Establishing Rewards and Pay Plans

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Fundamentals of Human Resource Management Ninth
Edition DeCenzo and Robbins
Chapter 11 Establishing Rewards and Pay Plans
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Introduction

• People do what they do to satisfy some need and
  they look for a payoff or reward.
• The most obvious reward is pay, but there are
  many others, including
• promotions
• desirable work assignments
• peer recognition
• work freedom

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Introduction
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Types of Reward Plans

• Intrinsic versus Extrinsic Rewards
• Intrinsic rewards (personal satisfactions) come
  from the job itself, such as
• pride in ones work
• feelings of accomplishment
• being part of a work team

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Types of Reward Plans

• Intrinsic versus Extrinsic Rewards
• Extrinsic rewards come from a source outside the
  job
• include rewards offered mainly by management
• Money
• Promotions
• Benefits

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Types of Reward Plans

• Financial versus Nonfinancial Rewards
• Financial rewards include
• wages
• bonuses
• profit sharing
• pension plans
• paid leaves
• purchase discounts
• Nonfinancial rewards emphasize making life on the
  job more attractive employees vary greatly on
  what types they find desirable.

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Types of Reward Plans

• Performance-based versus Membership-Based Rewards
  
• Performance-based rewards are tied to specific
  job performance criteria.
• commissions
• piecework pay plans
• incentive systems
• group bonuses
• merit pay
• Membership-based rewards such as cost-of-living
  increases, benefits, and salary increases are
  offered to all employees.

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Compensation Administration

• The process of managing a compensation program so
  that the organization can attract, motivate and
  retain competent employees who perceive that the
  program is fair.

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Compensation Administration

• Job evaluation the process used to determine
  each jobs appropriate worth within the
  organization.
• Based on job analysis information.

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Compensation Administration

• Government Influence on Compensation
  Administration
• Fair Labor Standards Act 1938 act which
  requires
• minimum wage
• overtime pay
• record-keeping
• child labor restrictions

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Compensation Administration

• Government Influence on Compensation
  Administration
• Fair Labor Standards Act
• Exempt employees
• include professional and managerial employees
• not covered under FLSA overtime provisions
• Nonexempt employees
• eligible for premium pay (time and one-half)
• when they work more than 40 hours in a week

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Compensation Administration

• Government Influence on Compensation
  Administration
• Equal Pay Act of 1963 act requires that men and
  women hired for the same job be paid the same.

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Compensation Administration

• Government Influence on Compensation
  Administration
• Civil Rights Act
• broader than Equal Pay Act
• prohibits discrimination on the basis of gender
• used to support comparable worth concept
• Salaries should be established on the basis of
  skill, responsibility, effort, and working
  conditions.

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Job Evaluation and the Pay Structure

• Job Evaluation
• Use of job analysis information to determine the
  relative value of each job in relation to all
  jobs within the organization.
• The ranking of jobs
• Labor market conditions
• Collective bargaining
• Individual skill differences

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Job Evaluation and the Pay Structure

• Isolating Job Evaluation Criteria
• Judgment is involved in defining what factors
  should be used to compare jobs.
• Typical criteria
• mental requirements
• supervisory control
• complexity
• physical demands
• personal contacts

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Job Evaluation and the Pay Structure

• Isolating Job Evaluation Criteria
• Typically jobs are grouped according to type and
  compared within their group
• clerical jobs
• sales jobs
• professional jobs

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Job Evaluation and the Pay Structure

• Job Evaluation Methods
• Ordering method A committee places jobs in a
  simple rank order from highest (worth highest
  pay) to lowest.

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Job Evaluation and the Pay Structure

• Job Evaluation Methods
• Classification method
• Jobs are placed in classification grades
• Compare their descriptions to the classification
  description and benchmarked jobs
• Look for a common denominator such as skills,
  knowledge, or responsibility

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Job Evaluation and the Pay Structure

• Job Evaluation Methods
• Point method
• Jobs are rated and allocated points on several
  identifiable criteria, using clearly defined
  rating scales.
• Jobs with similar point totals are placed in
  similar pay grades.
• Offers the greatest stability.

