11

Total Rewards and CompensationTotal Rewards and Compensation

Total RewardsTotal Rewards Monetary and non-monetary rewards used to Monetary and non-monetary rewards used to

attract, motivate, and retain employeesattract, motivate, and retain employeesRewards System Strategic ObjectivesRewards System Strategic Objectives Legal complianceLegal compliance Cost effectivenessCost effectiveness Internal and external equity for employeesInternal and external equity for employees Recognizing contribution to maximize Recognizing contribution to maximize

performance and manage talentperformance and manage talent

22

Compensation ApproachesCompensation Approaches

Traditional Approach

Total Rewards Approach

• Compensation primarily base pay

• Bonuses for executives only

• Fixed benefits tied to seniority

• Pay grade progression based on organizational promotions

• One organization-wide pay plan for all employees

• Variable pay used with base pay

• Annual/long-term incentives provided to all employees

• Flexible and portable benefits offered

• Knowledge-based broadbands determine pay grades

• Multiple pay plans consider job family, location, and business units

33

Total Rewards Components

44

Compensation Philosophies

55

HR Metrics for Compensation

66

Typical Division of HR Responsibilities: Compensation

77

Compensation System Design Compensation System Design IssuesIssues

Fairness Fairness

Internal EquityInternal Equity Procedural Procedural DistributiveDistributive InteractionalInteractional

External EquityExternal Equity

PrivacyPrivacy

TransparencyTransparency

88

Market Competitiveness and Compensation

Lead the marketLead the market

Meet the marketMeet the market

Lag the marketLag the market

99

Compensation Quartile Strategies

1010

More Compensation System Design More Compensation System Design IssuesIssues

Identification of the required competencies

Progression and compensation of employees

Limitations on who can acquire more competencies

Training in the appropriate competencies

Certification and maintenance of competencies

Competency-Based Pay Systems

1111

More Compensation System Design More Compensation System Design IssuesIssues

Team

How to develop compensation programs that

build on the team concept.

Individual

How to compensate the individuals

whose performance may also be

evaluated on team achievements.

Individual vs. Team Rewards

1212

Possible Components

of Global Employee

Compensation

1313

Legal Constraints on Pay SystemsLegal Constraints on Pay Systems

Minimum wageMinimum wage

Child labor Child labor

Exempt vs. nonexempt statusExempt vs. nonexempt status

OvertimeOvertime

1414

Exempt Status Under the FLSA

1515

Compensation for Overtime Compensation for Overtime WorkWork

Common Overtime

Issues

Compensatory Time

Off

Incentives for Non-exempts

Training Time

Travel Time

1616

Legislation Affecting CompensationLegislation Affecting Compensation

Compensation and the

Law

Davis-Bacon Act

Walsh-Healy Act

McNamara-O’Hara Act

Equal Pay Act of 1963 and Pay Equity

State and Local Laws

Garnishment Laws

1717

Compensation

Administration Process

Pay Structure

Pay grades Pay ranges

1818

Valuing Jobs with Job Valuing Jobs with Job Evaluation MethodsEvaluation Methods

Job EvaluationJob EvaluationMeans used to identify the relative worth of jobs Means used to identify the relative worth of jobs

within an organization.within an organization.

Compensable FactorCompensable Factor Job value common among a group of jobs.Job value common among a group of jobs. Something for which an organization Something for which an organization

chooses to compensate an employee.chooses to compensate an employee.

1919

Examples of Compensable Factors for Examples of Compensable Factors for Different Job FamiliesDifferent Job Families

2020

Job Evaluation MethodsJob Evaluation Methods

Job Evaluation Methods

Point Method

Ranking Method

Classification Method

Factor-Comparison Method

2121

Job Evaluation MethodsJob Evaluation Methods

Point methodPoint method

Ranking methodRanking method

Classification methodClassification method

Factor-comparison methodFactor-comparison method

2222

Valuing Jobs Using Market PricingValuing Jobs Using Market Pricing

Market PricingMarket Pricing Using market data to identify the relative value of Using market data to identify the relative value of

jobs based on what other firms pay for similar jobsjobs based on what other firms pay for similar jobs..

