1. A Framework for Human Resource Management, 5th ed.
Gary Dessler

2. Compensating Employees
Ch 11 & 12

3. When you finish studying this chapter, you should be able to:
Explain each of the five basic steps in establishing pay rates.
Discuss four basic factors determining pay rates.
Compare and contrast piecework and team or group incentive plans.
List and describe each of the basic benefits most employers might be expected to offer.

4. Introduction Employee compensation
refers to all forms of pay or rewards going to employees and arising from their employment
direct financial payments
indirect payments

5. Employee Compensation
Direct financial payments
payments in the form of wages, salaries, incentives, commissions, and bonuses
Indirect payments
payments in the form of financial benefits like employer-paid insurance and vacations

6. Pay Factors
Legal
Union
Policy
Equity

7. Some Important Compensation Laws
Fair Labor Standards Act
contains minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor provisions covering the majority of U.S. workers
Executive, administrative, and professional employees are generally exempt from the act’s minimum wage and overtime requirements

9. Some Important Compensation Laws (cont.)
Equal Pay Act
employees of one sex may not be paid wages at a rate lower than that paid to employees of the opposite sex for doing roughly equivalent work

10. Some Important Compensation Laws (cont.)
Title VII of the Civil Rights Act
makes it an unlawful practice for an employer to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin
Title VII of the Civil Rights Act makes it an unlawful practice for an employer to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin

11. Some Important Compensation Laws (cont.)
Age Discrimination in Employment Act
Americans with Disabilities Act
Family and Medical Leave Act

12. How Unions Influence Compensation Decisions
National Labor Relations Act (NLRA) of 1935
granted employees the right to organize and to bargain collectively
National Labor Relations Act (NLRA) of 1935 granted employees the right to organize, to bargain collectively, and to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection

13. Compensation Policies
A hospital might have a policy of starting nurses at a wage at least 20% above the prevailing market wage.
The average base pay for an executive secretary ranges from $37,300 in Albuquerque New Mexico to $41,900 (Tampa, Florida), $59,800 (New York, New York), and $60,100 (San Francisco, California).
An employer’s strategy and compensation policies significantly impact the wages and benefits it pays. For example, a hospital might have a policy of starting nurses at a wage at least 20% above the prevailing market wage. Other important policies include the basis for salary increases, foreign pay differentials, and overtime pay policy. Locality also plays a role. For example, the average base pay recently for an executive secretary would have ranged from $37,300 in Albuquerque New Mexico to $41,900 (Tampa, Florida), $59,800 (New York, New York), and $60,100 (San Francisco, California). [i]
[i] "Salaries for similar jobs very significantly across the United States", compensation & benefits Review, January/February 2006, page nine

14. Equity and Its Impact on Pay Rates
External equity
pay must compare favorably with rates in other companies, or an employer will find it hard to attract and retain qualified employees

15. Equity and Its Impact on Pay Rates (cont.)
Internal equity
each employee should view his or her pay as equitable given other employees’ pay in the organization

16. How Employers Establish Pay Rates
Conduct a salary survey
Employee committee determines the worth of each job
Group similar jobs into pay grades
Price each pay grade by using wage curves
Develop rate ranges
Conduct a salary survey of what other employers are paying for comparable jobs
Employee committee determines the worth of each job in your organization through job evaluation
Group similar jobs into pay grades
Price each pay grade by using wage curves
Develop rate ranges

17. Step 1: Conduct the Salary Survey
Salary (or compensation) surveys
formal or informal surveys of what other employers are paying for similar jobs
Used to price benchmark jobs
Collect data on benefits
Salary (or compensation) surveys––formal or informal surveys of what other employers are paying for similar jobs
used to price benchmark jobs.
collect data on benefits
Department of Labor publishes the National Compensation Survey

19. Step 2: Determine the Worth of Each Job
Job evaluation
formal and systematic comparison of jobs to determine the worth of one job relative to another
Compensable factors
factors that determine your definition of job content, establish how the jobs compare to each other, and set the compensation paid for each job

20. Job Evaluation Methods
Ranking method
ranks each job relative to all other jobs
Job classification
manager categorizes jobs into groups based on their similarity in terms of compensable factors such as skills and responsibility

