Copyright © 2015 Pearson Education, Inc. 11 Establishing Strategic Pay Plans In this chapter, we will cover the basics of compensation. We will include basic considerations in determining and establishing pay rates, current trends and issues, and pricing managerial and professional jobs. Today, compensation plans are evolving from more generic, impersonal methods to programs that recognize and reward specific competencies needed by organizations to accomplish their strategic objectives. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Learning Objectives List the basic factors determining pay rates. Define and give an example of how to conduct a job evaluation. Explain in detail how to establish a market-competitive pay plan. After studying this chapter, you will be able to: 1. List the basic factors determining pay rates. 2. Define and give an example of how to conduct a job evaluation. 3. Explain in detail how to establish a market-competitive pay plan. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Learning Objectives Explain how to price managerial and professional jobs. Explain the difference between competency-based and traditional pay. After studying this chapter, you will be able to: 4. Explain how to price managerial and professional jobs. 5. Explain the difference between competency-based and traditional pay plans. Copyright © 2015 Pearson Education, Inc.

List the basic factors determining pay rates. Employee compensation refers to all forms of pay or rewards going to employees, which include direct financial payments and indirect payments. Direct financial payments include wages, salaries, incentives, commissions, and bonuses. Indirect payments include financial benefits like employer-paid insurance and vacations. Copyright © 2015 Pearson Education, Inc.

Basic Factors in Determining Pay Rates Aligning total rewards with strategy Equity and its impact on pay rates Equity theory of motivation Addressing equity issues The basic thrust in pay plans today is to produce an aligned reward strategy to create compensation plans that guide employee behaviors in the desired, strategic direction. Distinguishing between high and low performers is a policy issue, as is seniority-based pay. External and internal equity are crucial in pay rates. There are four components of equity to consider. External equity refers to how pay compares with rates in other organizations. Internal equity refers to employees viewing their pay as equitable given other pay rates in the organization. Individual equity refers to the fairness of an individual’s pay as compared to what his/her coworkers are earning for the same or very similar jobs in the company. Finally, procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay. Copyright © 2015 Pearson Education, Inc.

