1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Part 4 Compensation of Human Resources

2. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Pay Structure and Consequences 11-2 Irwin/McGraw-Hill Administrative Tool Focus of Comparison Consequence Pay LevelJob Structure Market surveysJob evaluation ExternalInternal - external moves: attraction / retention of employees - labor costs - employee attitudes - internal moves: promotion, transfer - cooperation among employees - employee attitudes

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Equity Theory 11-3 Irwin/McGraw-Hill 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.

5. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Three Employee Views of the Pay Decision 11-4 Irwin/McGraw-Hill Pay Level- Same job in Different organizations Pay Structure - Different jobs in Same organization Individual Pay Differences - Different people in Same job Pay Level- Same job in Different organizations Pay Structure - Different jobs in Same organization Individual Pay Differences - Different people in Same job

6. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Market Pressures in Developing Pay Levels 11-5 Irwin/McGraw-Hill Product-market competition upper bound on labor cost staffing level average cost per employee Labor-market competition lower bound on pay levels Product-market competition upper bound on labor cost staffing level average cost per employee Labor-market competition lower bound on pay levels Deciding What to Pay ?

7. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Market Pay Surveys - Benchmarking 11-6 Irwin/McGraw-Hill Identify key labor- and product-market competition Identify key jobs v. non-key jobs Weight and combine pay rates appropriately Track appropriate ratios over time revenues per employee revenues per labor cost work force quality (e.g. education levels) Identify key labor- and product-market competition Identify key jobs v. non-key jobs Weight and combine pay rates appropriately Track appropriate ratios over time revenues per employee revenues per labor cost work force quality (e.g. education levels) Factors to consider

8. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example of a Three-Factor Job Evaluation System 11-7 Irwin/McGraw-Hill 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

9. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Approaches to Developing a Pay Structure 11-8 Irwin/McGraw-Hill Market survey data external comparisons Pay policy line combines internal & external Pay grade Market survey data external comparisons Pay policy line combines internal & external Pay grade

10. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Developing a Pay Policy Line 11-9 Irwin/McGraw-Hill PAY Job Evaluation Points 80120160 200 240 280 320 monthly salary ($000) 8765432187654321 40 Line of Best Fit : using Market-Survey data in Table 14.4

11. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Developing a Pay Policy Line 11-10 Irwin/McGraw-Hill PAY Job Evaluation Points 80120160 200 240 280 320 monthly salary ($000) 8765432187654321 40 Job Evaluation Points = 315 Predicted Salary = $7,128 Predicted Salary = $6,486

12. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Pay Grade Structure 11-11 Irwin/McGraw-Hill PAY Job Evaluation Points 100150200 250 300 350 monthly salary ($000) 8765432187654321

13. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Process Issues 11-12 Irwin/McGraw-Hill Participation Use task forces for suggestions Communication Employees need to understand system Need to keep managers aware of changes Managers need to explain system changes Participation Use task forces for suggestions Communication Employees need to understand system Need to keep managers aware of changes Managers need to explain system changes

14. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Current Challenges 11-13 Irwin/McGraw-Hill Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves Problems with Job Based Pay Structure too rigid, reduces flexibility reinforces top-down retards changes does not reward behavior change discourages lateral moves

15. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. New Approaches 11-14 Irwin/McGraw-Hill Delayering and Banding Skill (knowledge) - based pay increases flexibility firm needs to use available skills Delayering and Banding Skill (knowledge) - based pay increases flexibility firm needs to use available skills

16. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Can the U.S. Labor Force Compete? 11-15 Irwin/McGraw-Hill Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities market proximity response time Labor costs are unstable over time Quality & productivity of labor varies Non-labor cost factors also important in locating facilities market proximity response time

17. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Comparative Productivity and Unit Labor Costs: Unites States, Germany, and Japan 11-16 Irwin/McGraw-Hill Legend: U.S. Germany Japan Productivity (value added per labor hour) 100 50$100 $200 133 153 100 76 83 100

18. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Chief Executive Officer Pay in Selected Countries 11-17 Irwin/McGraw-Hill Multiple of CEO to Manufacturing Employee Total Remuneration 10 20 30 Japan 24 Germany United States France 16 11 9