21. Ranking Method of Job Evaluation
Obtain job information
Select raters and jobs to be rated
Select compensable factors
Rank jobs
Combine ratings

22. Job Evaluation Methods
Point method
involves identifying several compensable factors, each having several degrees, and then assigning points based on the number of degrees, to come up with an actual number of points for each job

23. Step 3: Group Similar Jobs into Pay Grades
comprises jobs of approximately equal difficulty or importance as determined by job evaluation

24. Step 4: Price Each Pay Grade—Wage Curves
shows the average pay rates currently being paid for jobs in each pay grade
Purpose of a wage curve is to show the relationship between (1) the value of the job as determined by one of the job evaluation methods and (2) the current average pay rates for the grades
purpose is to show relationship between
(1) the value of the job
(2) the current average pay rates

25. Plotting a Wage Curve

26. Step 5: Develop Rate Ranges
May be 10 levels or steps and 10 corresponding pay rates within each pay grade
Employer may fine-tune pay rates to account for any unique circumstances

27. Pricing Managerial and Professional Jobs
Emphasize nonquantifiable factors such as judgment and problem solving
Tendency is to pay managers and professionals based on their performance

28. Executive Compensation Variance
Three main factors
Job complexity
Ability to pay
Human capital

29. Pricing Managerial and Professional Jobs
Four main components:
Base salary
Short-term incentives
Long-term incentives
Executive benefits and perks

30. Strategy and Executive Pay
Identify the company's strategic direction, and translate this into specific business goals
List the skills and competencies your professional employees should have to accomplish these goals

31. Strategy and Executive Pay (cont.)
Evaluate the extent to which the existing pay plan produces these skills and competencies
Design and implement the new pay plan

32. Current Trends in Compensation
Competency–Skill-based pay
employee is paid for the range, depth, and types of skills and knowledge he is capable of using rather than for the responsibilities of the job currently held
Competencies
demonstrable personal characteristics such as knowledge, skills, and behaviors
Competencies - demonstrable characteristics of the person, including knowledge, skills, and behaviors, that enable performance

33. Current Trends in Compensation (cont.)
Skill-based pay programs
employer defines specific skills, and has a method for determining the person’s pay based on his or her skill competencies

34. Current Trends in Compensation (cont.)
Broadbanding
collapsing 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

36. Board Oversight of Executive Pay
Has our compensation committee thoroughly identified its duties and processes?
Is our compensation committee being appropriately advised?
Are there particular executive compensation issues that our committee should address?
Do our procedures demonstrate diligence and independence?
Is our committee appropriately communicating its decisions?

37. Incentive Plans Individual incentive programs Variable pay
give performance-based pay to individual employees who meet their individual performance standards
Variable pay
refers to group pay plans that tie payments to productivity

38. Piecework Plans Piecework
pay is tied directly to what the worker produces
paid a “piece rate” for each unit he or she produces

39. Team or Group Incentive Plans
Companies often want to pay groups on an incentive basis, such as when they want to encourage teamwork
Main disadvantage is that each worker’s rewards are not based just on his own efforts

40. Incentives for Managers and Executives
Stock option
the right to purchase a specific number of shares of company stock at a specific price during a period of time

41. Incentives for Salespeople
Most companies pay their salespeople a combination of salary and commissions
Typically a 70% base salary/30% incentive mix

42. Auto-dealers Compensation
Compensation for car salespeople ranges from a high of 100% commission to a small base salary with commission
Commission is generally based on the net profit on the car
It encourages the salesperson to hold firm on the retail price, and to push “after-sale products”
Compensation for car salespeople ranges from a high of 100% commission to a small base salary with commission accounting for most of the total compensation. Commission is generally based on the net profit on the car when it’s delivered to the buyer. This promotes precisely the sorts of behaviors the car dealers want to encourage. For example, it encourages the salesperson to hold firm on the retail price, and to push “after-sale products” like floor mats, side moldings, undercoating, car alarms, and trunk-mounted CDs. Car dealers also use short-term incentives. For helping sell slow-moving vehicles, the salesperson may be offered a “spiff”—a car dealer term for an extra-incentive bonus over commission.[i] [i] Peter Glendinning, “Kicking the Tires of Automotive Sales Compensation,” Compensation and Benefits Review (September/October 2000): 47–53; and Michele Marchetti, “Why Sales Contests Don’t Work,” Sales and Marketing Management 156, (January 2004): 19.

