Compensation Strategy & Structure Strategic role of compensation What determines pay Reward system objectives External & internal considerations

Strategic Role of Compensation To attract, retain and motivate employees Link to business plan Internal pay structure External equity Administrative policies Performance focus

What Determines Pay? Organizational differences -- corporate culture & ability to pay Work differences: intellectual and interpersonal competencies, skills, responsibility, working conditions Employee differences: Education, experience, skills Market & country differences

Reward System Objectives Improving productivity Controlling costs Fair treatment Legal compliance

External Considerations Legislation –Fair Labor Standards Act –Davis-Bacon Act –Walsh-Healy Act 1936 –Equal pay act (1963) Labor union Labor markets Compensation surveys

Internal Considerations Organizational considerations Traditional job evaluation Skill based evaluation Market based evaluation

Point Evaluation Method Compensable Factors –Aspects of the job that are valued by the organization Numerically Scaled Factors –Committee decides number of scale points & total points (often 500 or 100) Factor Weights –Importance of factor

Point Evaluation Table

Calculating Points Maximum for each factor is the factor weight X the total points –Example: for Know-how.50 X 1000 = 500 Minimum for each factor is factor weight X 100 –Example: for Know-how.50 X 100 = 50 Interval points = Maximum - Minimum # of degrees - 1 –Example = = 450/3 = 150 – 3

Skilled Based & Market Based Methods Skill based: Compensates on the basis of job-related skills Market based: Compensates on the basis of surveys determining going rate in area and profession

Backwards & Forwards Summing Up: Today we considered strategic aspects of compensation, factors that determine pay, objectives of the reward system and external & internal considerations in setting pay scales. The point evaluation method was examined Looking ahead: Next time we explore pay for performance for individuals and teams