2. COMPENSATION © Nancy Brown Johnson, 2000

3. Why do we have follies? We like objective measures Visible behaviors Hypocrisy Emphasize morality or equity rather than efficiency

4. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN OUTCOME INPUTS OUTCOME INPUTS ? the same more or less A person evaluates fairness by comparing their ratio with others. Pay, benefits, opportunities, etc. effort, ability, experience etc. Equity Theory

5. Workers compare their compensation with others If unequal workers attempt to restore equity

6. Workers Restore Equity by Reducing input Attempting to get raise Quitting Psychological Adjustment

7. Compensation Equity Model

8. Internal Equity Comparison of Jobs Jobs worth to the Employer Similarities and differences in work content Relative contribution to organization objectives Accomplished through job evaluation

9. Point Factor Method Compensable factors - what the organization wants to pay for Each factor is weighted Jobs are assessed on the value of each factor Points are summed and used to rank jobs

10. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN Job Title Experience Education Complexity Points Total Compensable Factors Computer operator Computer programmer Systems analyst 40 65 30 50 60 40 65 85 110 155 210 Three Factor Compensation System

11. External Equity Value of the job to the labor market Assessed through wage surveys

12. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN Market Pay Surveys - Benchmarking Identify key jobs Identify labor market competition Identify product market competition From this select firms to be surveyed

13. Benchmark or Key Jobs Contents are known and stable Supply & demand stable Represent entire job structure Represent large number of employees

14. Identify Product & Labor Market Competition Product Market Labor Market local regional national

15. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN Approaches to Developing a Pay Structure Market survey data Job evaluation data Pay policy line Combines Internal & external equity Pay grade

16. PAY Job Evaluation Points ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN 80120160 200 240 280 320 monthly salary ($000 ) 8765432187654321 40 Line of Best Fit : using Market-Survey data in Table 15.5 Developing a pay policy line

17. PAY Job Evaluation Points ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN 80120160 200 240 280 320 monthly salary ($000) 8765432187654321 40 Job Evaluation Points = 315 Predicted Salary = $6,486 Developing a Pay Policy Line

18. PAY Job Evaluation Points ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN 100150200 250 300 350 monthly salary (000) 8765432187654321 Pay Structure

19. Organizational Justice Perceived fairness of the system Outcomes Process Issues Interactions Influences Commitment

20. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN Process Issues Participation in Compensation System design Communication Employees need to understand the system Employees need to keep managers aware of changes Managers need to explain system changes

21. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN Current Challenges JOB BASED STRUCTURE Rigid Retards change Does not reward change Discourages lateral moves

22. ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWIN New Approaches Delayer & Debanding Skill based pay Increased flexibility Increased workforce skill