Legal Considerations in Compensation Fair Labor Standards Act (1938) Exempt/nonexempt Equal Pay Act (1963) Employee Retirement Income Security Act (1974) Other legislation There are many laws that govern compensation. For example, the Fair Labor Standards Act (FLSA) regulates the minimum wage and requires that overtime be paid. Employees are categorized as exempt or non-exempt from the provisions of the act. Other compensation laws include the Equal Pay Act, the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Family Medical Leave Act (FMLA.) Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: HR as a Profit Center Wegmans Foods Uses Strategic compensation management A total rewards package Produces employee behaviors Achieves Wegmans’ strategic goals Wegmans Foods Wegmans’ compensation policies aim to elicit just this sort of employee dedication. The firm offers above-market pay rates, affordable health insurance, and a full range of employee benefits. Wegmans hasn’t laid off employees in 96 years. Wegmans’ pay policies thus aim to produce exactly the sorts of employee behaviors the company needs to achieve its strategic aims. It is likely that its pay policies are one reason for the firm’s exceptional profitability. For example, Wegmans employee turnover (from 38% for part-timers to 6%–7% for full timers) is well below the industry’s overall average of about 47%. Its stores (which at about 120,000 square feet are much larger than competitors’) average about $950,000 a week in sales (compared to a national average of $361,564), or about $49 million in sales annually, compared with a typical Walmart store’s grocery sales of $23.5 million in sales. As Wegmans’ human resource head has said, good employees assure higher productivity, and that translates into better bottom-line results. Discussion Question 11-1: If Wegmans does so well with a high-pay policy, why don’t more employers do this as well? Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Other Factors Union influences on compensation decisions Pay policies Geography Unions and labor relations laws influence pay plan design. The rulings of the National Labor Relations Act underscored the need for employers to involve union officials in developing the compensation package. To raise salaries, employers can give raises based on a variety of factors. Some factors include longevity and skills. Employers can install a more aggressive merit pay program. Also, they can authorize supervisors to recommend equity adjustments for selected employees who are highly valued or victims of pay compression. Pay compression occurs when valued employees are at the top of their salary grade and deserve a performance increase yet company policies do not permit exceeding the maximum of the pay grade. Accounting for geographic differences in cost of living is another big pay policy issue. One way to deal with it is to pay a differential for ongoing costs in addition to a one-time allocation. Other firms simply raise the employee’s base salary. Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: HR Practices Around the Globe Compensating Expatriate Employees Home-based plan Transferee’s base salary tied to home country’s salary structure salary Host-based plan Transferee’s base salary tied to the host country’s salary structure Compensating Expatriate Employees Most multinational enterprises set expatriates’ salaries according to the home-based salary plan. (Thus, a French manager assigned to Kiev by a U.S. multinational will generally have a base salary that reflects the salary structure in the manager’s home country, in this case France.) In addition, the person typically gets allowances including cost-of-living, relocation, housing, education, and hardship allowances (for more challenging countries). The employer also usually pays any extra tax burdens resulting from taxes the manager is liable for over and above those he or she would have to pay in the home country. Discussion Question 11-2: Why do you think most employers opt for the home-based salary plan? Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Review Alignment with strategy Equity – external, internal Legal considerations Union influences Pay policies Geography For this learning objective, we have discussed the need to align compensation practices with company strategy to ensure achievement of strategic goals. External equity refers to the relationship between what a company pays and what exists in the industry as a whole is a crucial factor. Internal equity is what employees perceive to be a fair relationship between their job and the same or similar jobs performed by others in their organization. Many federal, state, and local laws regulate pay practices. We discussed several including the FLSA and the classification system of exempt versus non-exempt employees, EPA, and ERISA. Employee unions and their collective bargaining agreements have had clear impact on how employees are paid. Employers generally allow some flexibility in pay policies to properly reward high-performing employees who otherwise would not be properly rewarded. Finally, we covered compensation issues related to employees being relocated to other company facilities. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Define and give an example of how to conduct a job evaluation. Employers use two basic approaches to setting pay rates: market-based approaches and job evaluation approaches. Many firms, particularly smaller ones, simply use a market-based approach. Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to another. Job evaluation eventually results in a wage or salary structure or hierarchy. Copyright © 2015 Pearson Education, Inc.

Job Evaluation Methods Copyright © 2015 Pearson Education, Inc. Compensable factors Preparing for the job evaluation There are several job evaluations we will discuss shortly. However, all methods have two considerations that must be addressed: compensable factors and preparation. Compensable factors are those that jobs have in common that can be used to establish how the jobs compare to one another. While intuition may work in some situations, it is better to have an established system that can be widely understood and is defensible in court. For example, the Equal Pay Act uses four compensable factors—skills, effort, responsibility, and working conditions. Job evaluation is a judgmental process demanding close cooperation among supervisors, HR, employees, and union representatives. The main steps include identifying the need for the program, getting cooperation, then choosing an evaluation committee. The committee then performs the actual evaluation. Copyright © 2015 Pearson Education, Inc.

Job Evaluation Methods: Ranking Obtain job information Select and group jobs Select compensable factors Rank jobs Combine ratings The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.” There are several steps in the job ranking method: obtain job information, select and group jobs, select compensable factors, rank jobs, and combine ratings. Copyright © 2015 Pearson Education, Inc.

Job Evaluation Methods Copyright © 2015 Pearson Education, Inc. Job classification Point method “Packaged” point plans Computerized job evaluations Job classification is a simple, widely used method in which raters categorize jobs into groups. For pay purposes, all the jobs in each group are of roughly the same value. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. The point method involves identifying several compensable factors for the jobs. The method also includes the degree to which each factor is present in each job. Let’s take an example. Assume there are five degrees of the compensable factor “responsibility” a job could contain. Further, assume you assign a different number of points to each degree of each compensable factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, the committee can calculate a total point value for the job. It does so by adding up the corresponding points for each factor. The result is a quantitative point rating for each job. However, using quantitative job evaluation methods such as the point method can be time-consuming. Computer-aided job evaluation streamlines the process. Most computerized systems have two main components: structured questionnaires and statistical models. These elements allow the computer program to price jobs by assigning points. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Review Compensable factors Preparation Ranking Classification Point method Computer-based With respect to this learning objective, we have discussed the need for determining compensable factors while properly preparing for the process by cooperating between departments and individuals. The ranking method uses a systematic five-step approach to evaluate jobs. Classifying jobs is a widely used process that groups jobs into certain categories. The point method is the most popular method in use today. It involves a consideration of compensable factors as well as the degree to which a particular job requires those factors be present in the job. Finally, computerized job evaluations help take the routine and the tedious out of any process used. It also provides a thorough trail of information as to how a particular job evaluation was conducted. Copyright © 2015 Pearson Education, Inc.

