Managing Compensation Chapter 10 MGT 3513 The thermometer

Managing Compensation Chapter 10 MGT 3513 “The thermometer of success is merely the jealousy of the malcontents. ” Salvador Dali

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Questions on Compensation What are three components of total compensation? Explain each. How much of a cost does compensation represent to most firms?

Dr. Marler’s Unsolicited Advice on the “JOB SEARCH” Use Salary. com ◦ Http: //www. salary. com/category/salary/ ◦ Information on salary (national & local) Base pay (direct pay) Pay incentives Benefits (indirect pay)

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What is the median salary?

Go to the benefits tab

What is the base pay? What are the pay incentives? What are benefits worth?

Cost of Living Calculator http: //swz. salary. com/costoflivingwizard/l ayoutscripts/coll_start. aspx • It will compare salary & cost of living in two locations • It will tell you how much you would have to earn in a new location to maintain the same standard of living.

Cost of Living Calculator – enter median salary & 2 locations

What is the net change in income?

Figure 10. 2 in textbook is a useful outline for the chapter 1) 2) 3) 4) 5) 6) 7) 8) 9) Internal / External Fixed / Variable Performance / Membership Job / Individual Pay Egalitarianism / Elitism Below-Market / Above-Market Compensation Monetary / Nonmonetary Open / Secret Centralization / Decentralization of Pay Decisions

1) Internal / External How do we know if we are paid a fair amount? Equity ◦ internal equity ◦ external equity What happens if we decide that our pay is NOT fair?

1) Internal / External Distributive equity justice model of pay ◦ Input/outcome ratio Labor market model of pay equity ◦ Wage rate = intersection of supply & demand ◦ “going rate”

Practice Question Kayla makes $20 an hour as a fitness instructor; however, she becomes frustrated to learn that an employee with less seniority is making $25 an hour. What type of equity comparison is she making ? Internal B. External A.

Practice Question My company is conducting a market survey to make sure their current pay rates are competitive. What type of equity applies to this situation? Internal B. External A.

2) Fixed / Variable What is fixed pay? What is variable pay? Which form (fixed or variable) do most U. S. companies use? Why?

3) Performance / Membership What is performance-contingent compensation? ◦ What is a piece-rate plan? What is membership-contingent compensation? ◦ In your opinion, what is potentially a major disadvantage of this type of compensation system?

4) Job / Individual Pay Skill-based approach – What is the ____ worth? Job-based approaches – What is the ______ worth?

5) Egalitarianism / Elitism What is an egalitarian pay system? What is an elitist pay system?

6) Above the market / below the market Above the market ◦ Quality of applicant = ______ ◦ Turnover = _____ Below the market ◦ Quality of applicant = ______ ◦ Turnover = _____

7) Monetary / Nonmonetary What are monetary rewards? What are nonmonetary ◦ Give examples rewards?

8) Open / Secret What is secret pay? What is open pay?

9) Centralization / Decentralization of Pay Decisions Contrast decisions centralized and decentralized pay

Compensation Tools Job-based approaches How does a company know what a job is worth? ◦ Achieving internal equity Job evaluation = the process of evaluating the relative ______ or contribution of different jobs to an organization ◦ Achieving external equity Market surveys =

Internal Equity - - Job Evaluation 1. 2. 3. 4. 5. Conduct _______ Write _____, including job specifications Rate worth of all jobs using a predetermined system Create a _______ Classify jobs by grade levels

Internal Equity – Rating the Worth of Jobs (Job evaluation) Point factor method Assigns points to jobs based on __________. Skill Effort Responsibility Working conditions

Internal Equity – Rating the Worth of Jobs (Job evaluation) Point factor method example Nurse Tree Climber Part-time Office Assistant Skill 200 100 Effort 200 150 Responsibility 200 100 50 Working Conditions 200 400 0 Total Points 800 300

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

Terms to Know Pay Grade Pay Range Compensable factors Job hierarchy

External Equity -- Market survey 1. Identify benchmark or key jobs Benchmark job = 2. Establish a pay policy Decision to pay _______________

FLSA Fair Labor Standards ______________ “exempt” Act vs. “nonexempt” employees

Questions on the FLSA Minimum wage ◦ Why do some believe that it should be raised? ◦ Why do some argue that it should not be raised? ◦ Is it possible for employers to be required to pay a minimum wage that is higher than the federal minimum wage? If so, why?

Additional Information about the Minimum Wage Current minimum wage = $7. 25 ◦ Oregon’s minimum wage = $9. 75 Workers who receive tips ◦ Minimum wage = $2. 13 Rate established in 1991

Questions on the FLSA (continued) How many hours must a person work to receive overtime pay? What pay? Why is the minimum pay rate for overtime is overtime pay an attractive option to employers?

Common Exemptions from FSLA https: //www. dol. gov/elaws/esa/flsa/scree n 75. asp