Compensation

1
Compensation

• OS352 HRM
• Fisher
• March 30, 2005

2
Agenda

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

3
Case Study Assignment

• Read Harvard Business Review case study When
  Salaries Arent Secret
• Answer two questions
• Relationship with equity theory
• Recommendation for actions the company should
  take
• Approximately 2-3 pages long
• Due Wednesday April 6 in class

4
SAP Exercise 3

• Accessing and using performance appraisal
  information
• Limited to Division 1 of NCCC
• Assignment due Friday April 8, 300, my office

5
In-class writing

• What is the difference between internal and
  external equity approaches to compensation?
• Which is more important?

6
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?
7
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?

8
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

9
Equal Pay Act

• Equal pay for equal work
• Covers only differences between men and women
• Other protected classes covered under Civil
  Rights Act more generally
• What are legitimate reasons for paying people in
  the same job differently?

10
2000 Median Annual Earnings of Year-Round,
Full-Time Workers

• All Men                        All
  Women37,339 (100)          27,355 (73)
•               
• Men                                       Wo
  menWhite                38,869
              White         28,080Black
                  30,409             Black
          25,117Asian Pacific
                            Asian
  PacificIslander             40,946
            Islander     31,156Hispanic
             24,638            Hispanic    20,527
• Due to the small size of the survey sample,
  these data may not be representative.
• Source US. Census Bureau, Current Population
  Reports, Series P-60

11
Pay Differences by Occupation
Occupation Men Women
Computer Programmer 59,852 52,312
HR Managers 65,468 49,816
Lawyers 88,920 65,260
Physical Therapists 49,660 46,800
Receptionists 23,608 24,076

Annual salaries based on Bureau of Labor Statistics weekly earnings data. http//www.bls.gov/cps/home.htm Annual salaries based on Bureau of Labor Statistics weekly earnings data. http//www.bls.gov/cps/home.htm Annual salaries based on Bureau of Labor Statistics weekly earnings data. http//www.bls.gov/cps/home.htm Annual salaries based on Bureau of Labor Statistics weekly earnings data. http//www.bls.gov/cps/home.htm Annual salaries based on Bureau of Labor Statistics weekly earnings data. http//www.bls.gov/cps/home.htm
12
Forms of Compensation

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

13
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?

14
Job Evaluation

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

15
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

16
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?

17
Back to the example

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

18
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