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Total Rewards and Compensation

Total Rewards and Compensation. Total Rewards Monetary and non-monetary rewards used to attract, motivate, and retain employees Rewards System Strategic Objectives Legal compliance Cost effectiveness Internal and external equity for employees

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Total Rewards and Compensation

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  1. Total Rewards and Compensation • Total Rewards • Monetary and non-monetary rewards used to attract, motivate, and retain employees • Rewards System Strategic Objectives • Legal compliance • Cost effectiveness • Internal and external equity for employees • Recognizing contribution to maximize performance and manage talent

  2. Traditional Approach Total Rewards Approach • Compensation primarily base pay • Bonuses for executives only • Fixed benefits tied to seniority • Pay grade progression based on organizational promotions • One organization-wide pay plan for all employees • Variable pay used with base pay • Annual/long-term incentives provided to all employees • Flexible and portable benefits offered • Knowledge-based broadbands determine pay grades • Multiple pay plans consider job family, location, and business units Compensation Approaches

  3. Total Rewards Components

  4. Compensation Philosophies

  5. HR Metrics for Compensation

  6. Typical Division of HR Responsibilities: Compensation

  7. Compensation System Design Issues • Fairness • Internal Equity • Procedural • Distributive • Interactional • External Equity • Privacy • Transparency

  8. Market Competitiveness and Compensation • Lead the market • Meet the market • Lag the market

  9. Compensation Quartile Strategies

  10. Identification of the required competencies Progression and compensation of employees Competency-Based Pay Systems Limitations on who can acquire more competencies Training in the appropriate competencies Certification and maintenance of competencies More Compensation System Design Issues

  11. Team Individual Individual vs. Team Rewards How to develop compensation programs that build on the team concept. How to compensate the individuals whose performance may also be evaluated on team achievements. More Compensation System Design Issues

  12. Possible Components of Global Employee Compensation

  13. Legal Constraints on Pay Systems • Minimum wage • Child labor • Exempt vs. nonexempt status • Overtime

  14. Exempt Status Under the FLSA

  15. Common Overtime Issues Compensatory Time Off Incentives for Non-exempts Training Time Travel Time Compensation for Overtime Work

  16. Compensation and the Law Davis-Bacon ActWalsh-Healy ActMcNamara-O’Hara Act Equal Pay Act of 1963 and Pay Equity State and Local Laws Garnishment Laws Legislation Affecting Compensation

  17. Pay Structure • Pay grades • Pay ranges Compensation Administration Process

  18. Valuing Jobs with Job Evaluation Methods • Job Evaluation Means used to identify the relative worth of jobs within an organization. • Compensable Factor • Job value common among a group of jobs. • Something for which an organization chooses to compensate an employee.

  19. Examples of Compensable Factors for Different Job Families

  20. Job Evaluation Methods Factor-Comparison Method Point Method Ranking Method Classification Method Job Evaluation Methods

  21. Job Evaluation Methods • Point method • Ranking method • Classification method • Factor-comparison method

  22. Advantages Disadvantages • Ties organizational pay levels to the external job market, without “internal” job evaluation distortion. • Communicates to employees that the compensation system is “market linked.” • It relies on market survey data. • A specific job may differ from a “matching” job in the survey. • The market data’s scope (range of sources) is a concern. • Tying pay levels to market data can lead to wide fluctuations. Valuing Jobs Using Market Pricing • Market Pricing • Using market data to identify the relative value of jobs based on what other firms pay for similar jobs.

  23. Pay Surveys • Collection of data on compensation rates for workers performing similar jobs in other organizations. • Benchmark Jobs • Jobs found in many organizations. • Internet-Based Pay Surveys

  24. Pay Structures • Job Family • Group of jobs with common organizational characteristics. • Common Pay Structures • Hourly and salaried • Office, plant, technical, professional, managerial • Clerical, information technology, professional, supervisory, management, and executive • Pay Grades • Groupings of individual jobs having approximately the same job worth.

  25. Compensation Administration Process

  26. More on Pay Structures • Market Banding • Grouping jobs into pay grades based on similar market survey amounts. • Market Line • Shows relationship between job value as determined by job evaluation points and job value based on pay survey rates. • Shows distribution of pay for surveyed jobs • Linear trend line to be developed by the least-squares regression method.

  27. Market-Banded Pay Grades Example (Bank) *Computed by averaging the pay survey summary data for the jobs in each pay grade.

  28. Example of Pay Grades and Pay Ranges

  29. Pay Ranges • Broadbanding • Using fewer pay grades having broader pay ranges that in traditional systems. • Benefits • Encourages horizontal movement of employees • Is consistent with trend towards flatter organizations • Creates a more flexible organization • Encourages competency development • Emphasizes career development

  30. Individual Pay • Rates Out of Range • Red-Circled Employee • An incumbent (current jobholder) who is paid above the range set for the job. • Green-Circled Employee • An incumbent who is paid below the range set for the job. • Pay Compression • Pay differences among individuals with different levels of experience and performance in the organization are reduced.

  31. Pay Adjustment Matrix 89 • Compa-ratio • The pay level divided by the midpoint of the pay range.

  32. Standardized Pay Increases Cost-of-Living Adjustments(COLA) Across-the-Board Increases Lump-Sum Increases(LSI) Seniority Standardized Pay Adjustments

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