Objectives Understand the scope of Compensation Appreciate the

Objectives • Understand the scope of “Compensation” • Appreciate the legal framework surrounding compensation decisions in the U. S. • Understand how legal compliance is an important aspect of compensation administration • Consider competing models of best practices in pay system design • Understand the elements of both direct pay and indirect pay • Learn the strategic options of designing compensation as a job-based versus a skill-based system • Understand the three forms of equity necessary for successful compensation systems • Be sensitive to the intangible elements of pay as well as the more frequently assessed tangible elements Copyright 2000 - South-Western College Publishing 1

Compensation “. . . an exchange for effort & ideas” “. . . all forms of financial returns & tangible services & benefits employees receive as part of an employment relationship” “. . . a return for services rendered” Compensation can include both non-financial & psychological returns Copyright 2000 - South-Western College Publishing 2

Forms of Pay Base Wages Merit Incentives Services & Benefits Copyright 2000 - South-Western

Elements of Total Compensation Intrinsic Rewards System (Self Administered Psychological Rewards) Teamwork * Challenge Empowerment * Recognition * Security Indirect Compensation (Benefits) Public Protection (Legally Required) • Social Security • Unemployment • Disability Paid Leave--Off Job • Vacations • Sick Day • Bereavement • Personal Leave • Holidays Private Protection • Pensions • Saving • Supplemental unemployment • Insurance Paid Leave--On Job • Training Work • Breaks • Rest Periods Copyright 2000 - South-Western College Publishing Extrinsic Rewards System (Administered by Others) Financial Direct Compensation (Paycheck Pay) Miscellaneous Benefits • Legal Advice • Eldercare • Daycare • Wellness • Perquisites • Moving • Financial Counseling Basic Salary Performance-Based Pay • Bonuses/Variable Pay • Merit Pay • Incentive Pay 4

Protection Programs Copyright 2000 - South-Western College Publishing 5

Strategic Compensation Objectives • • Reflect the organization strategy Mirror the organization culture and values Support the business strategy Champion the human resource management strategy • “Fit” environmental and regulatory pressures Compensation objectives need to be tied to corporate objectives Copyright 2000 - South-Western College Publishing 6

Strategic Compensation Policies Internal consistency External competitiveness Employee contributions Administration Techniques that make up the compensation system translate strategic policy into practice Copyright 2000 - South-Western College Publishing 7

Compensation Objectives • Efficiency – – performance driven total quality customer focus cost control

Best Practices Options The New Pay • External marketsensitive-based pay • Variable performancebased pay • Risk-sharing partnership • Flexible opportunities to contribute; not jobs • Teams Copyright 2000 - South-Western College Publishing High Commitment • High wages • Guarantee employment security • Apply incentives; share gains not risks • Employee ownership • Participation & empowerment • Teams Milkovich & Newman 9

Internal Consistency and Job Analysis Copyright 2000 - South-Western College Publishing 10

Summary of Lecture • Internal Consistency • Job Analysis – Job Descriptions Copyright 2000

Internal Consistency (or Equity): Refers to the relationship between the pay structure and the design of the organization. • To achieve Internal Consistency, the Pay Structure must: – support organization’s workflow – ensure fairness to all employees – direct employee behaviors towards organizational objectives Copyright 2000 - South-Western College Publishing 12

Results of Internal Consistency • • Reduces turnover Reduces pay-related grievances Reduces pay-related work stoppages Undertake training (and increase experience) • Facilitates career/job progression • Facilitates performance Copyright 2000 - South-Western College Publishing 13

Pay Structures and the Pay Model Pay structures are the array of pay rates for different jobs within an organization. • Pay structures vary upon three dimensions: – the levels of work (i. e. , Senior, Specialist) – the pay differentials between these levels – the criteria used to determine the levels and pay differentials • Job-based or Person-based Copyright 2000 - South-Western College Publishing 14

Factors Influencing Pay Structures • • Nature of the Organization and its work Size and Age of the Organization Technology in the workplace HR Policies Employee Acceptance Economic Pressures Societal Customs Copyright 2000 - South-Western College Publishing 15

Employee Acceptance: A Key Test • Distributive Justice – Pay Differences – Number of Levels – Structural Criteria: are decisions based on the job or on the KSA’s of the person? • Procedural Justice – Fairness of Design & Administration Copyright 2000 - South-Western College Publishing 16

Consequences of Internal Pay Structures • Efficiency: Pay structure can be a Competitive Advantage used to attract and retain best employees • Equity: Ensures fairness and satisfaction amongst employees • Compliance: Meets legal requirements Copyright 2000 - South-Western College Publishing 17

Process of Building an Internal Job Structure Two Basic Methods: • Job-Based Structures •

Job Analysis The systematic process of collecting relevant, work-related information related to the nature

Many Reasons for Job Analysis • • Internal Consistency Wage Setting Job Evaluation Standardizing Job Titles Transfers and Promotions Merit Rating Adjustment of Grievances Legal Defense in EEO or ADA suits • Almost all HR decisions are based on job information Copyright 2000 - South-Western College Publishing • Machine Design and Changes • Test Development • Safety Engineering • Hiring Specifications • Training • Skill Inventory 20

What Data to Collect? • Job Title • Describe Job – job content and worker characteristics • