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Human ResourceHuman Resource
ManagementManagementTENTH EDITONTENTH EDITON
2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentationby Charlie CookPowerPoint Presentationby Charlie Cook
Compensation StrategiesCompensation Strategies
and Practicesand Practices
Chapter 12Chapter 12
SECTION 4Compensating
HumanResources
SECTION 4Compensating
HumanResources
Robert L. MathisRobert L. Mathis John H. JacksonJohn H. Jackson
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Learning ObjectivesLearning Objectives
After you have read this chapter, you should beable to:
Identify two general types of compensation and thecomponents of each.
Give examples of two different compensationphilosophies in organizations.
Discuss four strategic compensation design issues.
Describe three considerations affecting perceptionsof pay fairness.
Identify the basic provisions of the Fair LaborStandards Act (FLSA).
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Learning Objectives (contd)Learning Objectives (contd)
Define job evaluation and discuss four methods forof performing it.
Outline the process of building a wage and salaryadministration system.
Discuss how to establish a pay-for-performancesystem.
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Compensation SystemsCompensation Systems
Objectives of an Effective CompensationSystem:
Legal compliance with all appropriate laws andregulations
Cost effectiveness for the organization
Internal, external, and individual equity foremployees
Performance enhancement for the organization
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Nature of CompensationNature of Compensation
Types of Rewards Intrinsic
Intangible, psychological and social effects of
compensation
Extrinsic Tangible, monetary and nonmonetary effects of
compensation
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Components of A Compensation ProgramComponents of A Compensation Program
Figure 121
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Typical Division of HR Responsibilities:Typical Division of HR Responsibilities:
CompensationCompensation
Figure 122
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Continuum of Compensation PhilosophiesContinuum of Compensation Philosophies
Figure 123
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Compensation ApproachesCompensation Approaches
Figure 124
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Compensation Quartile StrategiesCompensation Quartile Strategies
Figure 125
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Decisions About Compensation LevelsDecisions About Compensation Levels
Compensation trate ies
Above-Market a in for i er qualifie , more pro uctiveorkers.
Mi le-Market Attemptin to balance of emplo er costs an
nee to attract an retain emplo ees.
Belo -Market a in all t at t e firm can affor
akin a vanta e of t e abun ant suppl of potential emplo ees in a loose labor market.
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CompetencyCompetency-- ased Payased Pay
Maintenance ofCompetencies
Limitations
(How many?)Pricing
Competencies
Training
CompetencyCompetency--
Based PayBased PaySystemsSystemsKBP/SBPKBP/SBP
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CompetencyCompetency--Based Systems OutcomesBased Systems Outcomes
Figure 126
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Individual vs. Team RewardsIndividual vs. Team Rewards
Distribute variable rewards at the team levelDistribute variable rewards at the team level
a e system simple and understandable.a e system simple and understandable.
Using TeamUsing Team-- ased Reward Systemsased Reward Systems
Use s illUse s ill--based pay for the base.based pay for the base.
Use variable pay based on business entity performanceUse variable pay based on business entity performance
aintain a high degree of employee involvementaintain a high degree of employee involvement
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Perceptions of Pay FairnessPerceptions of Pay Fairness
E uity The perceived fairness between what a persondoes (inputs) and what the person receives(outcomes).
Procedural Justice The perceived fairness of the process andprocedures use to ma e decisions aboutemployees
Distributive Justice The perceived fairness in the distribution ofoutcomes.
Pay Openness The degree of openness or secrecy that an
organization allows regarding its pay system.
External E uity The perception that the organization providesemployees with compensation that comparableto the compensation of employees with similar
jobs in other organizations.
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EquityConsiderations in CompensationEquityConsiderations in Compensation
Figure 127
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FairLabor Standards Act (FSLA) of 1938FairLabor Standards Act (FSLA) of 1938
Provisionsofthe ActProvisionsofthe Act
Minimum wage requirement sets wage floorMinimum wage requirement sets wage floor
Childlabor (under 14 yearsold)is prohibitedChildlabor (under 14 yearsold)is prohibited
Requiresovertime paymentsfornonRequiresovertime paymentsfornon--exempt employeesexempt employees
Exempts highlyExempts highly--paid computer workerspaid computer workers
Requiresovertime (1Requiresovertime (1) pay for hoursover 40 hours) pay for hoursover 40 hours
Requires compensatory time at overtime (1Requires compensatory time at overtime (1) pay rates) pay rates
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Wage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards Act
Figure 128a
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Wage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards Act
Figure 128b
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Wage/Hour Status Under Fair Labor Standards ActWage/Hour Status Under Fair Labor Standards Act
Figure 128c
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The IRSTest forEmployees andThe IRSTest forEmployees and
Independent ContractorsIndependent Contractors
Figure 129Source: U.S. Internal Revenue Service.
