Compensation

1
Compensation

• OS352 HRM
• Fisher
• Nov. 4, 2004

2
Agenda

• SAP Exercise 3
• In-class writing
• Pay system design
• Internal vs. external equity

3
SAP Exercise 3

• Accessing and using performance appraisal
  information
• Limited to Division 1 of NCCC
• Optional lab session on Sunday (Nov 7) from 7-9
  pm in Snell 241
• Assignment due Tuesday Nov 16 (not Nov. 11)

4
In-class writing

• What is the difference between internal and
  external equity models of compensation? Which is
  more important?

5
Consider the following pay structure

• North Country Cabinet Company

Job Annual Salary
President 15,000
Maintenance mechanic 130,000
Production supervisor 20,000
Milling operator 75,000
Whats wrong with this picture? Why?
6
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?

7
Fair Labor Standards Act

• Minimum wage
• Overtime
• Must be paid to non-exempt employees for hours
  worked over 40 per week
• Exempt employees (management, professionals,
  administrative) not eligible for 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

8
Forms of Compensation

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

9
A question of equity

• Internal vs. external what is the difference?
• Strategic decisions related to external equity
• Lead
• Lag
• Meet the market
• In-class writing question Which is more
  important? Can you maintain both?

10
Job Evaluation

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

11
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

12
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?

13
Back to the example

• How would you evaluate the four jobs based on Hay
  factors?
• Company president
• Production supervisor
• Maintenance mechanic
• Milling operator
• Remember, Hay profiles are based on know-how,
  problem solving, and accountability

14
For next class

• Topics
• More on pay structures
• Rewards in addition to base pay
• Return exam
• Read Chapter 12
• How do rewards fit within the overall pay
  structure?
• Links with motivation theories