Compensation

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Compensation
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Lecture Outline

• Decisions About Pay
• Legal Requirements for Pay
• Economic Influences on Pay
• Employee Judgments about Pay Fairness
• Job Structure Relative Value of Jobs
• Pay Structure Putting it All Together
• Salary Negotiation

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Discussion Question

• What are the different reasons why pay matters to
  people? In other words, what does pay communicate?

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Decisions About Pay

• Job structure
• Relative pay for different jobs within the
  organization
• Pay level
• Average amount the organization pays for a
  particular job
• Pay structure
• The pay policy resulting from job structure and
  pay-level decisions

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Issues in Developing a Pay Structure
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Legal Requirements

• Equal Employment Opportunity
• Differences in pay must be tied to
  business-related considerations
• Equal pay for equal work
• Fair Labor Standards Act of 1938
• Establishes a minimum wage
• How much?
• http//www.dol.gov/esa/minwage/america.htm
• Establishes overtime pay
• How much?
• Establishes child labor standards affecting
  full-time and part-time workers in the private
  sector and in Federal, State, and local
  governments.

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Discussion Question

• According to the FLSA, can both exempt and
  non-exempt employees get paid overtime?

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Legal Requirements

• Child labor
• Children 16 and 17 cannot be employed in
  hazardous occupations
• Children 14 and 15 may only work outside school
  hours for limited time periods

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HR in the News Fair Labor Standards Act

• Trend
• Managers secretly deleting hours to
• Cut paychecks, reduce overtime hours, fatten
  stores bottom line
• Experts say
• Illegal doctoring of hourly employees time
  records is far more common than most Americans
  believe
• Compensation experts say managers
• Fear losing their jobs if they fail to keep
  costs down
• Have their bonuses based on minimizing costs or
  maximizing profits

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Economic Forces

• Product markets
• Organizations that offer competing goods and
  services
• Labor costs are a key consideration to stay
  competitive
• Labor markets
• Companies have to stay competitive with regard to
  pay to attract the best employees
• Cost-of-living
• http//www.bankrate.com/brm/movecalc.asp

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Discussion Question

• Mary works at Bank of America as a teller and
  make 36,000 per year. She makes more than the
  other 5 tellers in her department who average
  32,000 in annual salary. Bob works at H R
  Block as an accountant and makes 110,000 per
  year. He is the lowest paid of the five members
  of his department who average 118,000 in annual
  salary. Who is most likely to report higher pay
  satisfaction, Mary or Bob?

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Employee Judgments About Pay Fairness
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Equity Theory
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Job Structure Relative Value of Jobs

• Job evaluation
• An administrative procedure for measuring the
  relative internal worth of the organization's
  jobs
• Hay Guide-Chart Profile Method
• Method of job evaluation that creates a profile
  for each position based on its
• Know-how
• Problem solving
• Accountability

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Discussion Question

• Is it better to determine a salary based on the
  job or based on the person hired for the job?

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Pay Structure Putting It All Together

• Pay may be in terms of the following
• Salary, hourly rate, piecework rate
• Pay policy line
• Shows the mathematical relationship between job
  evaluation points and pay rate
• Pay grades
• Sets of jobs having similar worth or content,
  grouped together to establish rates of pay

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Sample Pay Grade Structure
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Pay-for-Performance

• Pay-for-performance
• The standard by which managers tie compensation
  to employee effort and performance.
• Refers to a wide range of compensation options,
  including merit-based pay, bonuses, salary
  commissions, job and pay banding, team/group
  incentives, and various gainsharing programs.

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Other Compensation Issues

• Incentive-based pay
• Individual
• Piecework, standard hour plan, merit pay,
  performance bonuses, sales commissions
• Group
• Gainsharing, group bonuses and team awards
• Organization
• Profit sharing, stock options

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Take-Home Points

• Understand job evaluation and how pay is
  determined
• Aware of the factors that influence pay
• Realize that pay satisfaction is part of a social
  comparison process
• Attain resources to aid in own salary negotiations