Chapter 1 Strategic Compensation MGT 4543 Compensation Management

Chapter 1: Strategic Compensation MGT 4543 • Compensation Management

Be prepared for class… • Today, I will call on you for answers. • Borrow a book if you do not have one yet. • Please do NOT read from your book. We want to stay awake! • What if you did not prepare for today’s class? • My best advice is to follow along, try to keep up, and THINK of a logical answer if you are called on. • That is MUCH better than saying the dreaded, “I don’t know” or “I don’t have a book yet. ”

Opportunities to get involved with HR professionals • MSU student chapter of SHRM • Sign up to be on the e-mail list if you are interested! • Exposure to HR professionals • Networking opportunities • Opportunities to learn more about HR • Golden Triangle Human Resource Association http: //gthra. shrm. org/ • Dual student membership (if you attend GTHRA meetings) • Society for Human Resource Management (SHRM) • http: //www. shrm. org/

Strategic Compensation • What is compensation? • Compare and contrast intrinsic and extrinsic compensation. • Explain core compensation and employee benefits. • Give examples of each.

Fixed Pay Variable Pay

Let’s practice… In each example, is direct or indirect pay being used? If direct, is it fixed or variable? 1. Kalan gets 100% of his insurance coverage paid by his employer. This translates to $4, 000 per year. ____________________________ 2. Ericca receives $500 per week at her job as a childcare worker. ____________________________ 3. Ellis earns $10 and hour and 10% of his gross sales each month. ____________________________ 4. Caine works for an employer that provides free lunches and snacks to employees. ____________________________ 5. Ming is an executive for a major corporation that is traded on the NYSE. Each quarter she receives a stock bonus based on whether or not she meets performance targets. ____________________________

Strategic Compensation • What is a competitive business strategy? • What is a human resource strategy? • What is strategic compensation? • How are these three related?

Strategic Management & HRM

Competitive Strategic Choices • Cost leadership • What is cost leadership? • How do Ryanair’s compensation practices help it achieve its strategy? • Differentiation • What is differentiation? • Discuss why brand loyalty and research & development frequently go hand-in-hand with differentiation.

Competitive Strategic Choices • Compensation professionals support strategic initiatives through the design and implementation of compensation systems. • For a lowest-cost strategy, compensation professionals should focus on ________________. • Pay for differentiation differs because this strategy relies on employee creativity and willingness to take _______. • Differentiation strategies require longer ______.

Building Blocks: Core Compensation & Employee Benefits • Explain each: • Base pay • What are two ways base pay can be disbursed? • Compensable factors • COLAs

Building Blocks: Core Compensation & Employee Benefits • Explain each: • Seniority pay • On what theory is seniority pay based? • Merit pay • Incentive pay (variable pay)

Building Blocks: Core Compensation & Employee Benefits • Explain each: • Pay-for-knowledge • What type of workers are likely to receive this type of pay? • Skill-based pay • What type of workers are likely to receive this type of pay?

Building Blocks: Core Compensation & Employee Benefits • How do discretionary benefits differ from legally required benefits? • How did government legislation about wage levels influence discretionary benefits? • What was the initial purpose of legally required benefits? • Give some examples…your book has plenty!

Brief History of Compensation • Industrial revolution • Division of labor; • Change from work _________ to _________ • Scientific management • Productivity measures • Piecework plans • Welfare practices & governmental regulation • Improving conditions for EEs (e. g. , medical insurance for EEs) • Personnel management emerges • Competitive advantage • Employees viewed as a source of __________ • Pay-for-knowledge, pay-for-skill • Emphasis on recruitment and retention • Pressure of globalized competition

Strategic Compensation • What does it mean for compensation systems to be internally consistent? • Why is internal consistency in compensation important?

Strategic Compensation • Name and describe the two processes to achieve internal consistency. • Market competitiveness in compensation: How is it achieved? Why does it matter?

Strategic Compensation • Fill in the blank: • pay structures – represent pay rate ______ for jobs of ______ worth & the framework for recognizing differences in employee _______. • Explain each: • pay grades • pay ranges

Pay Structure $37, 000 Y = S a l a r y Pay Grade 3 $32, 000 P a y R a n g e $27, 000 Pay Grade 1 $30, 000 Pay Grade 2 $25, 000 $20, 000 200 -400 401 -600 601 -800 X = Job evaluation points

Fitting the Compensation Function in an Organization’s Structure • How does compensation fit with human resource practices such as recruitment, relocation, and retention? • Form your answer by reading and thinking about the example in the book.

Stakeholders of the Compensation System • What stakeholders must a compensation system satisfy? • Why might satisfying various stakeholders be a challenge for HR departments?