Pay planning Reward chapter 11 Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pay Planning The main purpose of this lecture is to show you how to establish a pay plan. We will examine job evaluation—techniques for finding the relative worth of a job—and how to conduct online and offline salary surveys. We also consider developing pay grades and an overall pay plan. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Module Website All the power points we have used to date are on the web site www.uwcentre.ac.cn/hhu -check it out Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Examples of HRM ? One important thing for the exam is you will be asked to illustrate you answers to some written questions using examples of HRM in practice .So you should start looking in the set text and or on the internet for examples of organisations using HRM practices . Think about big organisations - smaller organisations manufacturing organisations - service organisations even universities . Get examples and discuss these with your tutors Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Today's tutorial You need to consider the different methods of job evaluation highlighted in chapter 11 and discuss what are the pros and cons Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Tomorrows tutorial Read and revise chapter 8 Training and Development Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Performance management Ongoing feedback includes both face-to-face and computer-based feedback regarding progress toward goals. Coaching and developmental support should be an integral part of the feedback process. Rewards, recognition, and compensation all play a role in providing the consequences needed to keep the employee’s goal-directed performance on track. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Basic Building Blocks of Performance Management Human Resources Management 12e Gary Dessler Basic Building Blocks of Performance Management Direction sharing Goal alignment Ongoing performance monitoring Ongoing feedback Coaching and development support Rewards, recognition, and compensation Performance management’s basic building blocks or “DNA” are: Direction sharing means communicating the company’s higher-level goals (including its vision, mission, and strategy) throughout the company and then translating these into doable departmental, team, and individual goals. Goal alignment means having a process that enables any manager to see the link between an employee’s goals and those of his or her department and company. Ongoing performance monitoring usually includes using computer-based systems that measure and then e-mail progress and exception reports based on the person’s progress toward meeting his or her performance goals. Ongoing feedback includes both face-to-face and computer-based feedback regarding progress toward goals. Coaching and developmental support should be an integral part of the feedback process. Rewards, recognition, and compensation all play a role in providing the consequences needed to keep the employee’s goal-directed performance on track. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Reasons Employers are moving to performance management for three main reasons— total quality, appraisal issues, and strategic planning particularly of reward that is what we will examine to day Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Employee Compensation Employee compensation refers to all forms of pay going to employees and arising from their employment. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensation at work It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Basic Factors in Determining Pay Rates Human Resources Management 12e Gary Dessler Basic Factors in Determining Pay Rates Direct financial payments Indirect financial payments Employee Compensation Components Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). There are two basic ways to make direct financial payments to employees: base them on increments of time or on performance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensation Plan The compensation plan should advance the firm’s strategic aims—management should produce an aligned reward strategy. This means creating a bundle of rewards—a total reward package including wages, incentives, and benefits—that aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Corporate Policies, Competitive Strategy, and Compensation Human Resources Management 12e Gary Dessler Corporate Policies, Competitive Strategy, and Compensation Aligned Reward Strategy The employer’s basic task: To create a bundle of rewards—a total reward package—that specifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy. The HR or compensation manager along with top management creates pay policies that are consistent with the firm’s strategic aims. The compensation plan should advance the firm’s strategic aims—management should produce an aligned reward strategy. This means creating a bundle of rewards—a total reward package including wages, incentives, and benefits—that aims to produce the employee behaviors the firm needs to support and achieve its competitive strategy. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Formulating pay policies Managers need to formulate pay policies covering a range of issues. With respect to compensation, managers should address four forms of equity: external, Internal, individual, and procedural. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Formulating pay policies External equity refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies. Internal equity refers to how fair the job’s pay rate is when compared to other jobs within the same company (for instance, is the sales manager’s pay fair, when compared to what the production manager is earning?). Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pay Individual equity refers to the fairness of an individual’s pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individual’s performance. Procedural equity refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensation Policy Issues Human Resources Management 12e Gary Dessler Compensation Policy Issues Pay for performance Pay for seniority The pay cycle Salary increases and promotions Overtime and shift pay Probationary pay Paid and unpaid leaves Paid holidays Salary compression Geographic costs of living differences Managers need to formulate pay policies covering a range of issues. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Equity and Its Impact on Pay Rates Human Resources Management 12e Gary Dessler Equity and Its Impact on Pay Rates External equity Procedural equity Internal equity Individual equity Forms of Compensation Equity With respect to compensation, managers should address four forms of equity: external, internal, individual, and procedural. External equity refers to how a job’s pay rate in one company compares to the job’s pay rate in other companies. Internal equity refers to how fair the job’s pay rate is when compared to other jobs within the same company (for instance, is the sales manager’s pay fair, when compared to what the production manager is earning?). Individual equity refers to the fairness of an individual’s pay as compared with what his or her coworkers are earning for the same or very similar jobs within the company, based on each individual’s performance. Procedural equity refers to the “perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Equity Issues Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees’ participation in developing the company’s pay plan to help ensure that employees view the pay process as transparent and procedurally fair. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Addressing Equity Issues Human Resources Management 12e Gary Dessler Addressing Equity Issues Area wage and salary surveys Job analysis and job evaluation Performance appraisal and incentive pay Communications, grievance mechanisms, and employees’ participation Methods to Address Equity Issues Managers can use various methods to address equity issues. For example, they use salary surveys (surveys of what other employers are paying) to monitor and maintain external equity. They use job analysis and job evaluation comparisons of each job to maintain internal equity. They use performance appraisal and incentive pay to maintain individual equity. And they use communications, grievance mechanisms, and employees’ participation in developing the company’s pay plan to help ensure that employees view the pay process as transparent and procedurally fair. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

5 STEPS The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps. It’s difficult to set pay rates if you don’t know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Salary Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Establishing Pay Rates Human Resources Management 12e Gary Dessler Establishing Pay Rates Steps in Establishing Pay Rates 1 2 Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). 3 4 Determine the worth of each job in your organization through job evaluation (to ensure internal equity). 5 Group similar jobs into pay grades. The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural equity consists of five steps. Price each pay grade by using wave curves. Fine-tune pay rates. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step1: The Salary Survey Human Resources Management 12e Gary Dessler Step1: The Salary Survey To price benchmark jobs To make decisions about benefits Uses for Salary Surveys To market-price wages for jobs It’s difficult to set pay rates if you don’t know what others are paying, so salary surveys of what others are paying play a big role in pricing jobs. Virtually every employer conducts at least an informal telephone, newspaper, or Internet salary survey. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Sources for Salary Surveys Human Resources Management 12e Gary Dessler Sources for Salary Surveys Self-Conducted Surveys Government Agencies Consulting Firms Sources of Wage and Salary Information Professional Associations The Internet Salary surveys can be formal or informal. Informal phone or Internet surveys are good for checking specific issues. Some large employers can afford to send out their own formal surveys to collect compensation information from other employers. Many employers use surveys published by consulting firms, professional associations, or government agencies. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Question Which of the following terms refers to all forms of pay or rewards going to employees and arising from their employment? A) salary B) employee compensation C) wage reimbursement D) employee benefits E) remuneration Answer Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Answer Answer B Explanation: Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Question 4) John is a sales representative in a jewelry store. He typically works 40 hours per week and his pay is completely based on his sales. He earns a 5% commission for every sale he makes. Which of the following terms best describes John's situation? A) performance-based compensation B) indirect financial compensation C) time-based compensation D) salaried plus incentives E) piecework pay Answer: Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Answer Answer A Explanation: John earns sales commissions, which means he receives performance-based compensation. Piecework ties compensation to the number of pieces a worker produces, and John is selling rather than making jewelry. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization. Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation. Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler Step 2: Job Evaluation Skills Effort Responsibility Identifying Compensable Factors Working conditions Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to other jobs in the organization. Compensable factors are certain basic factors the jobs have in common that are used to establish how the jobs compare to one another, and that determine the pay for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Job Evaluation Process Human Resources Management 12e Gary Dessler The Job Evaluation Process Preparing for the Job Evaluation 1 2 Identifying the need for the job evaluation 3 Getting the cooperation of employees 4 Choosing an evaluation committee Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, and employees and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation. Performing the actual evaluation Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler How to Evaluate Jobs Ranking Job classification Point method Methods for Evaluating Jobs Factor comparison Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Methods: Ranking Human Resources Management 12e Gary Dessler Job Evaluation Methods: Ranking Ranking each job relative to all other jobs, usually based on some overall factor. Steps in job ranking: Obtain job information. Select and group jobs. Select compensable factors. Rank jobs. Combine ratings. The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Evaluating Jobs Evaluating the worth of each job can be done using one of these methods: ranking, job classification, point method, or factor comparison Table 11-3 which follows illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler TABLE 11–3 Job Ranking by Olympia Health Care Ranking Order Annual Pay Scale 1. Office manager $43,000 2. Chief nurse 42,500 3. Bookkeeper 34,000 4. Nurse 32,500 5. Cook 31,000 6. Nurse’s aide 28,500 7. Orderly 25,500 Table 11-3 illustrates a job ranking. Jobs in this small health facility rank from orderly up to office manager. The corresponding pay scales are on the right. After ranking, it is possible to slot additional jobs between those already ranked and to assign an appropriate wage rate. