Objectives

Copyright 2000 - South-Western College Publishing Module 16 - 1

Objectives• Understand the scope of “Compensation”

• Appreciate the legal framework surrounding compensation decisions in the U.S.

• Understand how legal compliance is an important aspect of compensation administration

• Consider competing models of best practices in pay system design

• Understand the elements of both direct pay and indirect pay

• Learn the strategic options of designing compensation as a job-based versus a skill-based system

• Understand the three forms of equity necessary for successful compensation systems

• Be sensitive to the intangible elements of pay as well as the more frequently assessed tangible elements


Compensation

“...an exchange for effort & ideas”

“...all forms of financial returns & tangible services & benefits employees receive as part of an employment relationship”

“...a return for services rendered”

Compensation can include both non-financial & psychological returns


Forms of Pay

Base Wages

Merit

Incentives

Services & Benefits


Elements of Total CompensationTotal Compensation

Intrinsic Rewards System(Self Administered Psychological Rewards)

Teamwork * ChallengeEmpowerment * Recognition * Security

Extrinsic Rewards System(Administered by Others)

Financial

Direct Compensation (Paycheck Pay)

Basic Salary

Performance-Based Pay

•Bonuses/Variable Pay

•Merit Pay•Incentive Pay

Indirect Compensation (Benefits)

Public Protection(Legally Required)•Social Security•Unemployment•Disability

Private Protection•Pensions•Saving•Supplemental unemployment•Insurance

Paid Leave--Off Job•Vacations•Sick Day•Bereavement•Personal Leave•Holidays

Paid Leave--On Job•Training Work•Breaks•Rest Periods

Miscellaneous Benefits•Legal Advice•Eldercare•Daycare•Wellness•Perquisites•Moving•Financial Counseling


Protection ProgramsHazard Private Plans Public Plans

Retirement Defined Benefit Pensions Defined Contribution Pensions Money purchase and thrift

plans (401(k)s / ESOPs)

Social Security old agebenefits

Death Group term life insurance (incl.Accidental death & travel)

Payouts from profit-sharing,pension, and/or thrift plans

Dependent survivors’ benefits

Social Securitysurvivors’ benefits

Disability Short-term accident andsickness insurance

Long-term disability insurance Wellness programs

Workers’compensation

Social Securitydisability benefits

State disabilitybenefits

Unemployment Supplemental unemploymentbenefits and/or severance pay

Unemploymentbenefits

Medical/DentalExpenses

Hospital/surgical insurance Other medical insurance Dental insurance Vision insurance

Workers’compensation

Medicare


Strategic Compensation

• Reflect the organization strategyReflect the organization strategy

• Mirror the organization culture and valuesMirror the organization culture and values

• Support the business strategySupport the business strategy

• Champion the human resource management Champion the human resource management strategystrategy

• ““Fit” environmental and regulatory Fit” environmental and regulatory pressurespressures

Objectives

Compensation objectives need to be tied to corporate objectives


Strategic Compensation

Internal consistency

External competitiveness

Employee contributions

Administration

Policies

Techniques that make up the compensation system translate strategic policy into practice


Compensation Objectives

• Efficiency– performance driven– total quality– customer focus– cost control

• Equity

• Compliance


• External market-sensitive-based pay

• Variable performance-based pay

• Risk-sharing partnership

• Flexible opportunities to contribute; not jobs

• Teams

• High wages• Guarantee employment

security• Apply incentives; share

gains not risks• Employee ownership• Participation &

empowerment• Teams

Best Practices Options

The New Pay High Commitment

Milkovich & Newman


InternalInternalConsistency and Consistency and

Job AnalysisJob Analysis


Summary of Lecture

• Internal Consistency

• Job Analysis

– Job Descriptions


Internal Consistency (or Equity):

Refers to the relationship between the pay structure and the design of the organization.

• To achieve Internal Consistency, the Pay Structure must:

– support organization’s workflow– ensure fairness to all employees– direct employee behaviors towards

organizational objectives


Results of Internal Consistency

• Reduces turnover

• Reduces pay-related grievances

• Reduces pay-related work stoppages

• Undertake training (and increase experience)

• Facilitates career/job progression

• Facilitates performance


Pay Structures and the Pay Model

Pay structures are the the array of pay rates for different jobs within an organization.

• Pay structures vary upon three dimensions:– the levels of work (i.e., Senior, Specialist)– the pay differentials between these levels– the criteria used to determine the levels and pay

differentials• Job-based or Person-based


Factors Influencing Pay Structures

• Nature of the Organization and its work

• Size and Age of the Organization

• Technology in the workplace

• HR Policies

• Employee Acceptance

• Economic Pressures

• Societal Customs


Employee Acceptance: A Key Test

• Distributive Justice– Pay Differences– Number of Levels– Structural Criteria: are decisions based on the

job or on the KSA’s of the person?

• Procedural Justice– Fairness of Design & Administration


Consequences of Internal Pay Structures

• Efficiency: Pay structure can be a Competitive Advantage used to attract and retain best employees

• Equity: Ensures fairness and satisfaction amongst employees

• Compliance: Meets legal requirements


Process of Building an Internal Job Structure

Two Basic Methods:

• Job-Based Structures

• Person-Based Structures– Skills– Competencies


Job Analysis

The systematic process of collecting relevant, work-related information

related to the nature of a specific job.


Many Reasons for Job Analysis • Internal Consistency

• Wage Setting

• Job Evaluation

• Standardizing Job Titles

• Transfers and Promotions

• Merit Rating

• Adjustment of Grievances

• Legal Defense in EEO or ADA suits

• Almost all HR decisions are based on job information

• Machine Design and Changes

• Test Development

• Safety Engineering

• Hiring Specifications

• Training

• Skill Inventory


What Data to Collect?• Job Title• Describe Job

– job content and worker characteristics

• Task Data– describes actual work performed and the

purpose of these tasks

• Behavioral Data– behaviors expected of workers

• Essential Job Duties


How can Data be Collected?

• Narrative Questionnaires

• Standardized Questionnaires

• Interviews

• Observation (Time and Motion Studies)

• Diary/Log


Who is Involved?• Who Collects the Data?

– Usually a new employee– However, should be an experienced employee familiar with the company and its

jobs.

• Who Provides the Data?– Job holders, Supervisors, Subordinates, Peers, Analyst


The Job Description: The Result of Job Analysis

General Format of a Job Description• Job Title• Fair Labor Standards Act (FLSA) Exemption Status• General Summary of Job• Essential Job Duties and Responsibilities• Knowledge, Skills, and Abilities Required• Working Conditions• Dates and Approvals• Disclaimer Statement


Tips on Writing Job Descriptions• Avoid jargon and “inflationary” adjectives• Use the most descriptive verb possible to describe job tasks

and activities.• Knowledge, skills and abilities listed must be specific,

realistic, and justifiable.• Indicate the intensity, frequency and duration for physical or

mental effort.• Include the FLSA Code• All JD’s should include a disclaimer statement to ensure

flexibility in the administration of a pay program.• Accurate, legally defensible JD’s are a necessity!

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Objectives

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