2014 Cengage Learning All rights reserved May not

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives After studying this chapter, you should be able to: 1. Describe the basic issues involved in developing a compensation strategy 2. Discuss how organizations develop a wage and salary structure 3. Identify and describe the basic issues involved in wage and salary administration 4. Discuss the basic considerations in understanding benefit programs 5. Identify and describe mandated benefits 6. Identify and describe nonmandated benefits 7. Discuss contemporary issues in compensation and benefits © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 2

What Is Compensation? The set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 3

What are Benefits? Purposes of Benefits Rewards Incentives Items of Value © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 4

Beyond the Book: Components of the Compensation System © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 5

Understanding the Basic Purposes of Compensation Developing a Compensation Strategy Internal Equity External Equity Pay Surveys Legal Standards © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 6

Organizational Considerations: Linking Compensation to Performance Motivation Retention Controlling costs Productivity Organizational objectives © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 7

Example of a Pay Survey © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 8

Wages Versus Salaries • Wages Ø Is hourly compensation paid to operating employees; basis for wages is time. • Salary Ø is income paid to an individual on the basis of performance, not on the basis of time. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 9

Strategic Options for Compensation Levels Which pay level is a firm on the decline likely to choose? © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 10

Determinants of an Organization’s Compensation Strategy Overall strategy of the organization Overall ability of organization to pay Ability to attract and retain employees © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Strength of union influence 9– 11

Determining What to Pay Job Evaluation Methods Classification system Point system Factorcomparison method © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 12

Establishing a Classification System for Job Evaluation • Group sets of jobs into grades • Rank grades at level of importance to the organization • Determine how many categories or classifications to use for grouping jobs © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 13

Job-Classification System © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 14

Using a Point System for Job Evaluation • Compensable Factors Ø Job skills Ø Physical effort Ø Working conditions Ø Responsibility and authority • Point Manual Ø Defines points assigned to the increasing degrees of compensable factors for which the organization willing to provide payment © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 15

Using the Factor-Comparison Method for Job Evaluation 1. Define comparison factors to be used 2. Identify benchmark or key jobs in the organization 3. Rank benchmark jobs on each compensation factor 4. Allocate benchmark’s job wage to each job factor based on the relative importance of the job factor 5. Prepare two sets of ratings based on ranking and assigned wages to determine evaluator consistency 6. Develop a job-comparison chart to rate other jobs in the organization as compared to the benchmark jobs © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 16

Factors Affecting Internal Pay Levels • Pay-for-Knowledge Ø Compensating employees for learning specific information • Skill-based Pay Ø Rewards employees for acquiring new skills • Seniority Ø A maturity curve specifies the amount of annual increase a person will receive for time on the job with the firm. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 17

Wage and Salary Administration The ongoing process of managing a wage and salary structure; managers must be sensitive to these costs and must be vigilant about managing them properly. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 18

Understanding Compensation Wage and Salary Administration Issues Pay Secrecy Pay compression Pay Inversion © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 19

The Nature Of Benefits Programs Benefits Issues Rising Costs Global Differences Employee Preferences © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 20

Purposes of Benefit Programs • Efficiency Wage Theory Ø An organization saves money when its benefits and compensation package attracts better-qualified people and motivates its employees to work harder and remain with the organization. © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 21

Types of Benefits • Mandated Benefits • Other Benefits Ø Unemployment insurance Ø Wellness programs Ø Social Security Ø Life-cycle benefits Ø Workers’ Compensation v • Nonmandated Benefits v Ø Private pension plans v v Defined benefit plans Defined contribution plans Child-care programs Elder-care Ø Employee assistance Ø Cafeteria-style benefits Ø Spousal equivalents Ø Paid time off Ø Health insurance © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 22

Minimum Annual Vacation by Law in Different Countries © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 23

Executive Compensation Components • Base Salary • Incentive Payments Ø Usually a bonus based on company performance • Perquisites © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 24

Cash Bonuses For Some CEOs 2010 2011 Lloyd Blankfein (Goldman Sachs) $12. 60 million $ 7. 00 million James Gorman (JP Morgan) $13. 00 million $10. 50 million Howard Schultz (Starbucks) $22. 00 million $16. 00 million Robert Diamond (Barclays PLC) $ 3. 25 million $ 1. 70 million Phillipe Dauman (Viacom) $12. 00 million – BUT his total compensation fell from $84. 5 million to $43 million $20. 00 million © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 25

Legal Issues in Compensation and Benefits • Fair Labor Standards Act (FLSA) Ø Includes provisions for the minimum wage, overtime, comp time, and child labor Ø HR managers must adhere to overtime laws • Employee Retirement Income Security Act (ERISA) Ø Vesting provisions guarantee employee rights to receive earned benefits from PBGC-insured pension plans © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 26

Evaluating Compensation Policies • To attract and retain good employees, organizations should provide reasonable compensation and appropriate benefits to its employees • Organizations should keep employees well -informed about the value, extent, and costs of benefits that the organization provides © 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9– 27