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Compensation

Compensation. Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition. What does compensation (what you receive for your services) mean to you?. A Definition . . . All forms of financial return, tangible services and benefits

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Compensation

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  1. Compensation Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition

  2. What does compensation (what you receive for your services) mean to you?

  3. A Definition . . . • All forms of • financial return, • tangible services and • benefits • that employees receive as part of their employment relationship

  4. Components of a Total Compensation Program - 1 • Financial • Direct • wages, salaries, commissions, bonuses • Indirect • insurance plans • life, health, dental, disability • social assistance benefits • retirement plans, social security, workers’ comp • paid absences • vacations, holidays, sick leave

  5. Components of a Total Compensation Program - 2 • Non-Financial • The Job • interesting, challenging, responsible • opportunity for recognition, advancement • feeling of achievement • Job Environment • policies, supervision, co-workers, status symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs

  6. Factors that Influence Wage Levels Conditions of Labor Market Compensation Policy of Organization Area Wage Rates WAGE MIX Worth of Job Cost of Living Employee’s Relative Worth Collective Bargaining Employer’s Ability to Pay Legal Requirements

  7. Designing a Compensation System Steps in the Decision Process

  8. Step 1 - Establish General Wage Level for Organization • Factors to consider: • Other firm’s rates • Union demands • Cost-of-living changes • Firm’s ability to pay

  9. Step 2 - Establish Wage Structure (The Pay for Each Job) • Employ a job evaluation system • Ranking • Job Classification • Point System • Factor Comparison • Results: • pay grades • rate ranges

  10. Step 3 - Establish Pay for Each Individual on Each Job • Inputs: • Performance appraisal information • Seniority system

  11. A Pay Model -- 3 Basic Components • I. Compensation Objectives • II. Foundation Concepts • III. Techniques for Management

  12. A Pay Model I. Compensation Objectives - 1 • Organization Performance • Labor Costs • Attitudes and Behaviors • Laws and Regulations

  13. A Pay Model I. Compensation Objectives - 2 • Influence forms & procedures • For example: • if objective is pay for performance, emphasize incentives, merit pay plans • if objective is stable, experienced workforce, emphasize seniority-based pay

  14. A Pay Model II. Foundation Concepts • Equity • External Equity • Comparison: outside organization • Internal Equity • Comparison: inside organization, among jobs • Employee Equity • Comparison: individuals doing same job for same organization

  15. Equity Theory Equity Op/Ip = Oo/Io Under-reward Inequity Op/Ip < Oo/Io Over-reward Inequity Op/Ip > Oo/Io p = personal, o= comparison other I = Inputs effort, ability, experience O = Outcomes pay, benefits, perks

  16. Why does Equity Matter?What Behaviors are Likely to Occur when Inequity is Felt?

  17. A Pay ModelIII. Techniques for Management • A. Pay Level • B. Pay Structure • C. Individual Pay Rates

  18. A Pay ModelIII. Techniques for ManagementA. Pay Level • Defined: average rates paid by employer • Applicable concept: External Equity • 3 Pure Alternatives • lead competition • match competition • lag competition • Mechanism used: Market Wage Survey

  19. Market Wage and Salary Surveys • Select key jobs. • Determine relevant labor market. • Select organizations. • Decide on information to collect: wages/benefits/pay policies. • Compile data received. • Determine wages and benefits to pay.

  20. Market Wage Levels Company A’s Wage Level Market Wage Level Company B’s Wage Level • Which company is leading the market? • Which company is lagging the market? • What would the wage level line look like for a company that was meeting/matching the market?

  21. A Pay ModelIII. Techniques for ManagementB. Pay Structure • Defined: pay rates for different jobs within a single organization • Applicable concept: Internal Equity • Pay more for jobs with • greater qualifications • less desirable working conditions • more valuable output • Mechanism used: Job Analysis & Job Evaluation

  22. Job Evaluation • defined: the systematic evaluation of job descriptions • outcome: a hierarchy of organizational jobs according to their content and value to the organization • Methods: • ranking • classification • factor comparison • point method

  23. Job Ranking System Simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth

  24. Job Classification System System of job evaluation by which jobs are classified and grouped according to a series of predetermined wage grades

  25. Point System Quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it

  26. Factor Comparison System Job evaluation system that permits the evaluation process to be accomplished on a factor-by-factor basis by developing a factor comparison scale

  27. Hay Profile Method Job evaluation technique using three factors – knowledge, mental activity, and accountability – to evaluate executive and managerial positions

  28. A Pay ModelIII. Techniques for ManagementC. Individual Pay Rates • Defined: pay rates for different individuals doing the same job within an organization • Applicable concept: Employee Equity • 2 Techniques • Flat Rate • Pay Ranges • Mechanisms used: Performance or Seniority

  29. Wage Curve Curve in a scattergram representing the relationship between relative worth of jobs and wage rates

  30. Components of the Wage Structure

  31. Pay Grades Groups of jobs within a particular class that are paid the same rate or rate range

  32. Elements of the Rate Range

  33. Common Pay Grade Ranges • Laborers & Trades, up to 20% • Clerical, Technical, Para-professional, 15-49% • First Level Supervisors, Professionals 30-50% • Middle and Senior Level Management, 40-100%

  34. Monitoring Compensation Costs • Compra-Ratio • Formula: • A compra ratio < 1 indicates lag • A compra-ratio > indicates excess Actual Average Pay for Grade Midpoint Pay for Grade

  35. How Would You Handle Outliers? An individual whose current pay is beyond the maximum of the pay grade for his/her job An individual whose current pay is below the minimum of the pay grade for his/her job

  36. Davis-Beacon Act of 1931 Walsh-Healy Act of 1936 Fair Labor Standards Act of 1938 Federal Wage Laws

  37. Nonexempt Employees Employees covered by the overtime provisions of the Fair Labor Standards Act

  38. Exempt Employees Employees not covered by the overtime provisions of the Fair Labor Standards Act

  39. Comparable Worth The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same

  40. Wage-Rate Compression Compression of differentials between job classes, particularly the differential between hourly workers and their managers

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