Total Compensation

1
Total Compensation

• Base pay
• Incentives
• Indirect compensation - Benefits

2
Developing a Compensation Plan

• Internal vs. External Equity
• Fixed vs. Variable Pay
• Performance vs. Membership
• Job vs. Individual Pay
• Egalitarianism vs. Elitism
• Below Market vs. Above Market
• Monetary vs. Non-Monetary Rewards

3
Developing a Compensation Plan, contd

• Open vs. Secret Pay
• Centralization vs. Decentralization of Pay
  Decisions

4
Equity Issues

• Internal Equity
• Distributive Justice Model - the first step in
  Equity Theory
• External Equity
• Labour Market Model - law of supply and demand //
  market based pay

5
Fixed vs Variable Pay

• Variable Risk/Return sharing
• Does fixed pay reduce risk for both employer and
  employee?

6
Job Based Pay

• Stable technology
• standard jobs
• little crosstraining needed
• much training for each job
• low turnover
• expect employees to move up

7
Individual Based Pay

• Willing and able workforce
• changing technology and org structure
• teamwork encouraged
• limited upward mobility
• opportunity to learn new skills
• high cost of employee t/o and absenteeism

8
Job based pay

• EQUITY

9
Job Evaluation - Internal Equity

• Conduct job analysis
• write job descriptions
• determine job specifications
• rate worth of all jobs using a predetermined
  system (compensable factors)
• create a job hierarchy
• classify jobs by grade levels

10
Job Evaluation Systems

• Point Factor
• Ranking System
• Level Description or Classification System
• Factor Comparison
• Market Pricing Method

11
External Equity - Market Surveys

• Identify benchmark or key jobs
• establish a pay policy

12
Skill-based Compensation Plans

• Depth skills - expert in field
• Horizontal/Breadth skills - cross-training
• Vertical Skills - self-management competence
• consider job enlargement, rotation and enrichment
  issues

13
Wage and Salary Curve

• The result of the plotting of points of
  established pay grades against wage or salary
  base rates to identify the general pattern of
  wages or salaries and identify outliers.

14
Job Outliers - what do you do?

• Red circling
• Green circling
• market factor

15
Pay for Performance

• Individual employees and work teams differ in how
  much they contribute to the firm
• firms overall performance depends on the
  performance of the individual employees
• to attract retain and motivate high performers,
  need to reward them based on relative performance.

16
Successful Pay for Performance

• Link pay and performance appropriately
• only a part of the whole HR strategy
• build employee trust
• believe that performance makes a difference
• multiple layers of rewards
• increase employee involvement
• motivate using non financial incentives

17
Types of Pay for Performance

• Individual based plans merit pay, bonuses,
  awards
• Team based plans
• Plant-wide plans - gain sharing
• Corporate-wide plans - profit sharing, ESOP

18
When is an Individual plan most appropriate?

• When you can isolate contribution of individual
  employees
• when job demands autonomy
• when co-operation is less critical to successful
  performance or when competition is to be
  encouraged

19
When will team-based plans succeed?

• Difficult to distinguish individual tasks
• when the firm reorganizes to take a team approach
  to work
• when objective is to foster entrepreneurship in
  self-managed work groups

20
How to design sales compensation?

• How long should the time horizon be for
  dispensing rewards?
• Should length of service be considered?
• Should the salesperson be asked to share part of
  the costs and increase personal risk?
• What criteria should be used to trigger the award?

21
How to design sales compensation? (contd)

• Should there be a limit on what they can earn?
• How often should awards be provided?