1. Copyright 2000 - South-Western College Publishing Module 16 - 1 Objectives Understand the scope of “Compensation” Appreciate the legal framework surrounding compensation decisions in the U.S. Understand how legal compliance is an important aspect of compensation administration Consider competing models of best practices in pay system design Understand the elements of both direct pay and indirect pay Learn the strategic options of designing compensation as a job-based versus a skill-based system Understand the three forms of equity necessary for successful compensation systems Be sensitive to the intangible elements of pay as well as the more frequently assessed tangible elements

2. Copyright 2000 - South-Western College Publishing Module 16 - 2 Compensation “...an exchange for effort & ideas” “...all forms of financial returns & tangible services & benefits employees receive as part of an employment relationship” “...a return for services rendered” Compensation can include both non-financial & psychological returns

3. Copyright 2000 - South-Western College Publishing Module 16 - 3 Forms of Pay Base Wages Merit Incentives Services & Benefits

4. Copyright 2000 - South-Western College Publishing Module 16 - 4 Elements of Total Compensation Total Compensation Intrinsic Rewards System (Self Administered Psychological Rewards) Teamwork * Challenge Empowerment * Recognition * Security Extrinsic Rewards System (Administered by Others) Financial Direct Compensation (Paycheck Pay) Basic Salary Performance-Based Pay Bonuses/Variable Pay Merit Pay Incentive Pay Indirect Compensation (Benefits) Public Protection (Legally Required) Social Security Unemployment Disability Private Protection Pensions Saving Supplemental unemployment Insurance Paid Leave--Off Job Vacations Sick Day Bereavement Personal Leave Holidays Paid Leave--On Job Training Work Breaks Rest Periods Miscellaneous Benefits Legal Advice Eldercare Daycare Wellness Perquisites Moving Financial Counseling

5. Copyright 2000 - South-Western College Publishing Module 16 - 5 Protection Programs

6. Copyright 2000 - South-Western College Publishing Module 16 - 6 Strategic Compensation Reflect the organization strategyReflect the organization strategy Mirror the organization culture and valuesMirror the organization culture and values Support the business strategySupport the business strategy Champion the human resource management strategyChampion the human resource management strategy “Fit” environmental and regulatory pressures“Fit” environmental and regulatory pressures Objectives Compensation objectives need to be tied to corporate objectives

7. Copyright 2000 - South-Western College Publishing Module 16 - 7 Strategic Compensation Internal consistency External competitiveness Employee contributions Administration Policies Techniques that make up the compensation system translate strategic policy into practice

8. Copyright 2000 - South-Western College Publishing Module 16 - 8 Compensation Objectives Efficiency –performance driven –total quality –customer focus –cost control Equity Compliance

9. Copyright 2000 - South-Western College Publishing Module 16 - 9 External market- sensitive-based pay Variable performance- based pay Risk-sharing partnership Flexible opportunities to contribute; not jobs Teams High wages Guarantee employment security Apply incentives; share gains not risks Employee ownership Participation & empowerment Teams Best Practices Options The New PayHigh Commitment Milkovich & Newman

10. Copyright 2000 - South-Western College Publishing Module 16 - 10 Internal Consistency and Job Analysis

11. Copyright 2000 - South-Western College Publishing Module 16 - 11 Summary of Lecture Internal Consistency Job Analysis –Job Descriptions

12. Copyright 2000 - South-Western College Publishing Module 16 - 12 Internal Consistency (or Equity): Refers to the relationship between the pay structure and the design of the organization. To achieve Internal Consistency, the Pay Structure must: –support organization’s workflow –ensure fairness to all employees –direct employee behaviors towards organizational objectives

13. Copyright 2000 - South-Western College Publishing Module 16 - 13 Results of Internal Consistency Reduces turnover Reduces pay-related grievances Reduces pay-related work stoppages Undertake training (and increase experience) Facilitates career/job progression Facilitates performance

14. Copyright 2000 - South-Western College Publishing Module 16 - 14 Pay Structures and the Pay Model Pay structures are the the array of pay rates for different jobs within an organization. Pay structures vary upon three dimensions: –the levels of work (i.e., Senior, Specialist) –the pay differentials between these levels –the criteria used to determine the levels and pay differentials Job-based or Person-based

15. Copyright 2000 - South-Western College Publishing Module 16 - 15 Factors Influencing Pay Structures Nature of the Organization and its work Size and Age of the Organization Technology in the workplace HR Policies Employee Acceptance Economic Pressures Societal Customs

16. Copyright 2000 - South-Western College Publishing Module 16 - 16 Employee Acceptance: A Key Test Distributive Justice –Pay Differences –Number of Levels –Structural Criteria: are decisions based on the job or on the KSA’s of the person? Procedural Justice –Fairness of Design & Administration

17. Copyright 2000 - South-Western College Publishing Module 16 - 17 Consequences of Internal Pay Structures Efficiency: Pay structure can be a Competitive Advantage used to attract and retain best employees Equity: Ensures fairness and satisfaction amongst employees Compliance: Meets legal requirements

18. Copyright 2000 - South-Western College Publishing Module 16 - 18 Process of Building an Internal Job Structure Two Basic Methods: Job-Based Structures Person-Based Structures –Skills –Competencies

19. Copyright 2000 - South-Western College Publishing Module 16 - 19 Job Analysis The systematic process of collecting relevant, work-related information related to the nature of a specific job.

20. Copyright 2000 - South-Western College Publishing Module 16 - 20 Many Reasons for Job Analysis Internal Consistency Wage Setting Job Evaluation Standardizing Job Titles Transfers and Promotions Merit Rating Adjustment of Grievances Legal Defense in EEO or ADA suits Almost all HR decisions are based on job information Machine Design and Changes Test Development Safety Engineering Hiring Specifications Training Skill Inventory

21. Copyright 2000 - South-Western College Publishing Module 16 - 21 What Data to Collect? Job Title Describe Job –job content and worker characteristics Task Data –describes actual work performed and the purpose of these tasks Behavioral Data –behaviors expected of workers Essential Job Duties

22. Copyright 2000 - South-Western College Publishing Module 16 - 22 How can Data be Collected? Narrative Questionnaires Standardized Questionnaires Interviews Observation (Time and Motion Studies) Diary/Log

23. Copyright 2000 - South-Western College Publishing Module 16 - 23 Who is Involved? Who Collects the Data? –Usually a new employee –However, should be an experienced employee familiar with the company and its jobs. Who Provides the Data? –Job holders, Supervisors, Subordinates, Peers, Analyst

24. Copyright 2000 - South-Western College Publishing Module 16 - 24 The Job Description: The Result of Job Analysis General Format of a Job Description Job Title Fair Labor Standards Act (FLSA) Exemption Status General Summary of Job Essential Job Duties and Responsibilities Knowledge, Skills, and Abilities Required Working Conditions Dates and Approvals Disclaimer Statement

25. Copyright 2000 - South-Western College Publishing Module 16 - 25 Tips on Writing Job Descriptions Avoid jargon and “inflationary” adjectives Use the most descriptive verb possible to describe job tasks and activities. Knowledge, skills and abilities listed must be specific, realistic, and justifiable. Indicate the intensity, frequency and duration for physical or mental effort. Include the FLSA Code All JD’s should include a disclaimer statement to ensure flexibility in the administration of a pay program. Accurate, legally defensible JD’s are a necessity!