Human Resource Management Compensation and Benefits

Compensation Hot topics Compensation Management Benefits

Hot or Warm Topics Executive compensation - Are corporate executives overpaid or underpaid?

Sex discrimination and comparable worth Open vs. secret pay plans Skill-based compensation plans Team vs. individual pay

Executive Compensation (2005)

Rank Name

1 Richard D Fairbank 2 3 4 5 6 7 8 9 10 11 12 Terry S Semel Henry R Silverman Bruce Karatz Richard S Fuld Jr Ray R Irani Lawrence J Ellison John W Thompson Edwin M Crawford Angelo R Mozilo John T Chambers R Chad Dreier

Company

Capital One Yahoo Cendant KB Home Lehman Bros Occidental Pet Oracle Symantec Caremark Rx Countrywide Cisco Systems Ryland Group

Pay ($mil) 5-Yr Pay ($mil) 249.42

448.58

230.55 139.96

258.29

279.21

135.53 122.67 80.73 75.33

227.37

375.81

198.44

868.93

71.84 69.66 68.95 62.99 56.47

131.65

161.85

160.14

103.44

150.22

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html

Executive Compensation (2008)

Average compensation for 200 chief executives at America's largest public companies was $10.8 million Sanjay Jha Larry Ellison Robert Iger Kenneth Chenault Vikram Pandit Mark Hurd Jack Fusco Rupert Murdoch David Cote A.G. Lafley Motorola Oracle Walt Disney American Express Citigroup Hewlett-Packard Calpine News Corp.

Honeywell International Procter & Gamble $104.4 million $84.6 million $51.1 million $42.8 million $38.2 million $34.0 million $32.7 million $30.1 million $28.7 million $25.6 million

CEO Compensation Compared to Average Production Worker 2007 2006 2005 2004 2003 2001 1990 1982 1970 344 to 1 364 to 1 465 to 1 431 to 1 301 to 1 525 to 1 107 to 1 42 to 1 28 to 1 Since 1990, if the minimum wage rate had risen at the same rate as CEO pay, minimum wage would now be $23.03 instead of $7.25.

http://money.cnn.com/2005/08/26/news/economy/ceo_pay/

Europe's 25 Highest-Paid CEOs(2005)

1. Lindsay Owen-Jones, L'Oreal (France), $28.3M

2. John Browne, BP (Britain), $14.0M

3. Arun Sarin, Vodaphone (Britain), $12.2M

4. Henri De Castries, AXA (France), $9.1M

5. Josef Ackermann, Deutsche Bank (Germany), $8.4M

http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases/2 0050627H_europe.html

Australia 292% Belgium 157 Canada 152 France Italy Japan Spain UK US

% Change 1988-2005

197 Germany 187 232 8 Netherlands118 New Zealand - 98 Sweden 304 Switzerland172 161 169

CEO Pay/ Relative to Worker Pay (2005)*US CEO (2005)

15.6 18 33% 46 23.1 22.8 20.1 49 56 55 25.9 10.8 17.8 24.9 17.2 19.2 19.3 31.8 39 53 25 40 18 32 44 64 55

* Ratio of CEO compensation to the compensation of manufacturing production workers.

Source: Authors’ analysis of Towers Perrin (1988, 2003, and 2005).

The Wage Gap Over Time Year Women's Earnings Men's Dollar Percent Earnings Difference 2005 $31,858 2004 * $32,285 $41,386 $9,528 $42,160 $9,875 77.0% 76.6% 2003 $30,724 $40,668 $9,944 75.5% 2002 2001 2000 $30,203 $29,215 $27,355 $39,429 $9,226 $38,275 $37,339 $9,060 $9,984 76.6% 76.3% 73.3% 1999 $27,208 $37,701 $10,493 72.2% 1998 1997 1996 1995 1994 1993 1992 $27,290 $26,720 $25,919 $25,260 $25,558 $25,579 $25,791 $37,296 $36,030 $35,138 $35,365 $35,513 $35,765 $36,436 $10,006 73.2% $9,310 $9,219 74.2% 73.8% $10,105 71.4% $9,955 72.0% $10,186 71.5% $10,645 70.8%

