Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Part 4 Compensation of Human Resources

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Pay Structure and Consequences 11-2 Irwin/McGraw-Hill Administrative Tool Focus of Comparison Consequence Pay LevelJob Structure Market surveysJob evaluation ExternalInternal - external moves: attraction / retention of employees - labor costs - employee attitudes - internal moves: promotion, transfer - cooperation among employees - employee attitudes

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Equity Theory 11-3 Irwin/McGraw-Hill OUTCOME INPUTS OUTCOME INPUTS ? the same, more or less A person evaluates fairness by comparing their ratio with others. Pay, benefits, opportunities, etc. effort, ability, experience etc.

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Three Employee Views of the Pay Decision 11-4 Irwin/McGraw-Hill Pay Level- Same job in Different organizations Pay Structure - Different jobs in Same organization Individual Pay Differences - Different people in Same job Pay Level- Same job in Different organizations Pay Structure - Different jobs in Same organization Individual Pay Differences - Different people in Same job

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Market Pressures in Developing Pay Levels 11-5 Irwin/McGraw-Hill Product-market competition upper bound on labor cost staffing level average cost per employee Labor-market competition lower bound on pay levels Product-market competition upper bound on labor cost staffing level average cost per employee Labor-market competition lower bound on pay levels Deciding What to Pay ?

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Market Pay Surveys - Benchmarking 11-6 Irwin/McGraw-Hill Identify key labor- and product-market competition Identify key jobs v. non-key jobs Weight and combine pay rates appropriately Track appropriate ratios over time revenues per employee revenues per labor cost work force quality (e.g. education levels) Identify key labor- and product-market competition Identify key jobs v. non-key jobs Weight and combine pay rates appropriately Track appropriate ratios over time revenues per employee revenues per labor cost work force quality (e.g. education levels) Factors to consider

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example of a Three-Factor Job Evaluation System 11-7 Irwin/McGraw-Hill Job Title Experience Education Complexity Points Total Compensable Factors Computer operator Computer programmer Systems analyst

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Approaches to Developing a Pay Structure 11-8 Irwin/McGraw-Hill Market survey data external comparisons Pay policy line combines internal & external Pay grade Market survey data external comparisons Pay policy line combines internal & external Pay grade

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Developing a Pay Policy Line 11-9 Irwin/McGraw-Hill PAY Job Evaluation Points monthly salary ($000) Line of Best Fit : using Market-Survey data in Table 14.4

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Developing a Pay Policy Line Irwin/McGraw-Hill PAY Job Evaluation Points monthly salary ($000) Job Evaluation Points = 315 Predicted Salary = $7,128 Predicted Salary = $6,486

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Pay Grade Structure Irwin/McGraw-Hill PAY Job Evaluation Points monthly salary ($000)

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Process Issues Irwin/McGraw-Hill Participation Use task forces for suggestions Communication Employees need to understand system Need to keep managers aware of changes Managers need to explain system changes Participation Use task forces for suggestions Communication Employees need to understand system Need to keep managers aware of changes Managers need to explain system changes

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Current Challenges Irwin/McGraw-Hill Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. New Approaches Irwin/McGraw-Hill Delayering and Banding Skill (knowledge) - based pay increases flexibility firm needs to use available skills Delayering and Banding Skill (knowledge) - based pay increases flexibility firm needs to use available skills

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Can the U.S. Labor Force Compete? Irwin/McGraw-Hill Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities market proximity response time Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities market proximity response time

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Comparative Productivity and Unit Labor Costs: Unites States, Germany, and Japan Irwin/McGraw-Hill Legend: U.S. Germany Japan Productivity (value added per labor hour) $100 $

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Chief Executive Officer Pay in Selected Countries Irwin/McGraw-Hill Multiple of CEO to Manufacturing Employee Total Remuneration Japan 24 Germany United States France