The Nine Criteria for Developing a Compensation Plan 1. Internal versus External Equity Will the compensation plan be perceived as fair within the company, or will it be perceived as fair relative to what other employers are paying for the same type of labor? 2. Fixed versus Variable Pay Will compensation be paid monthly on a fixed basis —through base salaries —or will it fluctuate depending on such preestablished criteria as performance and company profits? 3. Performance versus Membership Will compensation emphasize performance and tie pay to individual or group contributions, or will it emphasize membership in the organization —logging in a prescribed number of hours each week and progressing up the organizational ladder? Compensation affects a person economically, sociologically, and psychologically. For this reason, mishandling compensation issues is likely to have a strong negative impact on employees and, ultimately, on the firm’s performance. Developing a compensation plan must been done carefully, and with attention paid to the issues highlighted in the next three illustrations.

The Nine Criteria for Developing a Compensation Plan (cont.) 4. Job versus Individual Pay Will compensation be based on how the company values a particular job, or will it be based on how much skill and knowledge an employee brings to that job? 5. Egalitarianism versus Elitism Will the compensation plan place most employees under the same compensation system (egalitarianism), or will it establish different plans by organizational level and/or employee group (elitism)? 6. Below-Market versus Above-Market Compensation Will employees be compensated at below-market levels, at market levels, or at above-market levels?

The Nine Criteria for Developing a Compensation Plan (cont.) 7. Monetary versus Nonmonetary Awards Will the compensation plan emphasize motivating employees through monetary rewards like pay and stock options, or will it stress nonmonetary rewards such as interesting work and job security? 8. Open versus Secret Pay Will employees have access to information about other workers’ compensation levels and how compensation decisions are made (open pay) or will this knowledge be withheld from employees (secret pay)? 9. Centralization versus Decentralization of Pay Decisions Will compensation decisions be made in a tightly controlled central location, or will they be delegated to managers of the firm’s units?

The Key Steps in Creating Job-Based Compensation Plans Job Evaluation for Internal Equity 1. Job Analysis 2. Job Descriptions 3. Job Specifications Identify Compensable Factors 4. Rate Worth of All Jobs Using a Predetermined System 5. Job Hierarchy There are three key components of developing job-based compensations plans: achieving internal equity, achieving external equity, and achieving individual equity. This illustration summarizes how these are interrelated and the steps involved in each component. The large majority of U.S. firms rely on this or a similar scheme to compensate their work force. 6. Classify Jobs by Grade Levels 1. Check Market Value Using Benchmark or Key Jobs Market Surveys for External Equity Criteria for Pay Positioning Within Range for Each Job Experience Seniority Performance 7. Establish Final Pay Policy Within-Pay-Range Positioning Criteria for Individual Equity Individual Pay Assignment © 1998 by Prentice Hall © 2001 by Prentice Hall 10-4

Fair Labor Standards Act (FLSA) of 1938 Minimum Wage Provision Legislated increases Child Labor Provision Overtime Pay Provision Exempt/Nonexempt Salaried ees are not automatically exempt from OT Test is job responsibilities, not job title or pay form

“New Rules on Overtime Are Established” Expanded range in which lower-income workers are guaranteed overtime pay, and put ceiling on overtime for higher-income workers Workers earning $23,660 or less guaranteed overtime $100,000 ceiling for most overtime protections based on job duties Easier for Er to deny overtime to some professionals Executive, administrative, learned or creative professional Exempted chefs, lawyers, teachers, and accountants from getting overtime Also exempt: “team leaders” (defined to include any person who leads a group of employees on major projects) Rules “only” 15,000 words long (~540 pages), cf. 31,000 words of existing rules replaced Source: Wall Street Journal, 4/21/04; Washington Post, 4/21/04

“Big Retailers Face Overtime Suits As Bosses Do More ‘Hourly’ Work” Retailers such as Wal-Mart, RadioShack, Dollar General facing lawsuits accusing them of using low-level managers to do work of non-managers in order to avoid paying overtime Suits claim little difference between job duties of hourly ees and asst mngrs, esp nighttime asst mngrs (“glorified stockers”) RadioShack mngrs required to work at least 52 hrs/wk Under FLSA, mngrs may be entitled to overtime if more than 40% of their time is not spent supervising or if jobs don’t include decision making (such as authority to hire/fire) Wal-Mart tries to hold labor costs to 8% of sales, cf. 9-10% on average at other large-store retailers Alleged that to stay within budget, Wal-Mart district mngrs have encouraged store mngrs to send hourly ees home before shift is over, then asst mngrs (who are required to work at least 48 hrs/wk) may stay on job for as much as 75 hrs/wk to cover Portion of store mngr compensation is annual bonus pegged to store profit Source: Wall Street Journal, 5/26/04

“Prevailing Wage” Laws Davis-Bacon Act (1931) is best-known example Applies to federal contractors Many states have equivalent Ees must be paid the prevailing wage rate of the locality where work is being performed Prevailing rate is typically the union scale in the locality

Equal Pay Act of 1963 Men and women in “substantially equal” jobs must receive equal pay Allows pay differences based on Seniority Merit Productivity Any factor other than gender

Civil Rights Act of 1964, Title VII Prohibits discrimination based on race, color, gender, religion, national origin Market rates are defense to paying dissimilar jobs differently (unlike Equal Pay Act, and equal work) Comparable worth Advocates that women performing jobs judged to be equal on some measure of worth should be paid the same as men Not mandated by federal law Some states, for public employees; Ontario, public and private Age Discrimination in Employment Act (1967) adds age as prohibited basis (40+)

The Earnings Gap In 1960 FT-employed women earned 61% of pay of FT-employed men; in 2004, 76% Differences in Occupational Attainment Discrimination and gender stereotyping or choice? Differences in Personal Work-Related Characteristics Experience, seniority, education The less education an ee has, the greater the gap HS: male median $31.2k, female $19.8k Differences in Industries and Firms Differences in Union Membership Source: Milkovich and Newman (2005); Evansville Courier & Press, 9/5/05

Assertiveness Gap? Study of MBAs entering job market, interviewing for position paying $61K 71% of male candidates believed they were better than other candidates, told hiring managers so, asked for more money 70% of female candidates believed themselves to be equal to other candidates, willing to accept offered salary Men and women have different attitudes about competing and winning In research study involving computer maze, men performed 50% better when competing against others in group rather than when paid piece-rate In research study involving runners, boys ran faster if they ran against other boys, even faster if they ran against girls; girls ran at same speed either running alone or w/ competitor Social risks: “Consistent assertiveness in a woman rankles people” Men may be more comfortable with selling themselves than women Source: Washington Post, 7/8/03

FACULTY SALARY DATA: 2008-09 (tuition/fees 2008-09, in-state) Source: US News College Report www.colleges.usnews.rankingsandreviews.com/college

Note: median salary for HR Director (non-autonomous), adjusted to Evansville CPI, 11/08: $111,391 (req 7-10 years exp) (salary.com)

AVERAGE FACULTY SALARIES, SELECTED FIELDS FOUR-YEAR INSTITUTIONS, 2007-08 Source: March 14,2008 Issue of The Chronicle of Higher Education