the data
taken into account the number of incumbents who receive that
salary.
30. Human Resources Management30 Company Incumbents Salary
Total salary A 2 55,000 $ 110,000 $ B 1 60,000 $ 60,000 $ C 2
65,000 $ 130,000 $ D 5 70,000 $ 350,000 $ E 1 75,000 $ 75,000 $
Total 11 325,000 $ 725,000 $ Salary data for weighted and
un-weighted average Un-weighted average is 65,000 $ (325.000 / 5)
Weighted average is 65.909 $ (725,000 / 11)
31. Human Resources Management31 Median Median is the middle
number in the salary range. Salaries 55.000 55,000 60,000 65,000
65,000 70,000 70,000 70,000 70,000 70,000 75,000 Salaries 55.000
55,000 60,000 60,000 65,000 65,000 70,000 70,000 70,000 70,000
70,000 75,000 Median is 70,000 $ Median is 67,500 $ Mode Mode is
the most frequently occurring wage Mode is 70,000 $
32. Human Resources Management32 Quartiles and Percentiles 0 %
Q1 Q2 50% Q3 Q4 First quartile Second quartile Third quartile
Fourth quartile $ 55,000 Entry wage $ 60,000 $ 65,000 Midpoint $
70,000 $ 75,000 Max wage Job grade Quartiles
33. Human Resources Management33 Pay Structure Pay Grades Pay
Ranges Once survey data are collected and relative internal job
values are established, the pay structure can be developed
involving pay grades and ranges. It is used for grouping all jobs
that have same relative internal worth and paid with in the same
pay range. The number of pay grades varies with -Size of the
organization -Vertical distance between lowest and highest level
jobs (Span of Control) -Pay increases and promotion policy -The
slope of pay policy line -Administrative efficiency concerns It
sets the upper and lower limits of possible compensation for
individuals whose jobs fall in the same pay grade, the data survey
is used to establish the maximum, minimum and midpoint of the pay
range.
34. Human Resources Management34 Pay range spread Range spread
= Max - Min Min X 100 Ex: Range spread = = 44% 65,000 45,000 45,000
X 100 Typical range spreads are: -Nonexempt position ----- 40%
-Exempted position ----- 50% -Executive position ----- 60%
35. Human Resources Management35 To be noticed, lower-level
jobs have a narrow pay range while the salary range for
higher-level jobs will be wider. This is because employees in
entry-level jobs have more promotion possibilities there for they
tend to stay at entry-level shorter time than higher- level , also
the learning time to achieve the job rate competencies (midpoint)
is less for lower-level. There should be an overlap between pay
ranges, which makes it possible for an experienced person in
lower-level grade to be paid more than an inexperienced person in
the next higher grade. Grade Minimum Midpoint Maximum Range Spread
Midpoint Difference 34 3,519 $ 4.398 $ 5,278 $ 50% 14% 33 3,087 $
3,858 $ 4,630 $ 50% 14% 32 2,708 $ 3,384 $ 4,061 $ 50% 14% 31 2,375
$ 2,969 $ 3,563 $ 50% 14% 30 2.083 $ 2,604 $ 3,125 $ 50% 14%
Typical Exempt Pay Structure
36. Human Resources Management36 Compa-ratio It is an indicator
as to how actual wages match, lead or lag behind the market.
Compa-ratio = X 100 Pay level Midpoint Market rate A compa-ratio is
below 100% may occur when: New employee to the job or org. A poor
performer Org. that adapt a lag pay strategy A compa-ratio is above
100% may occur when an employee is: Employees are long-tenured/high
performed Managers are not following salary increase pol Org. that
adapt a lead pay strategy
37. Human Resources Management37 Broad banding It is a way to
combine several salary grades or job classifications with narrow
pay ranges into one band with wider salary spread. It is suitable
for large hierarchical org. that try to flatten their org. and
remove levels of management Ex: org. w 8 managing levels could
eliminate 4 levels, widen the salary ranges of the remaining 4
levels and simply slot each manager into one of those ranges.
Service Experts Management SupervisoryTechnical 68,000$22,000$
105,000$50,000$ 38,000$17,000$ Broad banding
38. Do you have any questions ? Human Resources Management38
The End