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Job Evaluation and the Pay Structure

• Establishing the Pay Structure
• Compensation surveys
• Used to gather factual data on pay rates for
  other organizations
• Information is often collected on associated
  employee benefits as well

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Job Evaluation and the Pay Structure

• Establishing the Pay Structure
• Wage curves
• Drawn by plotting job evaluation data (such as
  job points or grades) against pay rates (actual
  or from survey data).
• Indicate whether the pay structure is logical

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Job Evaluation and the Pay Structure

• Establishing the Pay Structure
• Wage structure
• Designates pay ranges for groups of jobs which
  are
• similar in value to the organization
• grouped by their classifications, grades or
  points.
• Results in a logical hierarchy of wages,
  consisting of ranges that overlap.

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Special Cases of Compensation

• Incentive Compensation Plans
• Incentives can be added to the basic pay
  structure to provide rewards for performance.

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Special Cases of Compensation

• Incentive Compensation Plans
• Individual Incentives include
• merit pay plans (annual increase, based on
  performance)
• piecework plans (pay based on number of units
  produced typically in a specified time period.)
• time-savings bonuses and commissions

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Special Cases of Compensation

• Incentive Compensation Plans
• Individual Incentives
• Work best where clear objectives can be set and
  tasks are independent.
• Many organizations today require employees to
  place a percentage of their salary at risk so
  that merit pay does not become a substitute for
  automatic cost-of-living raises.

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Special Cases of Compensation

• Incentive Compensation Plans
• Group Incentives
• Incentives can be offered to groups, rather than
  individuals, when employees' tasks are
  interdependent and require cooperation.

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Special Cases of Compensation

• Incentive Compensation Plans
• Plant-wide Incentives
• Direct employee efforts toward organizational
  goals (such as cost reduction)
• Scanlon Plan - supervisor and employee committees
  suggest labor-saving improvements
• IMPROSHARE - formula is used to determine bonuses
  based on labor cost savings

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Special Cases of Compensation

• Paying for Performance
• Pay is based on some measure of performance.
• Common performance measures are
• piece-rate plans
• gainsharing
• wage incentive plans
• profit sharing
• lump sum bonuses

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Special Cases of Compensation

• Paying for Performance
• Competency-based compensation
• Rewarded for skills, knowledge and behaviors
• leadership
• problem solving
• decision making
• strategic planning
• Broad-banding - pre-set pay levels that determine
  what people are paid based upon the type and
  level of competencies they possess.

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Special Cases of Compensation

• Team-Based Compensation
• Incentives for empowered work teams to exceed
  established goals and share equally in rewards.
• Depends on
• clarity of team purpose and goals
• ability of the team to obtain needed resources
• effective team communication skills and trust

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Executive Compensation Programs

• Salaries of Top Managers
• Executive salaries, bonuses and stock options may
  seem high.
• Top twenty CEOs average more than 100 million in
  total compensation.
• Competition for executive talent raises the price
  of hiring an executive.
• High salaries can be a motivator for executives
  and lower-level managers

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Executive Compensation Programs

• Supplemental Financial Compensation
• Deferred bonuses paid to executives over
  extended time periods, to encourage them to stay
  with the company.
• Stock options allow executives to purchase
  stock in the future at a fixed price.
• Hiring bonuses compensate for the deferred
  compensation lost when leaving a former company.

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Executive Compensation Programs

• Supplemental Nonfinancial Compensation
  Perquisites
• Perks may include
• paid life insurance
• club memberships
• company cars
• expense accounts
• interest-free loans
• free financial
• legal and tax counseling
• mortgage assistance

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Executive Compensation Programs

• Supplemental Nonfinancial Compensation
  Perquisites
• Golden parachutes protect executives when a
  merger or hostile takeover occurs by providing
  severance pay or a guaranteed position.

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International Compensation

• Important to understand the statutory
  requirements of each country.
• International compensation packages generally
  utilize the balance-sheet approach, using the
  four factors below
• Base Pay
• Differentials
• Incentives
• Assistance Programs

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International Compensation

• Base Pay The pay of employees in comparable
  jobs at home.
• Differentials Compensation given to offset
  higher costs of living abroad.

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International Compensation

• Incentives Inducements given to encourage
  employees to accept overseas assignments.
• Assistance Programs Payment for expenses
  involved in moving a family abroad and in
  providing some services overseas.