Advantages Disadvantages

• Ties organizational pay levels to the external job market, without “internal” job evaluation distortion.

• Communicates to employees that the compensation system is “market linked.”

• It relies on market survey data.

• A specific job may differ from a “matching” job in the survey.

• The market data’s scope (range of sources) is a concern.

• Tying pay levels to market data can lead to wide fluctuations.

2323

Pay SurveysPay Surveys

Collection of data on compensation Collection of data on compensation rates for workers performing similar rates for workers performing similar jobs in other organizations.jobs in other organizations.

Benchmark JobsBenchmark Jobs

Jobs found in many organizationsJobs found in many organizations..

Internet-Based Pay SurveysInternet-Based Pay Surveys

2424

Pay StructuresPay StructuresJob FamilyJob Family Group of jobs with common organizational Group of jobs with common organizational

characteristics.characteristics.

Common Pay StructuresCommon Pay Structures Hourly and salariedHourly and salaried Office, plant, technical, professional, managerialOffice, plant, technical, professional, managerial Clerical, information technology, professional, Clerical, information technology, professional,

supervisory, management, and executivesupervisory, management, and executive

Pay GradesPay Grades Groupings of individual jobs having approximately the Groupings of individual jobs having approximately the

same job worth.same job worth.

2525

Compensation

Administration Process

2626

More on Pay StructuresMore on Pay StructuresMarket BandingMarket Banding

Grouping jobs into pay grades based on similar Grouping jobs into pay grades based on similar market survey amounts.market survey amounts.

Market LineMarket Line

Shows relationship between job value as Shows relationship between job value as determined by job evaluation points and job determined by job evaluation points and job value based on pay survey rates.value based on pay survey rates.

Shows distribution of pay for surveyed jobsShows distribution of pay for surveyed jobs

Linear trend line to be developed by the Linear trend line to be developed by the least-least-squares regression method.squares regression method.

2727

Market-Banded Pay Grades Example (Bank)

*Computed by averaging the pay survey summary data for the jobs in each pay grade.

2828

Example of Pay Grades and Pay Ranges

2929

Pay RangesPay Ranges

BroadbandingBroadbanding Using fewer pay grades having broader pay ranges Using fewer pay grades having broader pay ranges

that in traditional systems.that in traditional systems. BenefitsBenefits

Encourages horizontal movement of employeesEncourages horizontal movement of employees

Is consistent with trend towards flatter Is consistent with trend towards flatter organizationsorganizations

Creates a more flexible organizationCreates a more flexible organization

Encourages competency developmentEncourages competency development

Emphasizes career developmentEmphasizes career development

3030

Individual PayIndividual Pay

Rates Out of RangeRates Out of Range Red-Circled EmployeeRed-Circled Employee

An incumbent (current jobholder) who is paid An incumbent (current jobholder) who is paid above the range set for the job.above the range set for the job.

Green-Circled EmployeeGreen-Circled Employee

An incumbent who is paid below the range set for An incumbent who is paid below the range set for the job.the job.

Pay CompressionPay Compression Pay differences among individuals with different levels Pay differences among individuals with different levels

of experience and performance in the organization of experience and performance in the organization are reduced.are reduced.

3131

Pay Adjustmen

t Matrix

Compa-ratioCompa-ratio The pay level divided by the The pay level divided by the

midpoint of the pay range.midpoint of the pay range.

ratio)-(Compa 89 100(midpoint) 15.00

pay)(current $13.35 Employee J

89

3232

Standardized Pay AdjustmentsStandardized Pay Adjustments

Standardized Pay

Increases

SeniorityCost-of-Living Adjustments

(COLA)

Across-the-Board

Increases

Lump-Sum Increases

(LSI)