Compensation Part 1: Base Pay

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Compensation Part 1 Base Pay

• OS652 HRM
• Fisher
• October 26, 2004

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Agenda

• How do we decide how much people get paid?
• Internal vs. external equity
• Pay system design

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Pay System Goals

• Support strategic objectives
• May include organizational change
• Attract, retain, motivate employees
• Fairness
• Compliance
• What are we paying for? Skills? Performance?
  Time at the office?

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Organizational stance on equity

• Prioritizing internal vs. external equity
• Should drive decisions about setting base pay and
  making individual raise decisions
• External equity related to the market
• Lead
• Lag
• Meet

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Governmental regulation

• Minimum wage
• Federal wage provides the floor (currently 5.15)
• Many states have passed higher minimums, living
  wage laws
• Fair Labor Standards Act
• Overtime must be paid to non-exempt employees for
  hours worked over 40 per week
• Do not have to pay exempt employees (management,
  professionals, administrative) overtime
• Hourly employees tend to be non-exempt, but
  guidelines for determining this are complex
• Child labor
• Does not mandate vacation, holiday, or sick pay,
  pay raises, or fringe benefits

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Equal Pay Act

• Amendment to FLSA
• Cannot base pay on gender
• Salary gap is still 75.5/100 (2003 data)

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EPA, continued

• To justify pay gap, must show differences in
• Skill
• Effort
• Level of responsibility
• Working conditions
• Seniority systems, merit systems are OK
• Title VII covers pay discrimination for other
  protected classes

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Forms of Compensation

• Base wage or salary (fixed)
• Performance-based (variable or at-risk)
• Merit
• Incentives
• Commissions
• Piece rates
• Attraction and retention bonuses
• Benefits
• Value of total compensation package

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Setting Pay Levels Job Evaluation

• Assessing the relative internal worth of the
  organizations jobs.
• Note Job evaluation is not the same thing as job
  analysis or performance evaluation.

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Two Common Job Evaluation Methods

• Ranking Method
• Compare one job with the others
• Simplest and quickest job evaluation approach
• Most useful for a small number of jobs
• Downsides of using this method?

• Point method
• Assigns a numeric score to a job based upon
  levels of compensable factors in job
• Highly stable, valid over time
• Hay system is one of the most popular

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Compensable Factors

• The characteristics of a job that the
  organization values and chooses to pay for
• Examples
• Degree of responsibility
• Years of schooling or experience
• Discretion in performing work
• How can compensable factors be determined? What
  data would be used?

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Salary structures

• By position
• Pay grades
• Broadbanding
• Job evaluation places jobs in a small number of
  broad pay ranges
• Benefits/drawbacks of various structures?

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Salary Surveys

• Help organizations determine appropriate base pay
  relative to external sources
• Free ones are typically less detailed
• Salary.com (Monster.com links to this)
• Americas Career InfoNet (acinet.org)

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For next class

• Topic Individual pay decisions
• How do managers use pay to motivate or reward
  employees?
• How can organizations maintain equity over time?
• Presentation