1. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Managing Compensation 1–1 The Challenges of Human Resources Management

2. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 of 51 Chapter Objectives Chapter Objectives After studying this chapter, you should be able to Explain how to formulate a strategic compensation program. Indicate how pay is determined. Know how to effectively perform a job evaluation. Explain the purpose of a wage survey. Define the wage curve, pay grades, and rate ranges as parts of the compensation structure. Understand the importance of using a compensation scorecard. Identify the major provisions of the federal laws affecting compensation. LEARNING OUTCOME 1 LEARNING OUTCOME 2 LEARNING OUTCOME 3 LEARNING OUTCOME 4 LEARNING OUTCOME 5 LEARNING OUTCOME 6 LEARNING OUTCOME 7

3. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3 of 51 Compensation Pay is a statement of an employee’s worth by an employer.Pay is a statement of an employee’s worth by an employer. Pay is a perception of worth by an employee.Pay is a perception of worth by an employee.

4. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4 of 51 Total Compensation Direct Indirect Bonuses Gainsharing Security Plans Pensions Security Plans Pensions Employee Services Educational assistance Recreational programs Employee Services Educational assistance Recreational programs Commissions Wages / Salaries Insurance Plans Medical Dental Life Insurance Plans Medical Dental Life Time Not Worked Vacations Breaks Holidays Time Not Worked Vacations Breaks Holidays

5. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5 of 51 Compensation Components

6. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6 of 51 Compensation Alignment

7. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7 of 51 Compensation Management and Other HRM Functions Pay rates affect selectivity Selection Selection standards affect level of pay required Pay can motivate training Training and Development Increased knowledge leads to higher pay Training and development may lead to higher pay Compensation Management A basis for determining employee’s rate of pay Aid or impair recruitment Recruitment Supply of applicants affects wage rates Low pay encourages unionization Labor Relations Pay rates determined through negotiation

8. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8 of 51 Strategic Compensation Strategic CompensationStrategic Compensation  Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization.  Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard.  Seeks to motivate employees through compensation.

9. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9 of 51 Linking Compensation to Organizational Objectives Value-added CompensationValue-added Compensation  Evaluating the individual components of the compensation program (pay and benefits) to see if they advance the needs of employees and the goals of the organization. – “How does this compensation practice benefit the organization?” – “Does the benefit offset the administrative cost?”

10. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10 of 51 Common Strategic Compensation Goals 1.To reward employees’ past performance 2.To remain competitive in the labor market 3.To maintain salary equity among employees 4.To mesh employees’ future performance with organizational goals 5.To control the compensation budget 6.To attract new employees 7.To reduce unnecessary turnover

11. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11 of 51 Strategic Compensation Policy Concerns 1.The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate. 2.The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities. 3.The pay level at which employees may be recruited and the pay differential between new and more senior employees. 4.The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises. 5.The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered.

12. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12 of 51 The Pay-for-Performance Standard Pay-for-Performance StandardPay-for-Performance Standard  The standard by which managers tie compensation to employee effort and performance.  Refers to a wide range of compensation options, including merit-based pay, bonuses, salary commissions, job and pay banding, team/group incentives, and various gainsharing programs.

13. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13 of 51 Designing a Pay-for-Performance System How will performance be measured?How will performance be measured? How will monies to be allocated for compensation increases.How will monies to be allocated for compensation increases. Which employees will be eligible?Which employees will be eligible? How will payouts be made?How will payouts be made? How often will payouts occur?How often will payouts occur? How large will the payouts be?How large will the payouts be? Will employees perceive the rewards as valued?Will employees perceive the rewards as valued?

14. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14 of 51 Motivating Employees through Compensation Pay Equity (also Distributive Fairness)Pay Equity (also Distributive Fairness)  An employee’s perception that compensation received is equal to the value of the work performed.  A motivation theory that explains how people respond to situations in which they feel they have received less (or more) than they deserve. – Individuals form a ratio of their inputs to outcomes in their job and then compare the value of that ratio with the value of the ratio for other individuals in similar jobs.

15. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15 of 51 Relationship between Pay Equity and Motivation

16. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16 of 51 Expectancy Theory and Pay Expectancy TheoryExpectancy Theory  A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value.  Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward.

17. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17 of 51 Pay-for-Performance and Expectancy Theory

18. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18 of 51 Motivating Employees through Compensation Pay SecrecyPay Secrecy  An organizational policy prohibiting employees from revealing their compensation information to anyone. – Creates misperceptions and distrust of compensation fairness and pay-for-performance standards.  Arguments against secrecy: – Knowledge of base pay is the strongest predictor of pay satisfaction, which is highly associated with work engagement – Knowledge of base pay more strongly predicts pay satisfaction than does the actual amount of pay received by employees.

19. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19 of 51 The Bases for Compensation Hourly WorkHourly Work  Work paid on an hourly basis. PieceworkPiecework  Work paid according to the number of units produced. Salary WorkersSalary Workers  Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods.

20. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20 of 51 The Bases for Compensation (cont.) Nonexempt EmployeesNonexempt Employees  Employees covered by the overtime provisions of the Fair Labor Standards Act.  They must be paid time and one-half their regular pay for all work performed after forty regular hours of work in a workweek. Exempt EmployeesExempt Employees  Employees who not covered in the overtime provisions of the Fair Labor Standards Act.  Managers, supervisors, and white-collar professional employees are exempted on the basis of their exercise of independent judgment and other criteria.

21. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21 of 51 Factors Affecting the Pay Mix

22. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22 of 51 The Wage Mix—Internal Factors Employer’s Compensation StrategyEmployer’s Compensation Strategy  Establishes the internal wage relationship among jobs and skill levels  Sets organization compensation policy to lead, lag, or match competitors’ pay.  Rewards employee performance  Guides administrative decisions concerning elements of the pay system such as overtime premiums, payment periods, and short-term or long-term incentives.

23. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23 of 51 The Wage Mix—Internal Factors (cont.) Worth of a JobWorth of a Job  Establishing the internal wage relationship among jobs and skill levels. Employee’s Relative WorthEmployee’s Relative Worth  Rewarding individual employee performance Employer’s Ability-to-PayEmployer’s Ability-to-Pay  Having the resources and profits to pay employees.

24. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24 of 51 Comparison of Compensation Strategies

25. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25 of 51 The Wage Mix—External Factors Labor Market ConditionsLabor Market Conditions  Availability and quality of potential employees is affected by economic conditions, government regulations and policies, and the presence of unions. Area Wage RatesArea Wage Rates  A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs.

26. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26 of 51 The Wage Mix—External Factors (cont.) Cost of LivingCost of Living  Local housing and environmental conditions can cause wide variations in the cost of living for employees.  Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.  Consumer Price Index (CPI) – A Bureau of Labor Statistics measure of the average change in prices over time in a fixed “market basket” of goods and services

27. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27 of 51 The Wage Mix—External Factors (cont.) Collective BargainingCollective Bargaining  Escalator clauses in labor agreements provide for quarterly upward cost-of-living (COLA) wage adjustments for inflation to protect employees’ purchasing power.  Unions bargain for real wage increases that raise the standard of living for their members.  Real wages are increases larger than rises in the consumer price index; that is, the real earning power of wages.

28. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28 of 51 Job Evaluation Systems Job EvaluationJob Evaluation  The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

29. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29 of 51 Job Evaluation Systems (cont.) Job Ranking SystemJob Ranking System  Oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.  Disadvantages – Does not provide a precise measure of each job’s worth. – Final job rankings indicate the relative importance of jobs, not the extent of differences between jobs. – Method can used to consider only a reasonably small number of jobs.

30. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30 of 51 Job Evaluation Systems (cont.) Job Classification systemJob Classification system  A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.  Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.

31. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31 of 51 Point System Point SystemPoint System  A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.  Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors— that constitute the job. The Point ManualThe Point Manual  A handbook that contains a description of the compensable factors and the degrees to which these factors may exist within the jobs.

32. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32 of 51 Work Valuation Methods Work ValuationWork Valuation  A job evaluation system that seeks to measure a job’s worth through its value to the organization.  Jobs are be valued relative to financial, operational, or customer service objectives of the organization. – Considers that work should be valued relative to the business goals of the organization rather than by an internally applied point-factor job evaluation system.  Work valuation serves to direct compensation dollars to the type of work pivotal to organizational goals.

33. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33 of 51 Job Evaluation for Management Positions Hay Profile MethodHay Profile Method  Job evaluation technique using three factors— knowledge, mental activity, and accountability —to evaluate executive and managerial positions.

34. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34 of 51 Compensation Implementation – Pay Tools Wage and Salary SurveyWage and Salary Survey  A survey of the wages paid to employees of other employers in the surveying organization’s relevant labor market.  Helps maintain internal and external pay equity for employees. Labor MarketLabor Market  The area from which employers obtain certain types of workers.

35. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35 of 51 Collecting Survey Data Outside Sources of DataOutside Sources of Data  Bureau of Labor Statistics (BLS) – National Compensation Survey  State and local wage surveys  Online survey data Problems with SurveysProblems with Surveys  They are not always compatible with the user’s jobs  The user cannot specify what specific data to collect.

36. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36 of 51 Collecting Survey Data (cont.) Conducting Employer-initiated SurveysConducting Employer-initiated Surveys  Select key jobs.  Determine relevant labor market.  Select organizations.  Decide on information to collect: wages/ benefits/ pay policies.  Compile data received.  Determine wage structure and benefits to pay.

37. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37 of 51 Bureau of Labor Statistics National Compensation Survey

38. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38 of 51 Bureau of Labor Statistics National Compensation Survey (cont.)

39. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39 of 51 The Wage Curve Wage CurveWage Curve  A curve in a scatter gram representing the relationship between relative worth of jobs and wage rates. Pay GradesPay Grades  Groups of jobs within a particular class that are paid the same rate. Rate RangesRate Ranges  A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade. Red Circle RatesRed Circle Rates  Payment rates above the maximum of the pay range.

40. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40 of 51 Freehand Wage Curve

41. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41 of 51 Single Rate Structure

42. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42 of 51 The Federal Wage Poster

43. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43 of 51 The Wage Curve (cont.) Competence-based Pay, (also skill-based pay or knowledge-based pay)Competence-based Pay, (also skill-based pay or knowledge-based pay)  Compensation for the different skills or increased knowledge employees possess rather than for the job they hold in a designated job category. – Greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover, BroadbandingBroadbanding  Collapses many traditional salary grades into a few wide salary bands.

44. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44 of 51 Compensation Assessment Assessing the effectiveness of your compensation system is vitally important to linking compensation with strategy.Assessing the effectiveness of your compensation system is vitally important to linking compensation with strategy. Measures:Measures: 1. help the company detect potential compensation problems, 2. make compensation decisions more transparent, and 3. improve the alignment of compensation decisions with organizational objectives.

45. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45 of 51 Compensation Assessment (cont.) The compensation scorecard collects and displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units.The compensation scorecard collects and displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units. The scorecard creates a comparative tool within the organization that can reinforce desired outcomes that are unique to the company’s strategy.The scorecard creates a comparative tool within the organization that can reinforce desired outcomes that are unique to the company’s strategy.

46. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 46 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 46 of 51 Compensation Scorecard

47. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 47 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 47 of 51 Government Regulation of Compensation Davis-Bacon Act (1931) Davis-Bacon Act (1931) Required minimum wage, prevailing wage rates, 1½ overtime premium payments by federal contractors. Walsh-Healy Act (1936) Walsh-Healy Act (1936) Required overtime payments after 8 daily or 40 regular work hours for workers on federal contracts. Fair Labor Standards Act (FLSA) 1938 (as Amended) Interstate commerce clause used to cover workers except agricultural and exempted (managerial) employees, child labor (under 16) is prohibited.

48. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 48 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 48 of 51 The Issue of Wage Rate Compression Wage-Rate CompressionWage-Rate Compression  Compression of pay between new and experienced employees caused by the higher starting salaries of new employees; also the differential between hourly workers and their Managers. Reducing Wage-Rate CompressionReducing Wage-Rate Compression  Reward high performance and merit-worthy employees with large pay increases.  Design the pay structure to allow a wide spread between hourly and supervisory employees.  Prepare high-performing employees for promotions to jobs with higher salary levels.  Provide equity adjustments for selected employees hardest hit by pay compression.

49. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 49 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 49 of 51 The Issue of Wage Rate Compression Child Labor ProvisionsChild Labor Provisions  The “floor” it imposes makes it more difficult for high school students and young adults to find jobs Exemption from Overtime ProvisionsExemption from Overtime Provisions  The FLSA perhaps creates the most confusion in the exemption from overtime requirements for certain groups of employees or from coverage of certain of the act’s provisions Pay Equity ProvisionsPay Equity Provisions  The Equal Pay Act of 1963  Title VII of the Civil Rights Act of 1964  Age Discrimination Act of 1967

50. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 50 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 50 of 51 Key Terms broadbandingbroadbanding competence-based paycompetence-based pay consumer price index (CPI)consumer price index (CPI) escalator clausesescalator clauses exempt employeesexempt employees Hay profile methodHay profile method hourly workhourly work job classification systemjob classification system job evaluationjob evaluation job ranking systemjob ranking system nonexempt employeesnonexempt employees pay equitypay equity pay-for-performance standardpay-for-performance standard pay gradespay grades pieceworkpiecework point systempoint system real wagesreal wages red circle ratesred circle rates wage and salary surveywage and salary survey wage curvewage curve pay rate compressionpay rate compression work valuationwork valuation

51. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 51 of 36 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 51 of 51 Chapter 9 - Learning Outcomes Learning Outcome StatementsRelated Outcomes from Body of the Text 1 Explain how to formulate a strategic compensation program. Facebook has over 1,700 employees and offices in twelve countries. How would you develop a compensation strategy to match Facebook’s business objectives of continual innovation and growth? 2 Indicate how pay is determined. Google’s decision to increase pay by 10 percent was based on many internal and external factors. What specific factors would you say led to Google’s compensation redesign? 3 Know how to effectively perform a job evaluation. During the financial crisis of 2008–2010, companies had to reassess the value of specific jobs—leading to some unfortunate cuts in salary and benefits. How would you determine the worth of someone’s job to ensure equity? 4 Explain the purpose of a wage survey. Imagine you have been assigned by Delta to decide if the pay being offered to new customer service representatives is consistent with what competitors are paying. What tools would you use to help in your assessment? 5 Define the wage curve, pay grades, and rate ranges as parts of the compensation structure. One of the objections to Google granting wage increases on a percentage basis is that the lowest-paid employees, who are having the most trouble “dealing with sky-high property prices, mortgages, and those kinds of things,” get the smallest increase, while the highest-paid employees get the largest increase. Is this objection a valid one? 6 Understand the importance of using a compensation scorecard. How do you know if a company’s compensation system is helping to reach its objectives? 7 Identify the major provisions of the federal laws affecting compensation. Federal laws governing compensation raise important issues for both employers and employees. How do regulations influence compensation decisions? How do they protect employees from discrimination?