Compensation OS352 HRM Fisher Nov. 4, 2004

2 Agenda SAP Exercise 3 In-class writing Pay system design Internal vs. external equity

3 SAP Exercise 3 Accessing and using performance appraisal information Limited to Division 1 of NCCC Optional lab session on Sunday (Nov 7) from 7-9 pm in Snell 241 Assignment due Tuesday Nov 16 (not Nov. 11)

4 In-class writing What is the difference between internal and external equity models of compensation? Which is more important?

5 Consider the following pay structure North Country Cabinet Company JobAnnual Salary President$15,000 Maintenance mechanic$130,000 Production supervisor$20,000 Milling operator$75,000 What ’ s wrong with this picture? Why?

6 Pay System Goals Support strategic objectives – May include organizational change Attract, retain, motivate employees Fairness Compliance What are we paying for? Skills? Performance? Time at the office?

7 Fair Labor Standards Act Minimum wage Overtime – Must be paid to non-exempt employees for hours worked over 40 per week – Exempt employees (management, professionals, administrative) not eligible for overtime – Hourly employees tend to be non-exempt, but guidelines for determining this are complex Child labor Does not mandate vacation, holiday, or sick pay, pay raises, or fringe benefits

8 Forms of Compensation Base wage or salary (fixed) Performance-based (variable or at-risk) – Merit – Incentives – Commissions – Piece rates Attraction and retention bonuses Benefits

9 A question of equity Internal vs. external – what is the difference? Strategic decisions related to external equity: – Lead – Lag – Meet the market In-class writing question: Which is more important? Can you maintain both?

10 Job Evaluation Assessing the relative internal worth of the organization ’ s jobs. Note: Job evaluation is not the same thing as performance evaluation.

11 Two Common Job Evaluation Methods Ranking Method – Compare one job with the others – Simplest and quickest job evaluation approach – Most useful for a small number of jobs – Downsides of using this method? Point method – Assigns a numeric score to a job based upon levels of compensable factors in job – Highly stable, valid over time – Hay system is one of the most popular

12 Compensable Factors The characteristics of a job that the organization values and chooses to pay for Examples: – Degree of responsibility – Years of schooling or experience – Discretion in performing work How can compensable factors be determined? What data would be used?

13 Back to the example How would you evaluate the four jobs based on Hay factors? – Company president – Production supervisor – Maintenance mechanic – Milling operator Remember, Hay profiles are based on know- how, problem solving, and accountability

14 For next class Topics: – More on pay structures – Rewards in addition to base pay – Return exam Read Chapter 12 – How do rewards fit within the overall pay structure? – Links with motivation theories