THE MYSTICAL WORLD OF COMPENSATION Class 12 – Chapter 11

Organizational Reward Systems - Financial and Nonfinancial Components Financial e.g.Non-Financial e.g. Salary/wagesQuality of life BenefitsWork/life balance BonusesCareer opportunities Stock optionsWhat motivates you??? If money/cash is your primary motivator at work, what are your secondary motivators???

Entry Level Accounting Position Location:Albany, NY # employees150 Revenue$26 million IndustryComputer Software College degree requiredYes CPA requiredNo Salary Range$55,000 - $75,000 Your salary$60,000 ??? WHY ???

Legal Requirements for Pay: Equal Employment Opportunity Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to such business-related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work. Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to such business-related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work.

Ideally, Compensation Is Based Upon 1.INTERNAL EQUITY 2.EXTERNAL COMPETITIVENESS 3.COMPANY’S ABILITY & WILLINGNESS TO PAY

Figure 11.3: Opinions About Fairness – Pay Equity

Decisions About Pay Job Structure Relative pay for different jobs within the organization Pay Level Average amount the organization pays for a particular job. Pay Structure Pay policy resulting from job structure and pay- level decisions.

Figure 11.1: Issues in Developing a Pay Structure

EXTERNAL COMPETITIVENESS e.g. VP of Marketing FACTORS Industry Size of company Competition Title Geography – Domestic/International Profit vs. Not For Profit Present & future financial health of company

INTERNAL EQUITY FACTORS e.g. VP of Marketing Representative Factors to Consider Salary of other VP’s in the company Supervisory/managerial responsibility Experience Budget responsibility Seniority Public contact Working conditions

Pay Secrecy – how and why is pay determined The effects of inflation Continuity - Two identical jobs in two different states with two differing pay ranges Pay Compression Higher starting salaries for new hires Negotiated pay increases of union workers over/under non- union workers

Legal Requirements for Pay Equal employment opportunity Minimum wages Overtime payPrevailing wages for federal contractors

Selected Laws Affecting Compensation Davis-Bacon Act (Hoover) Established the requirement for paying prevailing wages on public works projects – Walsh-Healy Public Contracts Work (FDR) Applies to US Government contracts exceeding $10,000 for manufacture of goods Overtime = 8 hours per day or 40 hours per week Minimum wage = prevailing wage

Fair Labor Standards Act of 1938 (FDR) The granddaddy of them all Established Minimum Wage (then $0.25) Established overtime at 1.5 times hourly salary Established work week at 40 hours Prohibits children under 18 from doing certain dangerous jobs Children under 16 cannot work during school hours

Additional Laws Affecting Compensation 1963 – Equal Pay Act – a.k.a. equal pay for equal work Makes it illegal to pay workers lower wages based upon sex.

Legal Requirements for Pay: Child Labor Children aged 16 and 17 may not be employed in hazardous occupations defined by U.S. Department of Labor. Children aged 14 and 15 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods. A child under age 14 may not be employed in any work associated with interstate commerce. Exemptions include baby-sitting, acting, and delivering newspapers. Children aged 16 and 17 may not be employed in hazardous occupations defined by U.S. Department of Labor. Children aged 14 and 15 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods. A child under age 14 may not be employed in any work associated with interstate commerce. Exemptions include baby-sitting, acting, and delivering newspapers.

Additional Laws Affecting Compensation Workers Compensation, ca A form of insurance that provides wage replacement and medical benefits for employees who are injured in the course of employment, in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. Required by federal law Managed by state law Covered more fully as a benefit

Legal Requirements for Pay: Equal Employment Opportunity Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to such business- related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work. Employers must not base differences in pay on an employee’s age, sex, race, or other protected status. Any differences in pay must be tied to such business- related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work.

MINIMUM WAGE A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers Equivalently, it is the lowest wage at which workers may sell their labor. Although minimum wage laws are in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage.

Minimum hourly wages Federal = $7.25 –Proposed $10.10 by 2015 NY State 12/31/14 = $8.7512/31/15 = $9.00 VT = $8.73CT = $9.15RI = $9.00 NH = $7.25ME = $7.50 MA = $9.00 (1/1/15) = $10 (1/1/16) = $11.00 (1/1/17) WA = $9.32OR = $9.25D.C. = $9.50

Municipal Minimum Wage San Francisco = $10.74 SeaTac = $15.00 Teacher Stumper: Hotels, restaurants, car rentals, gas stations – can they afford the additional costs and still stay competitive and in business?

Minimum Wage Claims – Pro vs. Con Pro – Increases the standard of living of workers Reduces poverty Reduces inequality Boosts morale and forces businesses to be more efficient Con – Increases poverty Increases unemployment (particularly among low productivity / unskilled workers) Damages to businesses Incents businesses and communities to do same or more work with less people [3]

Minimum Wages – Empirical Studies Employment effects, the most frequently studied aspect Effects on the distribution of wages and earnings among low-paid and higher-paid workers Effects on the distribution of incomes among low- income and higher-income families Effects on the skills of workers through job training and the deferring of work to acquire education Effects on prices and profits Effects on on-the-job training

Teacher Stumper: Minimum Wage Argument If you were a Human Resources Manager for McDonalds, what do you think would happen to your business if the minimum wage were raised to $15.00? Note: $15 x 2080 = $31,200/year $9 x 2080= $18,720/year

Legal Requirements for Pay: Overtime Pay Overtime rate under FLSA is 1½ times employee’s usual hourly rate, including any bonuses, and piece-rate payments. Exempt employees – managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay. Nonexempt employees – employees covered by FLSA requirements for overtime pay. Overtime rate under FLSA is 1½ times employee’s usual hourly rate, including any bonuses, and piece-rate payments. Exempt employees – managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay. Nonexempt employees – employees covered by FLSA requirements for overtime pay.

Figure 11.2: Computing Overtime Pay

Calculate Total Pay Hours worked47 Hourly pay$12.50 Bonus$45.00

Answer Hours worked47 Hourly pay$12.50 Regular pay:40 x $12.50 = $ Bonus$45.00= $45.00 Total regular pay= $ Hourly rate ($ / 40)= $ ( x 1.5)= $20.44 Overtime = (7 x $20.44)= $ Total:($ $143.06)= $688.06

HRM Decisions: Pay Level - Deciding What to Pay Pay at rate set by market (market rates)Pay at a rate above marketPay at a rate below market

Compa-Ratio Comparative Ratio The formula commonly used by compensation professionals to assess the competitiveness of an employee’s pay level. Calculation: employee’s current salary divided by the current market rate for this position. Three values represent industry averages for the position. A Compa-Ratio of 1.00 or 100% = industry average; A Compa-ratio of 0.75 = pay is 25% below the industry average. A Compa-ratio of 1.15 = pay is 15% above the industry average.

Compa-Ratio Calculation Position: Entry-level accountant in your company =$55,000 / year Local industry average for same job = $58,500 per year Compa-ratio = / = 1.06

Gathering Information About Market Pay Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors Pay surveys Trade and industry groups Professional groups Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors Pay surveys Trade and industry groups Professional groups Bureau of Labor Statistics (BLS) Society for Human Resource Management (SHRM) World at Work Bureau of Labor Statistics (BLS) Society for Human Resource Management (SHRM) World at Work

END OF CLASS 12