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Chapter Eight

Chapter Eight. Building Market-Competitive Compensation Systems. Internally Consistent Pay Structures do not guarantee External Consistency!. Market Pay Line. 20,000. Current Pay Line. 18,000. 21,000. Annual Salary ($). 16,000. 11,000. 8,000. 250 Clerk I. 500 Clerk II. 750

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Chapter Eight

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  1. Chapter Eight Building Market-Competitive Compensation Systems

  2. Internally Consistent Pay Structures do not guarantee External Consistency! Market Pay Line 20,000 Current Pay Line 18,000 21,000 Annual Salary ($) 16,000 11,000 8,000 250 Clerk I 500 Clerk II 750 Clerk III 1,200 Chief Clerk Job Evaluation Points

  3. Compensation Policies & Strategic Mandates

  4. Testing your applied knowledge:What is the compensation strategy behind this pay structure? 20,000 18,000 Market Pay Line 21,000 Annual Salary ($) 16,000 Current Pay Line 11,000 8,000 250 Clerk I 500 Clerk II 750 Clerk III 1,200 Chief Clerk Job Evaluation Points

  5. Answer: Assuming that this company is aware of the pay lag at lower level jobs between their pay structure and the market line, this company has decided that lower-level jobs are not the essence of its competitive advantage and, therefore, it can afford to pay lower salaries at such lower-level jobs.

  6. Testing your applied knowledge:What is the compensation strategy behind this pay structure? 20,000 Market Pay Line 18,000 21,000 Annual Salary ($) 16,000 11,000 Current Pay Line 8,000 250 Clerk I 500 Clerk II 750 Clerk III 1,200 Chief Clerk Job Evaluation Points

  7. Answer: Assuming that this company is aware of the pay lag at lower level jobs between their pay structure and the market line, as well as the lead between its pay level and the market line at higher-level jobs, this company has decided not only that lower-level jobs are not the essence of its competitive advantage, but also that higher-level jobs are indeed quite important for its strategy and, therefore, it needs to pay higher salaries at such higher-level jobs.

  8. Competitive Pay Systems:Building Blocks • Strategic analyses • Environmental scanning: industry profile, info about competitors, long-term growth prospect • Competitive advantage: examination of core competencies, mission, values. • Compensation surveys • Competitors’ wage and salary data. • Competitor’s fringe benefit data.

  9. Compensation Surveys • External equity • Helps attract and retain talent • Reliance on industry surveys • Sources of published compensation surveys • Bureau of Labor Statistics visit their web site at www.bls.gov • National Compensation Survey (NCS) • Employee benefits in small private establishments • Employee benefits in medium/large private establishments • Employee benefits in State & Local governments.

  10. Table 8-1Sources of Compensation Survey Information (1 of 3) • Professional Associations • Worldatwork (formerly, the American Compensation Association) publishes the Salary Budget Survey, reported by region and industry. • The Society for Human Resource Management publishes information on salaries in the human resources field. • International Foundation of Employee Benefit Plans

  11. Table 8-1Sources of Compensation Survey Information (2 of 3) • Industry Associations • Administration Management Society • American Association of University Professors • American Banker’s Association • American Bar Association • American Electronics Association • American Mathematical Society • American Society of Association Executives • Association of General Contractors • National Institute of Business Management • National Restaurant Association • National Retail Federation • National Society of Engineers

  12. Table 8-1Sources of Compensation Survey Information (3 of 3) • Consulting Firms • Abbott, Langer & Associates • Coopers & Lybrand • Hay Management Consultants • Hewitt Associates • Mercer-Meidinger-Hanson • Robert Half Associates • Towers & Perrin • Watson Wyatt Co.

  13. Compensation surveys: Strategic considerations • Defining relevant labor market • Occupational Classification. Standard Occupational Classification: 9 major occupational groups (professional, executive, sales, administrative support, precision production, etc.) • Geographic area (rural/urban) • Product/service market competitors • Choosing benchmark jobs • Well-known, stable, agreed upon. • Common across employers. • Represent entire range of jobs within a company. • Generally accepted in the labor market for this purpose.

  14. Managing Compensation Survey Data • Quickly outdated due to changes in cost of living, which is typically indexed by the Consumer Price Index: • Base period 1982-1984 = 100 • 1999 Chicago CPI-U & CPI-W = 166.6

  15. Example: Hourly Wage Data in Miami-Ft. Lauderdale vs. NY City (Year 2000) & Consumer Price Index

  16. Managing Compensation Survey Data One should pay attention to: • Central tendency • Mean & importance of outliers –which unduly influence mean. • Median • Variation • Standard deviation: do companies have typical salary ranges as compared to the competition? (companies can have same mean but very different SD’s • Quartiles and percentiles

  17. Figure 8-1Histogram of Survey Data for Engineers Frequency (no. of incumbents) Annual Salary

  18. Forming Pay Structures: Integrating Job Structures with External Market Pay Rates Regression analysis Best-fitting line between two variables Captures relationship between points and salary

  19. Figure 8-2Regression Analysis Results for the Engineer Survey Data 55,000 55,000 Annual salary Predicted annual salary 50,000 45,000 45,000 44,525 43,500 Annual Salary ($) 40,000 Market Pay Line 38,420 36,000 36,000 35,000 34,500 33,536 33,000 30,000 0 100 200 300 400 500 600 700 800 900 1,000 Engineer I Engineer II Engineer III Job Evaluation Points

  20. Comparable worth • Equal pay for work of equal worth. • Is job evaluation biased? • Do compensation systems perpetuate biases and discrimination? • The comparable worth argument is that typically female jobs receive lower compensation due to gender bias, because such jobs are as complex and important as typically male jobs (e.g., nurses vs. construction workers).

  21. Discussion Question 8-1 A class-action lawsuit was filed on behalf of all female employees who worked for a well-known chain of grocery stores. The plaintiffs argued that females were relegated to jobs such as cashier, which seldom lead to promotions such as area or store manager. Instead, males are usually assigned to stocking, which has traditionally served as the platform to become area or store manager. Are cashier jobs less important or complex than stocking jobs? Why are females channeled to primarily cashier jobs? Should this grocery chain modify its employment policy? How?

  22. Discussion Question 8-2 Relocation to a new area should be preceded by research on factors such as cost of living, job opportunities, average income, housing costs, crime, schools, etc. Using a job search engine such as monster.com or similar, an HR manager currently working in Miami has gathered data on two additional locations where s/he might relocate. Study these data to identify the pros and the cons of this manager’s possible relocation. (table continues)

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