Transcript Human Resource Management SECTION 4 Compensating Human Resources TENTH EDITON Robert L. Mathis  John H. Jackson Chapter 12 Compensation Strategies and Practices © 2003 Southwestern College Publishing.

Human Resource
Management
SECTION 4
Compensating
Human
Resources
TENTH EDITON
Robert L. Mathis  John H. Jackson
Chapter 12
Compensation Strategies
and Practices
© 2003 Southwestern College Publishing. All rights reserved.
PowerPoint Presentation
by Charlie Cook
Learning Objectives
After you have read this chapter, you should be
able to:
– Identify two general types of compensation and the
components of each.
– Give examples of two different compensation
philosophies in organizations.
– Discuss four strategic compensation design issues.
– Describe three considerations affecting perceptions
of pay fairness.
– Identify the basic provisions of the Fair Labor
Standards Act (FLSA).
© 2002 Southwestern College Publishing. All rights reserved.
12–2
Learning Objectives (cont’d)
– Define job evaluation and discuss four methods for
of performing it.
– Outline the process of building a wage and salary
administration system.
– Discuss how to establish a pay-for-performance
system.
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12–3
Compensation Systems

Objectives of an Effective Compensation
System:
– Legal compliance with all appropriate laws and
regulations
– Cost effectiveness for the organization
– Internal, external, and individual equity for
employees
– Performance enhancement for the organization
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12–4
Nature of Compensation

Types of Rewards
– Intrinsic
• Intangible, psychological and social effects of
compensation
– Extrinsic
• Tangible, monetary and nonmonetary effects of
compensation
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12–5
Components of A Compensation Program
Figure 12–1
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12–6
Direct Compensation
Compensation Type
Base Pay
The basic monetary compensation that an
employee receives, usually as a wage or
salary.
Wages
Payments calculated on the amount of time
worked.
Salary
Consistent payments made each period
regardless of the number of hours worked in
the period.
Variable Pay
Compensation linked to individual, team, or
organizational performance.
Benefit
An indirect reward given to an employee or
group of employees as a part of
organizational membership.
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12–7
Typical Division of HR Responsibilities:
Compensation
Figure 12–2
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12–8
Continuum of Compensation Philosophies
Figure 12–3
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12–9
Compensation Approaches
Figure 12–4
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12–10
Compensation Quartile Strategies
Figure 12–5
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12–11
Decisions About Compensation Levels
Compensation Strategies
Above-Market
Paying for higher qualified, more productive
workers.
Middle-Market
Attempting to balance of employer costs and
need to attract and retain employees.
Below-Market
Paying all that the firm can afford
Taking advantage of the abundant supply of
potential employees in a loose labor market.
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12–12
Competency-Based Pay
Limitations
(How many?)
Pricing
Competencies
CompetencyBased Pay
Systems
KBP/SBP
Maintenance of
Competencies
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Training
12–13
Competency-Based Systems Outcomes
Figure 12–6
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12–14
Individual vs. Team Rewards
Using Team-Based Reward Systems
Use skill-based pay for the base.
Make system simple and understandable.
Use variable pay based on business entity performance
Distribute variable rewards at the team level
Maintain a high degree of employee involvement
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12–15
Perceptions of Pay Fairness
Equity
The perceived fairness between what a person
does (inputs) and what the person receives
(outcomes).
Procedural Justice
The perceived fairness of the process and
procedures use to make decisions about
employees
Distributive Justice
The perceived fairness in the distribution of
outcomes.
Pay Openness
The degree of openness or secrecy that an
organization allows regarding its pay system.
External Equity
The perception that the organization provides
employees with compensation that comparable
to the compensation of employees with similar
jobs in other organizations.
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12–16
Equity Considerations in Compensation
Figure 12–7
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12–17
Fair Labor Standards Act (FSLA) of 1938
Provisions of the Act
Minimum wage requirement sets wage floor
Child labor (under 14 years old) is prohibited
Requires overtime payments for non-exempt employees
Exempts highly-paid computer workers
Requires overtime (1½) pay for hours over 40 hours
Requires compensatory time at overtime (1½) pay rates
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12–18
Wage/Hour Status Under Fair Labor Standards Act
Figure 12–8a
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12–19
Wage/Hour Status Under Fair Labor Standards Act
Figure 12–8b
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12–20
Wage/Hour Status Under Fair Labor Standards Act
Figure 12–8c
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12–21
The IRS Test for Employees and
Independent Contractors
Source: U.S. Internal Revenue Service.
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Figure 12–9
12–22
Other Laws Affecting Compensation

Davis-Bacon Act of 1931
– Required payment of “prevailing wage” by firms
engaged in federal construction projects.