Explain in detail how to establish a market-competitive pay plan. Many firms simply price their jobs based on what other employers are paying—they use a market-based approach. Many employers also base their pay plans on job evaluations. However, even with the job evaluation approach, managers must adjust pay rates to fit the market. After all, you want employees’ pay to be equitable internally—relative to what their colleagues in the firm earning—but also competitive to what other employers are paying. Copyright © 2015 Pearson Education, Inc.

How to Create a Market-Competitive Pay Plan Choose benchmark jobs Select compensable factors Assign weights Convert percentages to points Define each factor’s degrees Determine degrees and assign points for job factors Choose benchmark jobs. These are representative of the entire range of jobs you need to evaluate. The choice of compensable factors generally depends on history, precedent, and law. As noted, the Equal Pay Act of 1963 uses four compensable factors − skill, effort, responsibility, and working conditions. Your choice also depends on strategic and practical considerations endemic to the organization. Carefully define each factor to ensure that the evaluation committee members apply the factors with consistency. Assigning weights to compensable factors determines the relative amount of each compensable factor the job contains. Assume there is a total of 100 percentage points for each job that needs to be allocated among those compensable factors selected. Convert percentages to points for each factor. Next, define each of several degrees for each factor so raters may judge the amount or degree of a factor that exists in a job. The number of degrees usually does not exceed five or six, and the actual number depends mostly on judgment. Determine the degrees and assign points for each job. The evaluation committee must be able to determine the number of points each job contains. To do this, the committee must be able to examine each job and determine what degree of each compensable factor that job has. The committee then needs to know how many points each degree of each compensable factor is worth. To do this, we must first assign points to each degree of each compensable factor. Copyright © 2015 Pearson Education, Inc.

How to Create a Market-Competitive Pay Plan Review job descriptions and specifications Evaluate the jobs What is a market competitive pay plan? What are wage curves? The heart of job evaluation involves determining the amount or degree to which the job contains the selected compensable factors such as skill, effort, responsibility, and working conditions. Those conducting the job evaluation will frequently do so by reviewing each job’s job description and job specification. The committee determines the degree to which each compensable factor is present in each job. You can then determine how many points for skill, effort, responsibility, and conditions each benchmark job should contain. Finally, you can then add up these degree points to get a total point value for each benchmark job. A market-competitive pay system is a pay system that aligns the organization’s pay with the relevant labor markets. Copyright © 2015 Pearson Education, Inc.

How to Create a Market-Competitive Pay Plan Draw current (internal) wage curve Conduct market analysis: salary surveys Commercial, professional, and government Using internet to do compensation surveys Plotting each job’s points and wage rate produces a scatter plot resulting in a drawing of the internal wage curve. A wage curve can be drawn through these points to show how point values relate to current wage rates. Virtually all employers conduct at least an informal telephone, newspaper, or Internet salary survey to price benchmark jobs and benefits. Often, HR professionals will exchange information informally to help analyze the market for pay plans. For commercial, professional, and government jobs employers use surveys published by consulting firms, professional associations, or government agencies. The Bureau of Labor Statistics (BLS) annually conducts and publishes area and industry wage surveys. This includes professional, administrative, technical, and clerical (PATC) surveys for the National Compensation Survey. Finally, a rapidly expanding array of Internet-based options makes it fairly easy for anyone to access published compensation survey information. Copyright © 2015 Pearson Education, Inc.

