Chapter 1 The Pay Model

Contrasting Perspectives of Compensation Society’s Views Stockholders’ Views Employees’ Views Managers’ Views

Exhibit 1.1: Hourly Compensation Costs for Production Workers (2005 data) United States $23.65 Brazil 4.09 Canada 23.82 Mexico 2.63 Australia 24.91 Hong Kong 5.65 Japan 21.76 South Korea 13.56 ($8.23 in 2000) Singapore 7.66 Sri Lanka 0.52* (2004 data, comparable to China) Taiwan 6.38 Austria 29.42 Belgium 30.79 Czech Republic 6.11 ($2.83 in 2000) Denmark 35.47 Finland 31.93 France 24.63 Germany 33.00 Hungary 6.07 ($2.79 in 2000) Ireland 22.76 Italy 20.05 Netherlands 31.81 Norway 39.14 Poland 4.54 Portugal 7.33 Spain 17.78 Sweden 28.73 Switzerland 30.50 United Kingdom 25.66 Hourly compensation costs include (1) hourly direct pay and (2) employer social insurance expenditures and other labor taxes.

Exhibit 1.2: Labor Costs as a Percentage of Revenues, Airline Industry

What Is Compensation? Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

Exhibit 1.3: Total Returns for Work

Exhibit 1.5: THE PAY MODEL EFFICIENCY Performance Quality Customers POLICIES TECHNIQUES OBJECTIVES ALIGNMENT Work Descriptions Evaluation/ analysis certification INTERNAL STRUCTURE EFFICIENCY Performance Quality Customers Stockholders Costs FAIRNESS COMPLIANCE COMPETITIVENESS Market Surveys Policy PAY definitions lines STRUCTURE CONTRIBUTORS Seniority Performance Merit INCENTIVE based based guidelines PROGRAMS MANAGEMENT Costs Communication Change EVALUATION

Caveat Emptor - Be An Informed Consumer Does the research measure anything useful? Does the study separate correlation from causation? Are there alternative explanations?

Listening to HR’s Critics Quantify people-management results into dollars Productivity of workforce Cost of vacant position Cost of keeping bad manager Dollar impact of hiring and keeping top performers vs. average ones in mission-critical jobs Adopt “fact-based” decision-making Not “I think” or “I believe” but “I know” re: cause and effect Causes of turnover What motivates workers to produce more Which HR actions can turn business unit around Source: Workforce Management, 7/31/06