Walsh-Healy Public Contracts Act and the
Service Contracts Act
– Extended the payment of “prevailing wage” to
service contracts
– Required overtime payment for any employee hours
worked over eight hours in one day; applies only to
to federal contracts, not the private sector.
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12–23
Pay and Gender

Equal Pay Act of 1963
– Requires that men and women be paid the same for
performing substantially similar jobs with limited
non-gender exceptions (e.g., merit and seniority).

Issue of Pay Equity
– Similarity in pay for all jobs requiring comparable
level of knowledge, skills, and abilities, even if
actual duties and market rates differ significantly.
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12–24
Compensation
Administration
Process
Figure 12–10
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12–25
Job Evaluation

Job Evaluation
– The systematic determination of the relative worth
of jobs within an organization.

Benchmark Job
– A job found in many organizations and performed
by several individuals who have similar duties that
are relatively stable and require similar KSAs.
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12–26
Job Evaluation
Ranking
Classification
Job
Evaluation
Methods
Factor
Comparison
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Point
Method
12–27
Job Evaluation Point Chart
Figure 12–11
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12–28
Legal Issues and Job Evaluation
Americans with Disabilities Act
Job evaluations may not identify job functions related to
physical demands as essential
Job Evaluation
Gender Issues
Traditional job evaluations place less weight on knowledge,
skills, and working conditions for female-dominated jobs
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12–29
Developing Pay Surveys
Select Employers with Comparable Jobs
Determine Jobs to be Surveyed
Decide What Information Is Needed
Conduct Survey
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12–30
Pay Structures

Market Line
– The line on a graph showing the relationship
between the job value, as determined by job
evaluation points, and pay survey rates.

Common Pay Structures
– Hourly and salaried
– Office, plant, technical, professional, managerial
– Clerical, information technology, professional,
supervisory, management, and executive
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12–31
Establishing
Pay
Structures
Figure 12–12
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12–32
Pay Structures (cont’d)

Pay Grades
– A grouping of individual jobs having approximately
the same job worth.

Broadbanding
– The practice of using fewer pay grades having
broader pay ranges that in traditional systems.
– Benefits
•
•
•
•
•
Encourages horizontal movement of employees
Is consistent with trend towards flatter organizations
Creates a more flexible organization
Encourages competency development
Emphasizes career development
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12–33
Traditional Pay Structure vs. Broadbanding
Figure 12–13
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Pay Scattergram
Figure 12–14
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12–35
Typical Pay Range Widths
Figure 12–15
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Example of
Pay Grades
and Pay
Ranges
Figure 12–16
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12–37
Pay Rate Issues

Rates Out of Range
– Red-Circled Employees
• An incumbent (current jobholder) who is paid above
the range set for the job.
– Green-Circled Employees
• An incumbent who is paid below the range set for the
job.

Pay Compression
– A situation in which pay differences among
individuals with different levels of experience and
performance in the organization becomes small.
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Issues Involving Pay Increases

Seniority
– Time spent in an organization or on a particular job.
– Used to determine eligibility for organizational
rewards and benefits.

Maturity Curve
– A curve that depicts the relationship between
experience and pay rates.
– Assumption is that as experience increases,
proficiency and performance increase.
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12–39
Issues Involving Pay Increases

Cost-of-Living Adjustments (COLA)
– A percentage increase in wages that allows
employees to maintain the same real wages in a
period of economic inflation.
– Adjustments are tied to changes in an economic
measure (e.g., the Consumer Price Index).

Lump-Sum Increases (LSI)
– A one-time payment of all or part of a yearly pay
increase.
– Lump-sum payments do not increase base wages
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12–40
Pay Adjustment Matrix
Figure 12–17
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12–41
Compa-Ratio Example

Compa-ratio
– The pay level divided by the midpoint of the pay
range.
EmployeeR 
$16.50(currentpay)
 100  Compa- ratio 110
15.00(midpoint)
EmployeeJ 
$13.05(currentpay)
 100  Compa- ratio 87
15.00(midpoint)
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12–42