How to Create a Market-Competitive Pay Plan Draw market (external) wage curve Compare and adjust Develop pay grades Establish rate ranges Address remaining jobs Correct out-of-line rates The current (internal) wage curve does not reveal whether our pay rates are too high, or too low, or just right, relative to what other firms are paying. For this, you will need to draw a market or external wage curve. The market/external wage curve compares points for your jobs with market pay rates for these jobs. Next, combine both the current/internal and market/external wage curves on one graph. Based on comparing the current/internal wage curve and market/external wage curve you must decide whether to adjust the current pay rates for your jobs, and if so how and how much. Here, your policies, history and current business strategy play a major part. The committee will probably group similar jobs into grades for pay purposes, instead of having to deal with hundreds of pay rates. A pay (or wage) grade is comprised of jobs of approximately equal difficulty or importance as determined by job evaluation. Most employers develop vertical pay (rate) ranges for each horizontal pay grade. These pay ranges may appear as vertical boxes within each grade, showing minimum, maximum, and midpoint pay rates for that pay grade. Once the job evaluation of the benchmark jobs is complete, the remaining jobs must be added. This may be done either through a formal process (like the one described for benchmark jobs) or informally where the company believes they fit. Finally, the wage rate for a job may fall well off the wage line or well outside the rate range for its grade. This means that the average pay for the job is currently too high or too low, relative to other jobs in the firm. If the point falls well below the line, you may need to raise the pay raise for a job. If the point falls well above the wage line, you may need to cut or freeze pay. Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: HR Tools for Line Managers and Entrepreneurs International Stockhouse.com has global based employees Uses the Web for determining salaries and trends Request salary data from professional groups Monitors rates viewing job boards If you employ more than 20 employees or so, conduct at least a rudimentary job evaluation. You will need job descriptions, since these will be the source of data regarding the nature and worth of each job. Checking websites like O*Net or JobDescription.com can be useful here. You may find it easier to split your employees into three clusters—say, managerial/professional, office/ clerical, and plant personnel. For each of the three groups, choose several compensable factors. Then rank (or assign points to) each job in that cluster based on (say,) a ranking job evaluation. For each job you will then want to create a pay range. In general, you might choose as the midpoint of that range the average market salary for that job, or an average of the market rate and what you are currently paying. Then produce a range of about 30% around this average, broken into five steps. (Thus, assemblers, one of the plant personnel jobs, might earn from $8.00 to $12.60 per hour, in five steps.) Required compensation policies will include amount of holiday and vacation pay (as we explain in Chapter 13), overtime pay policy, method of pay (weekly, biweekly, monthly), garnishments, and time card or sign-in sheet procedures. For sources of sample policies see, for example, sites such as http://hr.blr.com/ timesavers?type=54 and the HR systems discussion on pages 572–574. Discussion Question 11-3: What type of job evaluation method would you use in a company with 15 employees? Why? Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Review In a market-competitive pay plan a job’s compensation reflects both the job’s value in the company, as well as what other employers are paying for similar jobs in the marketplace. We have discussed the steps needed to create, implement and maintain a competitive pay plan that includes strong consideration for internal and external equity. That is, not only must you be able to verify that your pay plan is competitive but also that your employees believe they are paid fairly compared to their fellow workers. The steps in the process are all important. However, let’s point out a few key elements. You want to choose benchmark jobs that most agree are key to the success of the organization. Appointing a committee to conduct the work should include knowledgeable compensation people and long-term employees and leaders who understand the company and can communicate effectively. The process involves many steps including selecting compensable factors, assigning weights, assigning point-values to jobs and determining the degree to which such factors apply to a given job. As is the case with many aspects of HR, knowing the job description and specifications is crucial for establishing a market-competitive pay plan. Drawing both the internal and external wage curves, adjusting them, creating pay grades and establishing ranges is important to any company that wants to remain competitive for talent. Finally, know that the work you do with this process will also establish credibility in the minds of current employees and help in your future recruiting efforts for exceptional talent. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Explain how to price managerial and professional jobs. Developing compensation plans for managers or professionals is similar in many respects to developing plans for any employee. There are some big differences, though. Managerial jobs tend to stress harder-to-quantify factors like judgment and problem solving more than do production and clerical jobs. There is also more emphasis on paying managers and professionals based on their performance or on what they can do. Let’s take a longer look at some of the characteristics of paying managers and professionals. Copyright © 2015 Pearson Education, Inc.

