compensation

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STRATEGIC ISSUES
TECHNIQUES
STRATEGIC OBJECTIVES
Work Descriptions Evaluation
INTERNAL analysis
certification STRUCTURE
CONSISTENCY
EFFICIENCY Performance Quality Customer
Cost EQUITY COMPLIANCE
Market Surveys Policy
PAY definitions lines
STRUCTURE
COMPETITIVENESS
Seniority Performance Merit
INCENTIVE based based
guidelines PROGRAMS
CONTRIBUTORS
ADMINISTRATION
Planning Budgeting Communication EVALUATION
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Key Questions and Issues

• Two basic questions lie at the core of
  compensation management
• How is pay determined for the wide variety of
  work performed in organizations?
• How does pay affect employees attitudes and work
  behaviors and subsequently the success of the
  organization?

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Internal consistency, often called internal
equity, refers to the relationship between the
pay structure and the design of the organization
and the work. It focuses attention on the
importance of designing a pay structure that
supports the workflow, is fair to employees, and
directs their behaviors toward organization
objectives.
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Pay structure, refers to the array of pay rates
for different work or skills within a single
organization. It focuses attention on the number
of levels, differentials in pay between the
levels, and the criteria used to determine those
pay differences.
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Compensation StrategyInternal Consistency
Supports Work Flow
Supports Fairness
Directs Behavior Toward Organization Objectives
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Structures Vary

• An internal pay structure is defined by
• the number of levels of work
• the pay differentials between the levels
• the criteria used to determine those levels and
  differentials
• These are the factors that a manager may vary to
  design a structure that supports the work flow,
  is fair, and directs employee behaviors toward
  objectives

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Number of Levels

• Organizational Structure
• Work Flow

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Pay Differentials

• Absolute or Relative (percentage) Amount
• Pay Differential of Interest
• adjacent career paths
• supervisors/subordinates
• union/nonunion
• executives/regular employees

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What Shapes Internal Structures?
EXTERNAL FACTORS Culture Customs Economic
Pressures Government
ORGANIZATION FACTORS
H.R. Policy Employee Acceptance Cost Implications
Technology Organization Design Nature of Work
Requirements for Doing It
INTERNAL STRUCTURE Levels Differentials Criteria
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Factors Effecting Wage Structure Decisions

• Social/Cultural Factors
• Just Wage Doctrine
• Economic Factors
• Use Value
• Marginal Productivity Theory
• Government/Legal Environment

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Organizational Factors

• Business Strategy
• Technology
• HR policies
• Internal Labor Markets
• Employee Acceptance

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Employee Acceptance

• Procedural Justice
• Fairness of Process Leading to Pay Structure
  Decisions
• Distributive Justice
• Fairness of Resulting Pay Structure

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Perceived Equity of a Pay Structure
MY PAY My qualifications My work performed My
product value
OTHERS PAY Their qualifications Their work
performed Their product value
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Strategic Choices AmongStructure Options
Tailored versus Loosely Coupled
Egalitarian versus Hierarchical
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Strategy Hierarchical vs Egalitarian
Hierarchical
Egalitarian
Levels Differentials Criteria Support
Many
Fewer
Large
Small
Person or Job
Person or Job
Close Fit
Loose Fit Individual Performers
Teams Fairness
Fairness Opportunities for
Promotion Cooperation
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Consequences of an Internally Consistent Structure
Undertake training Increase experience Reduce
turnover Facilitate career progression Facilitate
performance Reduce pay-related grievances Reduce
pay-related work stoppages
Pay structure
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Consequences of Internal Pay Structures

• Efficiency - Structure of incentives to undertake
  training, gain experience, cooperate, gain skills
  and assume more responsibilites, increase
  commitment, etc.
• Internal Equity Perceptions
• Distributive
• Procedural
• Compliance