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Classification Job classification (or job grading) is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Job Evaluation Methods: Point Method Human Resources Management 12e Gary Dessler Job Evaluation Methods: Point Method A quantitative technique that involves: Identifying the degree to which each compensable factor is present in the job. Awarding points for each degree of each factor. Calculating a total point value for the job by adding up the corresponding points for each factor. The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Groups & classes Raters categorize jobs into groups or classes of jobs that are of roughly the same value for pay purposes. Classes contain similar jobs. Administrative assistants Grades are jobs similar in difficulty but otherwise different. Mechanics, welders, electricians, and machinists Jobs are classed by the amount or level of compensable factors they contain. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The point method The point method is a quantitative technique. It involves identifying (1) several compensable factors, each having several degrees, as well as (2) the degree to which each of these factors is present in the job. A different number of points are assigned to each degree of each factor. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The result is a quantitative point rating for each job. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, it can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler Step 3: Grouping Jobs Point Method Ranking Method Classification Methods Grouping Similar Jobs into Pay Grades Once the committee has used job evaluation to determine the relative worth of each job, it can turn to the task of assigning pay rates to each job; however, it will usually want to first group jobs into pay grades using one of these three methods. A pay grade is comprised of jobs of approximately equal in difficulty or importance as established by job evaluation. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The wage Curve The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs. . Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Wage Curve The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job. Current pay rates falling above the rate range are “red circle,” “flagged,” or “overrates” which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 4: Price Each Pay Grade Human Resources Management 12e Gary Dessler Step 4: Price Each Pay Grade The Wage Curve Shows the pay rates paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades. The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings values assigned to each job or grade by the job evaluation. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler FIGURE 11–5 Plotting a Wage Curve The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the relationships between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for graded jobs. Figure 11-5 presents an example. Note that it shows pay rates on the vertical axis, and pay grades (in terms of points) along the horizontal axis. The pay rates on the wage curve are traditionally those now paid by the employer. However, if there is reason to believe the current pay rates are out of step with the market rates for these jobs, choose benchmark jobs within each pay grade, and price them via a compensation survey. These new market-based pay rates then replace the current rates on the wage curve. Then slot in your other jobs (and their pay rates) around the benchmark job. Current pay rates falling above the rate range are “red circle,” “flagged,” or “overrates” which will require either freezing the rate, transfer or promotion of employees, or reevaluation of the job. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Fine tuning Fine-tuning involves (1) developing pay ranges and (2) correcting out-of-line rates. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 which follows depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler FIGURE 11–6 Wage Structure Most employers do not pay just one rate for all jobs in a particular pay grade. Figure 11-6 depicts how most employers create a wage structure such that their pay ranges somewhat overlap, so an employee in one grade who has more experience or seniority may earn more than an entry-level position in the next higher pay grade. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Step 5: Fine-Tune Pay Rates Developing Pay Ranges Flexibility in meeting external job market rates Easier for employees to move into higher pay grades Allows for rewarding performance differences and seniority Correcting Out-of-Line Rates Raising underpaid jobs to the minimum of the rate range for their pay grade Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay grade Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

HR in Practice: Developing a Workable Pay Plan Human Resources Management 12e Gary Dessler HR in Practice: Developing a Workable Pay Plan Simplified Approach: Conduct a wage survey Conduct a job evaluation Conduct once-a-year job appraisals Compile the compensation budget for upcoming year Developing a pay plan is as important in a small firm as a large one. Paying overly high wages may be unnecessarily expensive, and paying less may guarantee inferior help and high turnover. Furthermore, internally inequitable wage rates will reduce morale and cause employees to demand equity raises. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensation Compensation for a company’s top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or “perks.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Top Executive Jobs For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employer’s ability to pay (total profit and rate of return), and the executive’s human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pricing Managerial and Professional Jobs Human Resources Management 12e Gary Dessler Pricing Managerial and Professional Jobs Base pay Executive benefits/perks Short-term incentives Long-term incentives Compensating Executives and Managers Compensation for a company’s top executives usually consists of four main elements: base pay, short-term incentives, long-term incentives, and executive benefits/perquisites or “perks.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Pricing Managerial and Professional Jobs Human Resources Management 12e Gary Dessler Pricing Managerial and Professional Jobs What Determines Executive Pay? CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in the short and long term. CEOs can have considerable influence over the boards that determine their pay. Firms pay CEOs based on the complexity of the jobs they fill. Shareholder activism and government oversight have tightened the restrictions on what companies pay top executives. Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay. For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent study concluded that three main factors, job complexity (span of control, the number of functional divisions over which the executive has direct responsibility, and management level), the employer’s ability to pay (total profit and rate of return), and the executive’s human capital (educational level, field of study, work experience) accounted for about two-thirds of executive compensation variance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensating Professional Employees Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another question—how is “performance” to be defined and measured? Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Compensating Professional Employees Human Resources Management 12e Gary Dessler Compensating Professional Employees Employers can use job evaluation for professional jobs. Compensable factors focus on problem solving, creativity, job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification is most popular. Compensating professional employees, like engineers and scientists, presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Determining professional compensation presents another question—how is “performance” to be defined and measured? Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Professional jobs are market-priced to establish the values for benchmark jobs. Competency-based pay means the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competency-, knowledge-, or skill-based pay. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-based pay Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. In practice, any skill/competency/knowledge-based pay program generally contains five main elements. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler Competency-Based Pay Competencies Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance What is Competency-Based Pay? Paying for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds Competency-based pay means the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competency-, knowledge-, or skill-based pay. Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Why Use Competency-Based Pay? Human Resources Management 12e Gary Dessler Why Use Competency-Based Pay? High-Performance Work Systems Strategic Aims Competency-Based Pay Supports Performance Management Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented. Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it. Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees must be enthusiastic about learning and moving among other jobs. Paying for competencies encourages employees to develop the competencies the companies require to achieve their strategic aims. Paying for measurable and influence-able competencies provides a focus for the employer’s performance management process. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-Based Pay in Practice Human Resources Management 12e Gary Dessler Competency-Based Pay in Practice Main elements of skill/competency/knowledge–based pay programs: A system that defines specific skills A process for tying the person’s pay to his or her skill A training system that lets employees seek and acquire skills A formal competency testing system A work design that lets employees move among jobs to permit work assignment flexibility In practice, any skill/competency/knowledge-based pay program generally contains these five main elements. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competency-Based Pay: Pros and Cons Human Resources Management 12e Gary Dessler Competency-Based Pay: Pros and Cons Pros Higher quality Lower absenteeism Fewer accidents Cons Pay program implementation problems Costs of paying for unused knowledge, skills, and behaviors Complexity of program Uncertainty that the program improves productivity Competency-based pay has adherents and its detractors. Competency-based pay increases compensation costs in paying employees for unused or outdated knowledge, skills and behaviors. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Special Topics in Compensation Human Resources Management 12e Gary Dessler Special Topics in Compensation Broadbanding Consolidating salary grades and ranges into a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. Pros and Cons More flexibility in assigning workers to different job grades Provides support for flatter hierarchies and teams Promotes skills learning and mobility Lack of permanence in job responsibilities can be unsettling to new employees. Broadbanding means collapsing salary grades into a few wide levels or bands, each of which contains a relatively wide range of jobs and pay levels. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler FIGURE 11–8 Broadbanded Structure and How It Relates to Traditional Pay Grades and Ranges Figure 11-8 illustrates how a company’s previous six pay grades are now consolidated into two broad grades or “broadbands.” Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler Comparable Worth Concept: Employers should be required to pay men and women equal wages for dissimilar jobs that are of comparable (rather than strictly equal) value to the employer. Basis: Seeks to address the issue that women have jobs that are dissimilar to those of men and those jobs are often consistently valued less than men’s jobs. Question at Hand: Who will get to make final decisions on the comparability of jobs? Employers Courts Comparable worth refers to the requirement to pay men and women equal wages for jobs that are of comparable (rather than strictly equal) value to the employer. Women tend to predominate in lower-paid (lesser-valued) jobs. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Human Resources Management 12e Gary Dessler The Pay Gap Factors Lowering the Earnings of Women: Women’s starting salaries are traditionally lower. Salary increases for women in professional jobs do not reflect their above-average performance. In white-collar jobs, men change jobs more frequently, enabling them to be promoted to higher-level jobs over women with more seniority. In blue-collar jobs, women tend to be placed in departments with lower-paying jobs. Women in the United States earn only about 77% as much as men, although the gap is narrowing a bit. These factors may help explain the lower earning for females. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Executive Pay There are various reasons why boards are clamping down on executive pay. The economic downturn that began around 2008 exposed the enormous disconnect between what many executives were earning and their performance. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall