1. COMPENSATING EMPLOYEES

2. SEMESTER RECAP Context –SHRM –Legal environment –International Procuring –Planning –Recruiting –Selection Utilizing & Maximizing –Training –Appraisal –

3. Compensation Defined The package of quantifiable rewards an employee receives for his/her labors. Three components: –Base compensation –Pay incentives –Indirect compensation

4. TODAY’S TOPIC Compensation

5. EQUITY THEORY People compare their outcome/input ratio to that of others Conclusions –Ratios are equal (equity exists) –Ratios are unequal (inequity exists)

6. RESPONSES TO EQUITY/INEQUITY Equity: Maintenance

7. RESPONSES TO EQUITY/INEQUITY Equity: Maintenance Inequity: –Change Inputs –Change Outcomes –Quit

8. Traditional Approach to Compensation Objective of traditional approaches to compensation is to achieve both internal & external equity Internal equity is accomplished through job evaluation –Systematic process of assessing the value of each job in relation to other jobs in the organization –Results in a hierarchy of jobs ranked in order of their relative worth External equity through market analysis

9. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job RatingSurvey Conduct Create JobSurvey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

10. Three Job Rating Methods MethodProcedure Advantages Disadvantages Ranking (paired comparison)Rank-order whole Simplest method; -Subjective jobs for worth or inexpensive, easily -not very reliable compare pairs of understandable. -doesn’t measure jobs. differences between jobs.

11. Three Job Rating Methods MethodProcedure Advantages Disadvantages Ranking (paired comparison)Rank-order whole Simplest method; Only general rating of jobs for worth or inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. ClassificationCompare job de-Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions.ber of jobs; one rating scale.

12. GradeDescriptionPay 5 Cook existing menu items following recipe Supervise kitchen help Prepare payroll Ensure quality of food and adherence to standards $14.00-$19.00 3 Greet customers and organize tables Take orders from customers Bring food to tables Assist with food preparation Help with delivery $10.00-$12.00 1 Use dishwashing equipment Use chemicals to clean premises Use vacuum cleaner, mop, waxer Clean and set up tables Perform routine kitchen chores $8.25-$9.00 Job Classification for Restaurant

13. GradeJobs# Positions 5 Assistant Manager Lead Cook Office Manager 2 1 3 Server Hostess Cashier 45 4 1 Kitchen Helper Dishwasher Janitor Busser Security Guard 2 3 2 6 2 Job Classification for Restaurant

14. Three Job Rating Methods MethodProcedure Advantages Disadvantages Ranking (paired comparison)Rank-order whole Simplest method; Only general rating of jobs for worth of inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. ClassificationCompare job de-Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions.ber of jobs; one rating scale.

15. Three Job Rating Methods MethodProcedure Advantages Disadvantages Ranking (paired comparison)Rank-order whole Simplest method; Only general rating of jobs for worth of inexpensive, easily - not very reliable compare pairs of understandable. doesn’t measure jobs. differences between jobs. ClassificationCompare job de-Simple, easy to Ambiguous, overlapping scriptions to grade use for large num- grade descriptions descriptions.ber of jobs; one rating scale. Point factorReduce generalMore specific and Time-consuming process factors to sub-larger number of more difficult to under- factors: give eachfactors; off-the- stand; greater opportun- factor weights andshelf plans available ity to disagree. points; use points more precise to determine measurements. grades.

16. Point Factor Method 1Identify specific characteristics (factors) of jobs that will be measured

17. Major Factors of the Hay Plan Know-HowProblem SolvingAccountability Sum total of every kind Original, “self-starting” thinkingAnswerability for action kind of skill, however required by the job for analyzing,and for the consequen- acquired, required for evaluating, creating, reasoning.ces of the action; the acceptable job perfor-Problem solving has two sub-measured effect of the mance. Know-how hasfactors:the job. Accountability three subfactors:has three subfactors: (1) Practical procedures,(1) The thinking environment(1) Freedom to act specialized techni- in which problems are (personal control). ques. solved. (2) Ability to integrate(2) The thinking challenge of(2) The impact of the and harmonize the the problem. job on end results diversified functions (direct, indirect). of management. (3) Interpersonal skills.(3) Magnitude - general dollar size of areas most affected by job.

18. Point Factor Method 1Identify specific characteristics (factors) of jobs that will be measured 2Weigh the factors 3Score each job on each factor using factor scales and degree statements  Statement of the degree to which the factor is present in the job  Scoring system

19. Degree Statements for the Factor “Physical Requirements” ” Factor: Physical Requirements This factor appraises the physical effort required by a job, including its intensity and degree of continuity. Analysis of this factor may be incorrect unless a sufficiently broad view of the work is considered. Degree 1.Light work involving a minimum of physical effort. Requires only intermittent sitting, standing, and walking. 2.Repetitive work of a mechanical nature. Small amount of lifting and carrying. Occasional difficult working positions. Almost continuous sitting or considerable moving around. 3. Continuous standing or walking, or difficult working positions. Working with average weight or heavy materials and supplies. Fast manipulative skill in almost continuous use of machine or office equipment on paced work.

20. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job RatingSurvey Conduct Create JobSurvey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

21. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job RatingSurvey Conduct Create JobSurvey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

22. Market Pricing Identify benchmark positions –What type? Select information sources –Public –Consulting firm –Self-administered survey Choose comparators –What are your options? –How do you choose?

23. The Traditional Approach to Compensation Job Analysis Job Documentation Prepare to Job RatingSurvey Conduct Create JobSurvey Worth Hierarchy Analyze Market Data Reconcile Internal and External Considerations Develop Pay Structure

24. Develop Pay Structure Pay level relative to market Performance vs. membership? Single rate Time progression Time progression and merit Productivity Salary Range Job vs. Individual Pay Mix –Fixed vs. variable

25. Emerging Approaches to Compensation Broadbanding –replaces traditional narrow salary ranges to fewer wider bands –+consistent w/flatter organizations, empowerment, teamwork –-cost control is difficult –most appropriate for higher level positions Team based pay –Advantages? –Disadvantages? Skill-based pay

26. Skill-based Pay Advantages? –motivation, flexibility, reduced absenteeism and turnover costs (can cover), flatter Disadvantages? –Labor costs; Rusty skills, loss of labor specialization When? –Expertise and innovation are sources of CA –Technology changes frequently –Upward mobility is limited –Developmental opportunities are present