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Chapter 13 Managing compensation
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Managing compensation
Objectives List the major decision areas and concepts in employee compensation management. Describe the major administrative tools used to manage employee compensation. Explain the importance of competitive labour-market and product-market forces in compensation decisions. Discuss the significance of process issues, such as communication in compensation management. Describe new developments in the design of pay structures. Explain the reasons for the controversy over executive pay. Describe the regulatory framework for pay in Australia. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Compensation: key terms
Pay structure The relative pay of different jobs (job structure) How much they are paid (pay level) Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Equity theory People evaluate the fairness of their situations by comparing them with those of other people. Outputsp Inputsp <, >, or = Outputso Inputso Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Table 13.1 Pay structure concepts and consequences
Pay structure Focus of employee Consequences of decision area Administrative tools pay comparisons equity perceptions Pay level Market pay surveys External equity External employee movement (attraction and retention of quality employees); labour costs; and employee attitudes Job structure Job evaluation Internal equity Internal employee movement (promotion and job rotation); cooperation among employees; and employee attitudes Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Job evaluation An administrative procedure used to measure job worth.
Job evaluation is used to design job structures. Key concepts: Distributive justice (also distributive fairness). The perception that rewards are distributed in relation to contribution. Procedural justice (also procedural fairness). A concept of justice focusing on the methods used to determine the outcomes received. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Market pressures Product-market competition Labour-market competition
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Market pay surveys Key questions to address:
Which employers should be included in the survey? Which jobs are included in the survey? If multiple surveys are used, how are all the rates of pay weighted and combined? Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Rate ranges Award restructuring (structural efficiency principle)
Key jobs and non-key jobs Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Developing a job structure— Table 13
Developing a job structure— Table 13.2 Example of a three-factor job evaluation system Compensable factors Job title Experience Education Complexity Total Computer operator Computer programmer Systems analyst Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Developing a pay structure
Pay-policy line A mathematical expression that describes the relationship between a job’s pay and its job evaluation points. Pay grade Jobs of similar worth or content grouped together for pay administration purposes. Range spread The distance between the minimum and maximum amounts in a pay grade. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Table 13.5 Sample pay grade structure
2 3 4 5 Minimum Maximum Midpoint Job evaluation points range Fortnightly pay rate range 100 150 200 250 300 350 $1740 $2648 $3555 $4463 $5370 $2175 $3310 $4444 $5579 $6713 $2610 $3971 $5333 $6694 $8056 Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Monitoring compensation costs
Compa-ratio An index of the correlation between actual and intended pay. Grade compa-ratio = Actual average pay for grade Pay midpoint for grade Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Globalisation, geographic region and pay structures
Market pay structures can differ substantially across countries both in terms of their level and in terms of the relative worth of jobs. Compared with the labour market in Frankfurt, markets in Budapest and Bangalore provide much lower levels of pay overall and much lower payoffs to skill, education and advancement. These differences create a dilemma for global companies. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Important processes in compensation
Participation Communication Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Current challenges in compensation
Problems with job-based pay structures Responses to these problems: Delayering and banding Paying the person: pay for skill, knowledge and competency Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Comparing the competitiveness of the Australian labour force
Average hourly labour costs (cash and benefits) Instability of country differences in labour costs Skill levels Productivity Non-labour considerations Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Table International comparisons of hourly compensation costs for production workers in manufacturing Labour cost Labour cost Index US$ adjusted for US =100 2002 current US rate 2002 Country Australia Brazil Canada Korea Singapore Spain Taiwan United Kingdom United States Source: Robi Bendorf, CPM, 2004, ‘International comparisons of hourly compensation costs for production workers in manufacturing’, Bendorf and Associates, viewed in June, 2004, at Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Executive pay in Australia
Accountability and relationship to organisational performance Governance Design and structure Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Figure 13.4 A comparison of CEO pay and stock-market-based indicators
Source: P.J. Holland, P.J. Dowling & P.A. Innes, CEO compensation in Australia: Is there a relationship between principles, policies and practices?, Asia Pacific Journal of Human Resources, 39(3), 2001, p. 50. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Government regulation of compensation
Minimum wage Wage laws The reconstruction of wage determination Restructuring and efficiency principle Structural efficiency principle (Award restructuring) Enterprise bargaining principle The Australian Fair Pay Commission Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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The Australian Fair Pay Commission (AFPC)
The AFPC is based on the United Kingdom’s Low Pay Commission (LPC). The role of the LPC was initially to establish a national minimum wage in Britain (90 years after Australia). The establishment of the AFPC was announced in May 2005 to, in effect, replace the Australian Industrial Relations Commission as the arbiter of federal wage rates including the minimum wage. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Summary Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay. Pay benchmarking surveys and job evaluation are two administrative tools widely used in managing the pay-level and job-structure components of the pay structure, which influence employee social comparisons. (cont.) Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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Summary (cont.) The nature of pay structures is undergoing a fundamental change in many organisations. How a new program is designed, decided on, implemented and communicated is perhaps just as important as its core characteristics. Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Human Resource Management in Australia 3e by De Cieri et al.
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