Pricing Managerial and Professional Jobs Compensating executives and managers What determines executive pay? Elements of executive pay Managerial job evaluation Compensating professional employees Basic compensation elements for top executives include: base pay, short-term incentives, long-term incentives, and executive benefits and perks. In some instances within the last decade, CEOs have been granted personal loans and then had the loans forgiven by a very generous board of directors. Shareholder activism has tightened restrictions on what companies pay top executives. Executive compensation emphasizes performance incentives more than do other employees’ pay plans. Organizational results (such as increasing shareholder value by x%) are likely to reflect executives’ contributions more directly. Executives typically have the broadest responsibilities for company performance and are judged accordingly. For professional employees, most employers use a market-pricing approach instead of job evaluation. This occurs because it’s not easy to identify factors and degrees of factors which meaningfully differentiate among the values of professional work. In addition, professionals tend to be loyal to their profession and may take their talents to your competitors if they feel unfairly compensated. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Review Executives Professionals Pay With respect to this learning objective, we have discussed executive and professional compensation at a topical level. Programs for professionals and executives are often market-based and hard to measure. Often, the compensation offered to executives and professionals depends on their level of responsibility and how scarce their particular talents are. As noted in your text, “In reality, CEO pay is set by the board taking into account a variety of factors such as the business strategy, corporate trends, and most importantly where they want to be in a short and long term.” Copyright © 2015 Pearson Education, Inc.

Explain the difference between competency-based and traditional pay.   How employers pay employees is evolving. In this final section, we’ll look at six important contemporary compensation topics: competency-based pay, broadbanding, talent management, comparable worth, board oversight of executive pay, and total rewards. Copyright © 2015 Pearson Education, Inc.

Contemporary Topics in Compensation Competency-based pay What is it? Why use it? In practice The bottom line Competency-based pay means the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. There are three reasons why you should consider using competency-based pay. First, in a high performance work system, you want employees to be enthusiastic about learning and moving into other jobs. Second, you can enhance your strategic plans by paying for skills that are critical to those plans. Finally, measurable skills, knowledge, and competencies are at the heart of performance management processes. In practice competency-based pay consists of four main components. These are a: system that defines skills and processes; training system; competency testing system; and work design that allows employees to move among jobs. Some note that competency-based pay “ignores the cost implications of paying [employees] for knowledge, skills and behaviors even if they are not used.” There may also be simpler alternatives. For example, overlapping rate ranges allow workers to move from grade to grade, within limits. Copyright © 2015 Pearson Education, Inc.

