THE PAY MODEL Chapter 2

The Flow…. Concept Forms of pay Pay model Case study

Something that counterbalances, offsets, makes up for something else. Compensation???? Society Stockholders Managers Employees Something that counterbalances, offsets, makes up for something else. Refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

Total returns for work Forms of pay Relational returns Recognition & Status Employment security Challenging work Learning opportunities Total compensation Cash compensation Base Merit/Cost of living Short-term /long term incentives Benefits Income protection Work/life balance Allowances

Base wage--- the cash compensation that an employer pays for the work performed. It tends to reflect the value of the work or skills and generally ignores differences attributable to individual employees Merit increase ---- are given as increments to the base pay recognition of past work behavior. Cost of living allowances give the same increases to everyone, regardless of performance.

Incentives Merit pay Do not increase the base wage and must be re-earned each pay period Size of incentive will be known before-hand Tries to influence future behavior whereas merit recognizes past behavior Merit pay programs evaluate past performance of an individual and then decide on the size of the increase

Benefits Income Protection Work/life balance Medical insurance, retirement programs, life insurance, and savings plans are common benefits. Work/life balance Programs that help employees better integrate their work and life responsibilities include time away from work (vacations) access to services to meet specific needs (drug counseling, financial planning, referrals for child and elder care), and flexible work arrangements (telecommuting, nontraditional schedules, nonpaid time off) responding to the changing demographics of the workforce (two-income families or single parents)

A Pay Model TECHNIQUES POLICIES OBJECTIVES INTERNAL STRUCTURE Work Analysis Description Evaluation/Certification INTERNAL STRUCTURE EFFICIENCY Performance, Quality, Customer & Stakeholder & Cost FAIRNESS COMPLIANCE ALIGNMENT Market definitions Surveys Policy lines PAY STRUCTURE COMPETITIVENESS Security based Performance Based Merit Guidelines INCENTIVE PROGRAMS CONTRIBUTIONS Cost Communication Change EVALUATION MANAGEMENT

Compensation objectives Efficiency (a) Improving performance, increasing quality, delighting customers and stockholders, and (b)controlling labor costs Fairness Fair treatment for all employees by recognizing both employee contributions (For e.g. higher pay for greater performance, experience , or training) and employee needs (e.g. fair wage as well as fair procedures) Compliance Conforming to federal and state compensation laws and regulations

Continued… Objectives guide the design of the pay system. If objective is to increase customer satisfaction, then incentive program and merit pay might be used to pay for performance If objective is to develop new innovative products – job design, training and team building may be used. Also serve as the standards for judging the success of the pay system

Policy choices…. Internal alignment External competitiveness Pay mix??? Positioned?? What forms?? Employee contributions’ Management So what?

Internal alignment Refers to comparisons among jobs or skill levels inside a single organization. Pertains to the pay rates both for employees doing equal work and for those doing dissimilar work Determining an appropriate difference in pay for people performing different work is a key challenge facing managers

External competitiveness Refers to comparisons with competitors How much do we wish to pay in comparison to what other employers pay? What mix of pay forms – base, incentives, stock, benefits do our competitors use? Market driven… EC has two –fold effect on objectives Ensure that pay is sufficient to attract and retain employees, control labor costs…

Employee contributions How much emphasis should there be on paying for performance? Should the company share profits with employees? Share with all employees, part-time as well as full-time? Management Ensuring that the right people get the right pay for achieving the right objectives in the right way

Techniques…. Internal structure Pay structure Incentive programs Evaluation……….

Case study Glamorous internships? or House Elves?