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Compensation Strategy & Structure

Compensation Strategy & Structure. Strategic role of compensation What determines pay Reward system objectives External & internal considerations. Strategic Role of Compensation. To attract, retain and motivate employees Link to business plan Internal pay structure External equity

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Compensation Strategy & Structure

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  1. Compensation Strategy & Structure • Strategic role of compensation • What determines pay • Reward system objectives • External & internal considerations

  2. Strategic Role of Compensation • To attract, retain and motivate employees • Link to business plan • Internal pay structure • External equity • Administrative policies • Performance focus

  3. What Determines Pay? • Organizational differences --corporate culture & ability to pay • Work differences: intellectual and interpersonal competencies, skills, responsibility, working conditions • Employee differences: Education, experience, skills • Market & country differences

  4. Reward System Objectives • Improving productivity • Controlling costs • Fair treatment • Legal compliance

  5. External Considerations • Legislation • Fair Labor Standards Act -- 1938 • Davis-Bacon Act -- 1931 • Walsh-Healy Act 1936 • Equal pay act (1963) • Labor union • Labor markets • Compensation surveys

  6. Internal Considerations • Organizational considerations • Traditional job evaluation • Skill based evaluation • Market based evaluation

  7. Point Evaluation Method • Compensable Factors • Aspects of the job that are valued by the organization • Numerically Scaled Factors • Committee decides number of scale points & total points (often 500 or 100) • Factor Weights • Importance of factor

  8. Point Evaluation Table

  9. Calculating Points • Maximum for each factor is the factor weight X the total points • Example: for Know-how .50 X 1000 = 500 • Minimum for each factor is factor weight X 100 • Example: for Know-how .50 X 100 = 50 • Interval points = Maximum - Minimum • # of degrees - 1 • Example = 500 - 50 = 450/3 = 150 • 3

  10. Skilled Based & Market Based Methods • Skill based: Compensates on the basis of job-related skills • Market based: Compensates on the basis of surveys determining going rate in area and profession

  11. Backwards & Forwards • Summing Up: Today we considered strategic aspects of compensation, factors that determine pay, objectives of the reward system and external & internal considerations in setting pay scales. The point evaluation method was examined • Looking ahead: Next time we explore pay for performance for individuals and teams

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