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OtherLaws Affecting CompensationOtherLaws Affecting Compensation
Davis-Bacon Act of 1931 Required payment of prevailing wage by firms
engaged in federal construction projects.
Walsh-Healy Public Contracts Act and the
Service Contracts Act Extended the payment of prevailing wage to
service contracts
Required overtime payment for any employee hours
worked over eight hours in one day; applies only toto federal contracts, not the private sector.
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Pay and GenderPay and Gender
Equal Pay Act of 1963 Requires that men and women be paid the same
for performing substantially similar jobs with limitednon-gender exceptions (e.g., merit and seniority).
Issue of Pay Equity Similarity in pay for all jobs requiring comparable
level of knowledge, skills, and abilities, even ifactual duties and market rates differ significantly.
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CompensationCompensation
AdministrationAdministration
ProcessProcess
Figure 1210
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Job EvaluationJob Evaluation
Job Evaluation The systematic determination of the relative worth
of jobs within an organization.
Benchmark Job
A job found in many organizations and performedby several individuals who have similar duties thatare relatively stable and require similar KSAs.
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Job EvaluationJob Evaluation
F
actorF
actorComparisonComparison
RankingRanking ClassificationClassification
PointPointMethodMethod
JobJobEvaluationEvaluationMethodsMethods
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Job Evaluation Point ChartJob Evaluation Point Chart
Figure 1211
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Legal Issues and Job EvaluationLegal Issues and Job Evaluation
Americans with Disabilities ActAmericans with Disabilities ActJob evaluations may not identify job functions related toJob evaluations may not identify job functions related to
physical demands as essentialphysical demands as essential
Gender IssuesGender IssuesTraditional job evaluations place less weight on knowledge,Traditional job evaluations place less weight on knowledge,
skills, and working conditions for femaleskills, and working conditions for female--dominated jobsdominated jobs
Job EvaluationJob Evaluation
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Developing Pay SurveysDeveloping Pay Surveys
Select Employers with Comparable JobsSelect Employers with Comparable Jobs
Determine Jobs to be SurveyedDetermine Jobs to be Surveyed
Decide hat Information Is NeededDecide hat Information Is Needed
Conduct SurveyConduct Survey
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Pay StructuresPay Structures
Market Line The line on a graph showing the relationship
between the job value, as determined by jobevaluation points, and pay survey rates.
Common Pay Structures Hourly and salaried
Office, plant, technical, professional, managerial
Clerical, information technology, professional,
supervisory, management, and executive
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Pay Structures (contd)Pay Structures (contd)
Pay Grades A grouping of individual jobs having approximately
the same job worth.
Broadbanding
The practice of using fewer pay grades havingbroader pay ranges that in traditional systems.
Benefits Encourages horizontal movement of employees
Is consistent with trend towards flatter organizations Creates a more flexible organization
Encourages competency development
Emphasizes career development
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Traditional PayStructure vs. BroadbandingTraditional PayStructure vs. Broadbanding
Figure 1213
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PayScattergramPayScattergram
Figure 1214
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Typical PayRange WidthsTypical PayRange Widths
Figure 1215
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Example ofExample of
PayGradesPayGrades
and Payand Pay
RangesRanges
Figure 1216
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Pay Rate IssuesPay Rate Issues
Rates Out of Range Red-Circled Employees
An incumbent (current jobholder) who is paid above
the range set for the job.
Green-Circled Employees An incumbent who is paid below the range set for the
job.
Pay Compression
A situation in which pay differences amongindividuals with different levels of experience andperformance in the organization becomes small.
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Issues Involving Pay IncreasesIssues Involving Pay Increases
Seniority Time spent in an organization or on a particular job.
Used to determine eligibility for organizationalrewards and benefits.
Maturity Curve A curve that depicts the relationship between
experience and pay rates.
Assumption is that as experience increases,
proficiency and performance increase.
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Issues Involving Pay IncreasesIssues Involving Pay Increases
Cost-of-Living Adjustments (COLA) A percentage increase in wages that allows
employees to maintain the same real wages in aperiod of economic inflation.
Adjustments are tied to changes in an economicmeasure (e.g., the Consumer Price Index).
Lump-Sum Increases (LSI)
A one-time payment of all or part of a yearly pay
increase. Lump-sum payments do not increase base wages
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PayAdjustment MatrixPayAdjustment Matrix
Figure 1217
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CompaCompa--Ratio ExampleRatio Example
Compa-ratio The pay level divided by the midpoint of the pay
range.
110ratio-Compa100(midpoint)15.00
pay)(current$16.50Employee !pv!R
87ratio-Compa100(midpoint)15.00
pay)(current$13.05Employee !pv!J