Compensation Compensation is the reward that individuals receive in exchange for performing tasks • A major cost of doing business • The chief reason people seek employment • U.S. employers pay an average of $23.65 per hour worked • $17.02 = straight-time wages and salaries • $6.63 = benefits
Compensation Non-financial Indirect Direct Praise Self-esteem Recognition Insurance Vacation Childcare Wages Salary Bonuses Commissions
Objective of Compensation Adequate Equitable Acceptable toemployees Balanced Effectivecompensation Cost effective Providesincentive Secure
External Influences on Compensation Labor Market The Economy External Influences Unions Government
Government Influences The government requires employers to deduct fundsfrom employees’ wages for… Federal income taxes Social security taxes State and local income taxes Other ways government influences compensation If the government is the employer, it can legislate pay levels by setting statutory rates The government may create jobs for certain categories of workers, thus reducing the supply of workers and affecting pay rates
Union Influences Unions exert influence on compensation programs Unionized workers work longer hours and earn more than non-unionized workers Unions are pacesetters in demands for pay, benefits, and improved working conditions There is supportive interaction betweenunions and the government The Davis-Bacon Act requires employers with government contracts to pay prevailing wages The Wagner Act makes it illegal to change wage rates during a union organizing campaign
The Labor Market and Compensation Styles of managing and rewarding arechanging in response to diversity Diversity is more than demographics; it means differing value, lifestyles,even body types Changing demographics require employersto offer more, and more varied,benefits to motivate, satisfy, retain employees
Legal Considerations Discrimination: Must apply same decision rules to all employees eligible for the reward or incentive. Employees protected by Title VII and Equal Pay Act. Taxes and accounting rules: For example, those governing capital gains, deferred compensation and stock plans.
Pay is a powerful tool for meeting the organization’s goals. Pay has a large impact on employee attitudes and behaviors. Pay influences the kinds of people who are attracted to (or remain with) the organization. Employees attach great importance to pay decisions when they evaluate their relationship with their employer. Pay and Pay Decisions Pay Decisions
Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to job responsibilities or performance. The goal is equal pay for equal work. Legal Requirement for Pay • Minimum wage isthe lowest amount that employers may pay under federal or state law, stated as an $/hour. • The overtime rate is 1½ times the employee’s usual hourly rate; exempt employees (not covered by FSLA) do not get overtime…they are not hourly • Prevailing wage rules require federal contractors to pay their employees at rates at least equal to the typical wages in the area.
Children aged 16 and 17 may not be employed in hazardous occupations defined by the U.S. Department of Labor. Children aged 14 and 15 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods. A child under age 14 may not be employed in any work associated with interstate commerce. Exemptions include baby-sitting, acting, and delivering newspapers. Child Labor Laws
Product Markets The organization’s product market includes organizations that offer competing goods and services. Organizations compete on quality, service, and price. The cost of labor is a significant part of an organization’s costs. Labor Markets Organizations must compete to obtain human resources in labor markets. Competing for labor establishes the minimum an organization must pay to hire an employee for a particular job. Economic Influences on Pay
Benchmarking – a procedure where an organization compares its own practices against those of others Pay surveys Trade and industry groups Professional groups Comparing Market Pay Employees compare their pay and contributions by: • What they think employees in other organizations earn for doing the same job. • What they think other employees holding different jobs within the organization earn for doing work at the same or different levels. • What they think other employees in the organization earn for doing the same job as theirs.
If employees conclude that they are under-rewarded, they are likely to make up the difference in one of three ways: They might put forth less effort (reducing their inputs). They might find a way to increase their outcomes (e.g., stealing). They might withdraw (by leaving the organization or refusing to cooperate). Employees’ beliefs about fairness also influence their willingness to accept transfers or promotions. Pay Equity
High Low Comparable Attracts and holds the best employees Minimum level needed to hire enough workers The going rate plus or minus5 percent Pacesetter All the company can pay Most frequently used The Pay-Level Decision Pay-level Strategies
Pay and Employees’ Satisfaction Relative deprivation theory suggests that pay dissatisfaction is a function of six judgments… Discrepancy between what workers want and receive Discrepancy between comparison outcome and what they get Past expectations of receiving more rewards Low expectations for the future A feeling of deserving or being entitled to more Not feeling personally responsible for poor results
Pay and Employees’ Productivity Ability Adequateequipment Safety Performancerequiresmotivationplus… Good workingconditions Health Goodleadership& managers
Pay and Employees’ Productivity Some argue that • Tying pay to performance destroys the intrinsic reward of doing a job well • The importance of money varies from person to person If an organization has an incentive pay system but pays for seniority, the motivation of pay is lost • Be sure that compensation systems are directly connected to expected behaviors