1. McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 18-1 Budgets and Administration Chapter 18

2. McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 18-2 Managing Labor Costs  Controlling Employment: Head Count and Hours  Controlling Direct Compensation Costs  Controlling Indirect Compensation Costs

3. McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 18-3 Exhibit 18.1: Managing Labor Costs Labor Costs Labor Costs Employment Average cash compensation Average benefit cost + =x Core Contingent Base Pay Variable Pay

4. McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 18-4 Inherent Controls  Range maximums and minimums  Broad bands  Compa-ratios  Variable pay  Analyzing costs

5. McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 18-5 Why Communicate Pay Information?  Devotion of considerable resources to designing a fair and equitable system intended to  Motivate effective performance  Encourage productivity  Misperception of pay system by employees  Openness about pay may  Engender goodwill  Affect perceptions of pay equity