The Wage Gap Over Time Year 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 Women's Earnings $25,457 $25,451 $25,310 $24,774 $24,663 $24,479 $23,978 $23,453 $22,961 $22,367 $21,830 $22,279 $22,446 Men's $36,440 $35,538 $36,855 $37,509 $37,389 $38,088 $37,131 $36,842 $36,106 $36,224 $36,854 $37,033 $37,622 Dollar Earnings Difference $10,983 69.9% $10,087 71.6% $11,545 $12,735 $12,726 $13,153 $13,389 $13,055 $13,857 Percent 66.0% 66.0% 65.2% $13,609 64.3% 64.6% 63.7% 63.6% 61.7% $15,024 $15,176 59.2% $14,754 60.2% 59.7%

Year The Wage Gap Over Time Women's Earnings Men's Dollar Percent Earnings Difference 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 $22,617 $21,743 $21,738 $21,297 $21,419 $21,397 $21,185 $20,691 $20,567 $20,156 $18,836 $18,241 $17,874 $17,852 $38,051 $36,901 $36,114 $36,207 $36,456 $37,381 $36,614 $34,771 $34,642 $34,241 $32,389 $31,568 $31,055 $29,791 $15,005 59.4% $15,158 58.9% $14,376 60.2% $14,910 58.8% $15,037 58.8% $15,984 56.6% $15,429 57.9% $14,080 59.5% $14,075 59.4% $14,085 58.9% $13,553 58.2% $13,327 57.8% $13,181 57.6% $11,939 59.9%

http://www.pay-equity.org/info-time.html

Median Annual Earnings of Full time Workers (Bureau of Labor Statistics, 2000 census)

Physicians, surgeons Lawyers Judges, magistrates Actuaries Pharmacists Teacher assistants Cooks Male Female $140,000 88,000 90,000 66,000 88,000 50,000 80,000 56,000 70,000 63,000 20,000 15,000 17.000 15,000 http://gblakely.com/BADM553/censr-15.pdf

Compensation Goals Attracting good employees Retaining good employees Motivating employees Complying with the law Having a cost effective compensation system

Compensation and the Three Equities External Equity

Attracting good employees

Internal Equity

Retaining good employees

Individual or Employee Equity

Motivating employees

External Equity Attracting good employees Labor Market Model Market Surveys

http://salarysource.com/ http://swz.salary.com/

Pay strategy/policies

Internal Equity

Retaining good employees Job Evaluation Techniques Ranking Jobs are compared to each other based on their overall worth to the company. The ‘worth’ of a job is usually measured by judgments of skill, effort, responsibility, and working conditions.

The advantage of the ranking method is that it is simple.

The disadvantages, similar to the ranking method of performance appraisal, are that the intervals between the ranks are assumed to be equal, the judgments are global, and as the number of jobs for evaluation increases it becomes increasingly difficult. Also, the evaluators must have knowledge of all jobs.

Classification method Jobs are classified into a grade/category structure. Each tier of the structure has a description and associated job titles. For example, the Westinghouse system had: – Grade 1 Unskilled ex. File clerk – Grade 2 Skilled ex. Typist, lathe operator – Grade 3 Interpretive ex. Chief clerk – Grade 4 Creative ex. Engineers, sales reps – Grade 5 Executive ex. Department heads – Grade 6 Administrative ex. Chief engineer, Director of R&D – Grade 7 Policy ex. Vice-president of Marketing Each job is assigned to the grade/category providing the closest match to the job. Standards are developed mainly along occupational lines. The standards help identify and describe key characteristics of occupations that are important for distinguishing different levels of work.

Pay ranges are then assigned to grades.

The advantages of this method are that it is simple and has been in use for many years.

Its disadvantages include the fact that classification judgments are subjective, and the standard used for comparison may have built-in biases. Also, some jobs may fit into more than one grade/category or their descriptions are so broad that they do not relate to specific jobs.

Factor Comparison Select benchmark jobs.

Sets of compensable factors are identified as determining the worth of jobs. The number of factors is usually four or five and typically relate to skill, responsibility, effort and working conditions. Jobs are then ranked on each factor.

Wages are then allocated to the factors. The organization’s other jobs are then compared to the benchmark jobs and rates of pay for each of the other jobs. Factor comparison has the advantage that the value of the job is expressed in monetary terms, and the method is applicable to a wide range of jobs.

