Establishing Strategic Pay Plans Part 4 | Compensation Chapter 11 Establishing Strategic Pay Plans © 2008 Prentice Hall, Inc. All rights reserved.

After studying this chapter, you should be able to: List the basic factors in determining pay rates. Explain in detail how to establish pay rates. Explain how to price managerial and professional jobs. Discuss competency-based pay and other current trends in compensation. © 2008 Prentice Hall, Inc. All rights reserved.

Basic Factors in Determining Pay Rates Direct Financial Payments Indirect Financial Payments Employee Compensation © 2008 Prentice Hall, Inc. All rights reserved.

Legal Considerations in Compensation Employee Compensation Equal Pay Act (1963) Employee Retirement Income Security Act (ERISA) Age Discrimination in Employment Act Americans with Disabilities Act Davis-Bacon Act (1931) Walsh-Healey Public Contract Act (1936) Title VII of the 1964 Civil Rights Act Fair Labor Standards Act (1938) The Family and Medical Leave Act The Social Security Act of 1935 (as amended) Workers’ Compensation © 2008 Prentice Hall, Inc. All rights reserved.

Equity and Its Impact on Pay Rates External Equity Procedural Equity Internal Equity Individual Equity Forms of Equity © 2008 Prentice Hall, Inc. All rights reserved.

Addressing Equity Issues Salary Surveys Job Analysis and Job Evaluation Performance Appraisal and Incentive Pay Communications, Grievance Mechanisms, and Employees’ Participation Methods to Address Equity Issues © 2008 Prentice Hall, Inc. All rights reserved.

The Salary Survey Step 1. The Wage Survey: Uses for Salary Surveys To price benchmark jobs To make decisions about benefits Step 1. The Wage Survey: Uses for Salary Surveys To market-price wages for jobs © 2008 Prentice Hall, Inc. All rights reserved.

Sources for Salary Surveys Employer Self-Conducted Surveys Government Agencies Consulting Firms Sources of Wage and Salary Information Professional Associations The Internet © 2008 Prentice Hall, Inc. All rights reserved.

Establishing Pay Rates (cont’d) Skills Effort Responsibility Working Conditions Step 2. Job Evaluation: Identifying Compensable Factors © 2008 Prentice Hall, Inc. All rights reserved.

Establishing Pay Rates (cont’d) Ranking Factor Comparison Job Classification Methods for Evaluating Jobs Point Method © 2008 Prentice Hall, Inc. All rights reserved.

Establishing Pay Rates (cont’d) Point Method Ranking Method Classification Methods Step 3. Group Similar Jobs into Pay Grades © 2008 Prentice Hall, Inc. All rights reserved.

Pricing Managerial and Professional Jobs Base Pay Executive Benefits and Perks Short-term Incentives Long-Term Incentives Compensating Executives and Managers © 2008 Prentice Hall, Inc. All rights reserved.

Competency-Based Pay (cont’d) Support High-Performance Work Systems Support Performance Management Why Use Competency-Based Pay? Support Strategic Aims © 2008 Prentice Hall, Inc. All rights reserved.

Other Compensation Trends Broadbanding Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. Pro and Cons More flexibility in assigning workers to different job grades. Provides support for flatter hierarchies and teams. Promotes skills learning and mobility. Lack of permanence in job responsibilities can be unsettling to new employees. © 2008 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S employee compensation direct financial payments indirect financial payments Davis-Bacon Act (1931) Walsh-Healey Public Contract Act (1936) Title VII of the 1964 Civil Rights Act Fair Labor Standards Act (1938) Equal Pay Act (1963) Employee Retirement Income Security Act (ERISA) salary compression salary survey benchmark job job evaluation compensable factor ranking method job classification (or grading) method classes grades grade definition point method factor comparison method pay grade wage curve pay ranges competency-based pay competencies broadbanding comparable worth © 2008 Prentice Hall, Inc. All rights reserved.

Quantitative Job Evaluation Methods Part 4 | Compensation Appendix for Chapter 11 Quantitative Job Evaluation Methods © 2008 Prentice Hall, Inc. All rights reserved.

Quantitative Job Evaluation Methods Factor Comparison Job Evaluation Method Step 1. Obtain job information Step 2. Select key benchmark jobs Step 3. Rank key jobs by factor Step 4. Distribute wage rates by factors Step 5. Rank key jobs according to wages assigned to each factor Step 6. Compare the two sets of rankings to screen out unusable key jobs Step 7. Construct the job-comparison scale Step 8. Use the job-comparison scale © 2008 Prentice Hall, Inc. All rights reserved.