MGTO 231 Human Resources Management

MGTO 231Human Resources Management Compensation II Dr. Kin Fai Ellick WONG

Outline • Designing a compensation system • Egalitarianism vs. elitism • Below market vs. above market compensation • Monetary vs. non-monetary rewards • Open vs. secret pay • Centralized vs. decentralized of pay decision • Compensation tools • Job-based compensation plans • Skill-based compensation plans

Nine criteria for developing a compensation system • Internal vs. external equity • Fixed vs. variable pay • Performance vs. membership • Job vs. individual pay • Egalitarianism vs. elitism • Below-market vs. above-market compensation • Monetary vs. non-monetary rewards • Open vs. secret pay • Centralized vs. decentralized of pay decisions

Egalitarianism vs. Elitism • Egalitarian pay system • A pay plan in which most employees are part of the same compensation system • Reduces barriers between people as the hierarchy is relatively fuzzy

Elitist pay system • A pay plan in which different compensations are established for employees or groups at different organizational levels • Different pay systems may create a sense of hierarchy • Encourage employees to move upward

Below-market vs. above-market compensation • Below market • Less expensive • Low job satisfaction and high turnover • Employees with high ability will not stay long, or even will not apply • Above market • More expensive • Employees are relatively stable • Can attract competent candidates

Trade-off between attractiveness and costs • A possible solution • Above-market compensation for important posts • Below-market compensation for less important posts • 拉下補上 (make an average)

Monetary vs. non-monetary rewards • Monetary rewards • Money, cash, or payment that can be converted into cash in the future (stocks, retirement plan) • Non-monetary rewards • Interesting work, challenging assignments, public recognition, degree of freedom

Extrinsic vs. intrinsic motivation • Extrinsic motivation • Behaviors are motivated in order to get external rewards, e.g., cash • Low in job satisfaction • Intrinsic motivation • Behaviors are motivated in order to get self-fulfillment • High in job satisfaction • A story about a professor vs. a band

Open vs. secret pay • Open pay • Salary can be accessed by public (or most of the employees in the same firm) • Civil servants, professors, etc. • Secret pay • Salary of each employee should not be disclosed • Those who break this rule may be fired

Advantages of open pay • Increase employees’ satisfaction as they tend to overestimate others’ salaries • Open pay is perceived to be more fair as it is perceived that no hidden decision occurs

Disadvantages of open pay • It forces the managers or supervisors to expend more resources (time, writing report) to justify their decisions • The cost of mistake in decision increases • This system tends to minimize salary differences across employees  increases turnover rate and decreases job satisfaction for those who have best performances

Centralized vs. decentralized • Centralized system • Pay decisions are tightly controlled in a central location, normally the HR department • Decentralized system • Pay decisions are delegated deep down into the firm, normally to managers of each unit

Centralized system is more appropriate when • It is cost effective and efficient to hire compensation specialists, who are responsible for salary surveys, benefits administration, and recordkeeping. • There are frequent legal challenges • The company wants to have more control on expenses

Disadvantages of centralized • The issue of external equity (that’s why a specialist is so important) • It lacks flexibility, department cannot offer a more attractive package for an excellent candidate

Outline • Designing a compensation system • Egalitarianism vs. elitism • Below market vs. above market compensation • Monetary vs. non-monetary rewards • Open vs. secret pay • Centralized vs. decentralized of pay decision • Compensation tools • Job-based compensation plans • Skill-based compensation plans

Job-based compensation plans • Achieving internal equity • Achieving external equity • Achieving individual equity

Achieving internal equity • Job evaluation by job analysis • Job description and job specifications • Rate worth of all jobs • Using a predetermined system • Compensable factors: work-related criteria that an organization considers most important in assessing the relative value of different jobs • Knowledge, effort, responsibility, job conditions

Create a job hierarchy • Classify jobs by grade levels

Achieving external equity • Do market survey • 薪酬調查趨勢報告 (salary trend index) • Identifying benchmark or key jobs • Jobs that are similar or comparable in content across firms • Establishing a pay policy • A firm’s decision to pay above, below, or the market rate for its jobs

Achieving individual equity • Individual equity • The perceived fairness of individual pay decisions • Simply assign each employee a pay rate within the range established for his or her job • Assuming that this job’s salary has achieved both internal and external equity, then individual equity will also be achieved

Skill-based compensation plans • It is more costly and more limited in use • Three dimensions are paid • 淵Depth of skills (learning more about a specialized area) • 博horizontal or breadth of skills (learning more about more areas) • 自身vertical skills (self-management)

Depth of skills • Typist • 100 wpm vs. 120 wpm • Basketball player • Field goal percentage • 45% vs. 20% • Programmer • Knowledge in C++

Breadth of skills • Typist • Typing + accounting + photocopy machine maintenance • Basketball player • Free-throw + 3-point + assistant … • Programmer • C++ + Java + Visual Basic + Pascal…

MGTO 231 Human Resources Management