Compensation Strategy Structure Strategic role of compensation What

Compensation Strategy & Structure • • Strategic role of compensation What determines pay Reward system objectives External & internal considerations

Strategic Role of Compensation • To attract, retain and motivate employees • Link to business plan • Internal pay structure • External equity • Administrative policies • Performance focus

What Determines Pay? • Organizational differences -corporate culture & ability to pay • Work differences: intellectual and interpersonal competencies, skills, responsibility, working conditions • Employee differences: Education, experience, skills • Market & country differences

Reward System Objectives • • Improving productivity Controlling costs Fair treatment Legal compliance

External Considerations • Legislation – Fair Labor Standards Act -- 1938 – Davis-Bacon Act -- 1931 – Walsh-Healy Act 1936 – Equal pay act (1963) • Labor union • Labor markets • Compensation surveys

Internal Considerations • • Organizational considerations Traditional job evaluation Skill based evaluation Market based evaluation

Point Evaluation Method • Compensable Factors – Aspects of the job that are valued by the organization • Numerically Scaled Factors – Committee decides number of scale points & total points (often 500 or 100) • Factor Weights – Importance of factor

Point Evaluation Table

Calculating Points • Maximum for each factor is the factor weight X the total points – Example: for Know-how. 50 X 1000 = 500 • Minimum for each factor is factor weight X 100 – Example: for Know-how. 50 X 100 = 50 • Interval points = Maximum - Minimum • # of degrees - 1 – Example = 500 - 50 = 450/3 = 150 – 3

Skilled Based & Market Based Methods • Skill based: Compensates on the basis of job-related skills • Market based: Compensates on the basis of surveys determining going rate in area and profession

Backwards & Forwards • Summing Up: Today we considered strategic aspects of compensation, factors that determine pay, objectives of the reward system and external & internal considerations in setting pay scales. The point evaluation method was examined • Looking ahead: Next time we explore pay for performance for individuals and teams