43. Non-Tangible and Recognized-Based Awards
Studies show that recognition has a positive impact on performance, either alone or in conjunction with financial rewards

44. Online Award Programs Recognition programs are expensive to administer
Firms partner with online incentive firms to expedite process

45. Incentive Plans Merit pay Profit-sharing plan
any salary increase awarded to an employee based on his or her individual performance
Profit-sharing plan
most employees receive a share of the company’s annual profits

46. Incentive Plans Employee stock ownership plan (ESOP)
a corporation contributes shares of its own stock—or cash to be used to purchase such stock—to a trust established to purchase shares of the firm’s stock for employees

47. Broad-based Stock Options
With companies now having to show stock options as an expense when awarded, some firms feel awarding stock instead of stock options is a more direct and immediate way of linking pay to performance

48. Incentive Plans Gainsharing plans
want to encourage improved employee productivity by sharing resulting financial gains with employees

49. Scanlon Plan Philosophy of cooperation Identity Competence
Involvement system
Sharing of benefits formula

50. Earnings-at-Risk Pay Plans
some portion of the employee's base salary is at risk

51. HRIS and Productivity
Enterprise Incentive Management (EIM) software is used to automate the planning and management of incentive plans

52. Employee Benefits Benefits
defined as all the indirect monetary and nonmonetary payments an employee receives for continuing to work for the company
Employee benefits account for over one-third of the total cost of company payrolls, with health insurance the most expensive single benefit cost

53. Pay for Time Not Worked Supplemental pay benefits
typically one of an employer’s most expensive benefits
holidays, vacations, sick leave, and jury duty
holidays, vacations, jury duty, bereavement leave, military duty, sick leave, sabbatical leave, maternity leave, and unemployment insurance

54. Pay for Time Not Worked (cont.)
Severance pay
a one-time separation payment
Worker Adjustment and Retraining Act of 1989

55. Insurance Benefits Workers’ compensation
aimed at providing sure, prompt income and medical benefits to work-related accident victims or their dependents

56. The Pregnancy Discrimination Act
requires employers to treat women affected by pregnancy, childbirth, or related medical conditions the same as any employee not able to work, with respect to all benefits, including sick leave and disability benefits, and health and medical insurance

57. Insurance Benefits
COBRA — Comprehensive Omnibus Budget Reconciliation Act
requires most employers to make available to terminated employees continued health benefits for a period of time
COBRA — Comprehensive Omnibus Budget Reconciliation Act — requires most private employers to make available to terminated or retired employees and their families continued health benefits for a period, generally 18 months

58. Cost Control Cost containment specialists Online administration
Defined benefits
Deductibles
Outsourcing
Wellness programs
Claims audits
Medical tourism
Long-term care

59. Retirement Benefits Social Security Retirement benefits Death benefits
Disability payments
Social Security  
three types of benefits
retirement benefits, which provide an income if the employee retires at age 62
death benefits, provide monthly payments to dependents
disability payments provide monthly payments if the employee becomes totally disabled

60. Pension Plans Defined benefit pension plan
contains a formula for determining retirement benefits so that the actual benefits to be received are defined ahead of time

61. Pension Plans Defined contribution plan
specifies what contribution the employer will make to a retirement or savings fund set up for the employee

62. Employee Service Benefits
Employee Assistance Programs (EAPs)
formal employer program for providing employees with counseling and advisory services
Employee Assistance Programs (EAPs) - formal employer program for providing employees with counseling and advisory services
Personal, legal, and financial services
Child and elder care referrals
Adoption assistance
Mental health counseling
Life event planning

63. Employee Services and Family-Friendly Benefits
Flexible benefits plans
initially called cafeteria plans because employees could spend their benefits allowances on a choice of benefits options

64. Employee Leasing Employee leasing
leasing firm becomes the legal employer and handles all employee-related paperwork

65. Strategy and HR    
Employers today want to ensure that their compensation plans (1) add value in terms of (2) promoting the employee performance that is required for (3) achieving the firm’s strategic goals.

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