Human Resource Management

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Human ResourceManagement
SECTION 4CompensatingHuman Resources
Chapter 12

• Compensation Strategiesand Practices

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Learning Objectives

• After you have read this chapter, you should be
  able to
• Identify two general types of compensation and
  the components of each.
• Give examples of two different compensation
  philosophies in organizations.
• Discuss four strategic compensation design
  issues.
• Describe three considerations affecting
  perceptions of pay fairness.
• Identify the basic provisions of the Fair Labor
  Standards Act (FLSA).

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Learning Objectives (contd)

• Define job evaluation and discuss four methods
  for of performing it.
• Outline the process of building a wage and salary
  administration system.
• Discuss how to establish a pay-for-performance
  system.

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Compensation Systems

• Objectives of an Effective Compensation System
• Legal compliance with all appropriate laws and
  regulations
• Cost effectiveness for the organization
• Internal, external, and individual equity for
  employees
• Performance enhancement for the organization

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Nature 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 Program
Figure 121
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Direct Compensation
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Typical Division of HR Responsibilities
Compensation
Figure 122
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Continuum of Compensation Philosophies
Figure 123
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Compensation Approaches
Figure 124
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Compensation Quartile Strategies
Figure 125
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Decisions About Compensation Levels
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Perceptions of Pay Fairness
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Equity Considerations in Compensation
Figure 127
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Fair Labor Standards Act (FSLA) of 1938
Provisions of the Act
Minimum wage requirement sets wage floor
Child labor (under 14 years old) is prohibited
Requires overtime payments for non-exempt
employees
Exempts highly-paid computer workers
Requires overtime (1½) pay for hours over 40 hours
Requires compensatory time at overtime (1½) pay
rates
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Wage/Hour Status Under Fair Labor Standards Act
Figure 128a
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Wage/Hour Status Under Fair Labor Standards Act
Figure 128b
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Wage/Hour Status Under Fair Labor Standards Act
Figure 128c
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The IRS Test for Employees andIndependent
Contractors
Source U.S. Internal Revenue Service.
Figure 129
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Other Laws 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
  to to federal contracts, not the private sector.

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Pay and Gender

• Equal Pay Act of 1963
• Requires that men and women be paid the same for
  performing substantially similar jobs with
  limited non-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 if actual duties and market rates
  differ significantly.

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Compensation Administration Process
Figure 1210
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Job Evaluation

• Job Evaluation
• The systematic determination of the relative
  worth of jobs within an organization.
• Benchmark Job
• A job found in many organizations and performed
  by several individuals who have similar duties
  that are relatively stable and require similar
  KSAs.

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Job Evaluation
Ranking
Classification
Job Evaluation Methods
FactorComparison
PointMethod
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Job Evaluation Point Chart
Figure 1211
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Legal Issues and Job Evaluation
Job Evaluation
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Developing Pay Surveys
Select Employers with Comparable Jobs
Determine Jobs to be Surveyed
Decide What Information Is Needed
Conduct Survey
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Pay Structures

• Market Line
• The line on a graph showing the relationship
  between the job value, as determined by job
  evaluation 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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Establishing Pay Structures
Figure 1212
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Pay Structures (contd)

• Pay Grades
• A grouping of individual jobs having
  approximately the same job worth.
• Broadbanding
• The practice of using fewer pay grades having
  broader 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 Pay Structure vs. Broadbanding
Figure 1213
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Pay Scattergram
Figure 1214
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Typical Pay Range Widths
Figure 1215
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Example of Pay Grades and Pay Ranges
Figure 1216
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Pay 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 among
  individuals with different levels of experience
  and performance in the organization becomes
  small.

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Issues Involving Pay Increases

• Seniority
• Time spent in an organization or on a particular
  job.
• Used to determine eligibility for organizational
  rewards 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 Increases

• Cost-of-Living Adjustments (COLA)
• A percentage increase in wages that allows
  employees to maintain the same real wages in a
  period of economic inflation.
• Adjustments are tied to changes in an economic
  measure (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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Compa-Ratio Example

• Compa-ratio
• The pay level divided by the midpoint of the pay
  range.