1. Chapter 1
The Pay Model
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2. Learning Objectives Compensation - Definition Forms of pay A pay model
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3. Perspectives of Compensation
Society’s Views
Stockholders’ Views
Employees’ Views
Managers’ Views
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4. Perspectives of Compensation
Society
Considers pay as a measure of justice
Job benefits- Reflection of justice in society
Stockholders
Using stock to pay employees creates a sense of ownership
Linking executive pay to company performance increases stockholders' returns
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5. Perspectives of Compensation
Managers
Major expense
Can be used to:
Influence employee behaviors
Improve organizational performance
Employees
Major source of financial security
Entitlement for being an employee of the company
Reward for a job well done
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6. Incentive and Sorting Effects of Pay on Employers’ Behaviors
Pay affects motivational intensity, direction, and persistence
Incentive effect: Degree to which pay influences individual and aggregate motivation
Sorting effect: Effect that pay can have on the composition of the workforce
How an organization pays, can result in sorting effects
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7. What is Compensation?
All forms of financial returns and tangible services and benefits employees receive as part of an employment relationship
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8. Forms of Pay Total compensation Relational returns
Pay received directly as cash and indirectly as benefits
Relational returns
Are psychological
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9. Exhibit 1.4 - Total Returns for Work
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10. Forms of Pay
Base wage
Cash that an employer pays in return for the work performed
A function of the skill or education an employee possesses
Salary-Pay for employees:
Who are exempt from regulations of the Fair Labor Standards Act (FLSA)
Is calculated at an annual or monthly rate
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11. Forms of Pay Merit pay/Cost-of-living adjustments
Wage-Pay for workers:
Covered by overtime and reporting provisions of the Fair Labor Standards Act
Is calculated on hourly basis
Merit pay/Cost-of-living adjustments
Periodic adjustments to base wages on the basis of changes in:
What other employers are paying for same work
Overall cost of living
Experience or skill
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12. Forms of Pay Incentives (Variable pay)
Pay increases are given in recognition of past work behavior
Same increases given to everyone, regardless of performance
Incentives (Variable pay)
Related to performance
Do not increase base wage
Potential size of the payment will generally be known beforehand
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13. Forms of Pay Benefits Are one-time payments
May be long-term (stock options) or short-term
Benefits
Income protection
Medical insurance, retirement programs, and life insurance
Work/life balance
Vacations, financial planning, referrals for child and elder care, and telecommuting
Allowances
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14. Forms of Pay Total earning opportunities Relational returns from work
Comparison of today's initial offers to consideration of future
Relational returns from work
Nonfinancial returns that substantially impact employee behavior
Network of returns
Created by different forms of pay
Useful if bonuses and development opportunities work together
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15. A Pay Model Basic building blocks Compensation objectives
Policies that form the foundation of the compensation system
Techniques that make up the compensation system
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16. Exhibit The Pay Model
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17. Compensation Objectives
Guide the design of the pay system
Serve as standards for judging the success of the pay system
Compliance - Conforming to federal and state compensation regulations
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18. Four Policy Choices Internal alignment
Compares jobs or skill levels inside a single organization
Pertains to the pay rates for employees doing:
Equal work
Dissimilar work
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19. Four Policy Choices Pay relationships affect employee decisions to:
Stay with the organization
Become more flexible by investing in additional training
Seek greater responsibility
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20. Four Policy Choices External competitiveness
Pay comparisons with competitors
Pay is ‘market driven’
Objective:
To ensure that pay is sufficient to attract and retain employees
To control labor costs to ensure competitive pricing of products/ services
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21. Four Policy Choices Employee contributions Management
Understanding the basis for judging performance, helps perceive pay as fair
Management
Right people get the right pay for achieving the right objectives in the right way
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22. Pay Techniques Tie the four basic policies to the pay objectives
Many variations exist
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