HR Practices Around the Globe Copyright © 2015 Pearson Education, Inc. IMPROVING PERFORMANCE: HR Practices Around the Globe JLG’s Skill-Based Pay Program Supplies access equipment such as aerial work platforms and mast booms Pay increases based on skill acquisition Productivity has increased JLG’s Skill-Based Pay Program JLG assigns all hourly production and maintenance workers to a particular Job Family. A Job Family consists of a group of employees performing similar activities and requiring similar skills. Each Job Family has a set of required skills, including certain job-related skills as well as skills related to quality and safety. Skill assessment is ongoing. Formal evaluation begins at the end of the 6-month probationary period, at which time the employee is tested for mastery of the minimum skills required for the Job Family. (A 100% mastery of these minimum skills is required for successful completion of the probationary period.) Then, twice a year, the company analyzes the employee’s progress towards more advanced skills, and sets training objectives. With a greater skill range, workers are better able to focus on problem areas and avoid idle time waiting for problems to be fixed, or for work done by others. Employees can participate more actively in problem-solving because of their wider perspective on total work flow. The program permits lower overall staffing levels by incorporating specialized tasks others might otherwise be hired to perform into Job Family skill requirements. The company has been able to raise minimum hiring qualifications. Overall increases in productivity have enabled expansion of capacity. Discussion Question 11-4: Review our discussion of competencies in Chapter 4; then write three competency statements for one job you believe they would have at a company such as JLG. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Trends Broadbanding Actively managing Comparable worth The pay gap Board oversight Total rewards and tomorrow’s pay programs Broadbanding – This method involves collapsing salary grades and ranges into just a few wide levels or bands. Broadbanding injects greater flexibility into employee assignments, and it allows an employee to move up or down along the pay scale without changing pay ranges. Broadbanding can, however, eliminate a sense of permanence in a set of job responsibilities. Employers are increasingly segmenting their employees and actively assigning more resources to those they deem “mission-critical” in terms of the firm’s strategy. Comparable Worth refers to the requirement to pay equal wages for jobs of comparable value to the employer rather than strictly equal value. Although the pay gap is narrowing a bit, women still earn only about 77% as much as men. Education may reduce the wage gap and over the past decade or so, the number of women enrolled in graduate school programs is on the rise. Boards of directors are clamping down on executive pay. Since 2005, the Financial Accounting Standards Board (FASB) has required that companies recognize as an expense the fair value of the stock options they grant. The Sarbanes-Oxley Act makes executives personally liable for lapses in corporate financial oversight. Future programs will probably exhibit several features. Talent management-oriented employers will have to identify strategically crucial jobs and pay them at premium levels. To engage the new millennial employees, it’s essential that they know what’s expected of them. They also require continuing constructive feedback about their performance. Millennials need the opportunity to create retirement wealth through their employment such as having stock ownership options. Finally, nonfinancial rewards, including personal recognition, will grow in importance as supplements to financial rewards. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Review Broad banding Management Worth Boards Tomorrow Many organizations pay based on employee competencies that can impact the strategic goals of an organization. You want your employees to become and remain motivated and competency-based pay can help you do so. Such a compensation system can help you manage, track, provide appropriate training and design work that optimizes your existing talent pool. Using the system is a win-win proposition for everyone. HR systems are designed to support and help the organization achieve its strategic and short-term goals while providing a supportive environment for employees. Part of the system includes broadbanding job pay so that an employee can remain flexible in their job choices. Active management allows employers to keep their most mission critical employees to stay challenged and engaged. Comparable worth remains a critical component of effective compensation especially for women and other minorities who experience a wage gap with respect to white males. As we discussed previously, the glass ceiling is another negative factor for women in terms of engagement and commitment. Boards of directors and laws such as the Sarbanes-Oxley Act are helping keep executives responsible and accountable. Tomorrow, the Millennial generation will dominate the workforce and require knowing in detail what is expected of them and what they, in turn, may expect as a reward. Non-financial rewards will grow in importance. Copyright © 2015 Pearson Education, Inc.

Translating Strategy into HR Policies and Practices What would you tell Lisa if she asked, “How do I set up a new compensation plan for the Hotel Paris?” Devise a ranking job evaluation system for the Hotel Paris’s non-managerial employees (housekeepers, front-desk clerks) and use it to show the worth of these jobs relative to one another. Improving Performance at The Hotel Paris The current compensation policies had also bred what one hotel manager called an “I don’t care” attitude on the part of most employees. What she meant was that most Hotel Paris employees quickly learned that regardless of what their performance was, they always ended up getting paid about the same as employees who performed better and worse than they did. So, the firm’s compensation plan actually created a disconnect between pay and performance. Lisa and her team (which included a consulting compensation expert) set numerous new measurable compensation policies for the Hotel Paris, and these new policies formed the heart of the new compensation plan. A new job evaluation study provided a more rational and fair basis upon which the company could assign pay rates. A formal compensation survey by the consultant established, for the first time at the Hotel Paris, a clear picture of what competitive hotels and similar businesses were paying in each geographic area, and enabled the Hotel Paris team to more accurately set targets for what each position at the hotel should be paying. Rather than just paying at the industry average, or slightly below, the new policy called for the Hotel Paris to move all its salaries into the 75th percentile over the next 3 years. Question Would you suggest that Hotel Paris implement a competency based pay plan for its non-managerial staff? Why or why not? If so, outline what they need to do. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Hotel Paris Strategy Chapter 11 Hotel Paris Strategy Chapter 11 Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.