The method’s disadvantages are that the pay points for each factor is based on subjective judgments.

Point Method The point method is an extension of the factor comparison method. Usually between eight and fourteen compensable factors (typically related to skill, effort, responsibility, and working conditions) are identified as determining the worth of jobs.

Factors are divided into degrees Points are assigned the degrees Benchmark jobs are compared to market rates

Individual or Employee Equity Motivating performance

JOB ATTRIBUTE RANKING Please rank, from 1 to 10 in order of importance, with 1 being the most important, the following job attributes. In the first column indicate the rank in terms of your own preferences and in the second column indicate how you think others will rank these same job attributes.

Your Ranking Others' Ranking Advancement

_____ _____

Benefits Company Co-workers Hours Pay Job Security Supervisor Type of Work Working Conditions

_____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

JOB ATTRIBUTE RANKING

The following median rankings are based on the responses of 39,788 job applicants (Minneapolis Gas Company).

MEN WOMEN Advancement Benefits Company Co-workers Hours Pay Job Security Supervisor Type of Work Working Conditions Self 3.3

6.8

4.5

6.0

7.6

5.6

2.5

3.3

7.9

3.6

6.3

4.9

6.9

Others 3.8

5.2

6.8

7.7

5.4

2.1

4.9

7.4

1.5

6.5

Self 5.3

8.0

4.6

5.2

6.9

6.0

Others 4.3 5.9 7.1 7.3 5.0 2.1 5.4 5.3

3.5 6.8

7.0

What Do Workers Want From Their Jobs?

Supervisors Workers Good working conditions Feeling "in" on things 4 10 2 Tactful disciplining Full appreciation for work done Management loyalty to workers Good wages Promotion and growth with company Sympathetic understanding of personal problems 9 Job security 2 Interesting work 5 8 6 1 3 7 9 1 8 5 7 3 4 6

1 = most important in job 10 = least important in job

10

(From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)

What do new graduates value in jobs?

Company culture Advancement opportunities Nature of work (e.g., challenging) Training provided Work/non-work balance Monetary compensation Benefits Location Vacation time Level of job security Size of company International assignments Rated on seven point scale (1 = not important to 7 = very important).

Source: Human Resource Management (2003), 42, p. 23-37.

6.2 6.0 5.9 5.7 5.5 5.3 5.2 5.0 4.6 3.9 3.7 3.3

What do applicants with college degrees want in jobs?

Type of work Advancement Co-workers Company Security Location Supervisor Pay Working conditions Benefits 1993 2.2 4.6 5.1 5.7 5.8 6.2

6.3

6.3 7.2

7.4

1978 1.5 3.6

5.2 4.4 5.5 5.5

5.2 7.2 7.9

Hours 9.3

8.0

1993 sample = 623, 1978 sample = 4,535 Source: Journal of Occupational & Organizational Psychology (2003) , 66, p. 71-81

Individual or Employee Equity Motivating performance

At the individual level Pluses and minuses Methods/techniques At the organization level Pluses and minuses Methods/techniques

Compensation and the Legal Environment The Fair Labor Standards Act of 1938

Minimum Wage Exempt vs. Non-exempt and overtime http://www.ewin.com/articles/exneot.htm

http://www.dol.gov/elaws/esa/flsa/screen75.

asp

The Equal Pay Act of 1963

Benefits

The Cost of Benefits Mandatory Workers’ Compensation https://www.brickstreet.com/default.aspx

Unemployment Insurance Family Medical Leave Social Security http://www.ssa.gov/ Retirement income Disability income Medicare Survivor benefits 2006 rates – Social security 6.2% on first $94,200 – Medicare 1.45% unlimited

Benefits Non-mandatory Insurance Health – Cost escalation – COBRA – HIPAA – Types of health insurance » Traditional indemnity plans » HMO » PPO Retirement ERISA (1974) – Vesting » Full vesting after 5 years » 20% per year after 3 years – Fiduciary standards – Pension Benefit Guarantee Corporation Defined benefit Defined contribution – 401(k), 403(b) » http://invest-faq.com/articles/ret-plan-401k.html

– IRA – SEP – Keogh http://www.dallasfed.org/ca/wealth/3.html

http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

Benefits continued

Paid time off Employee services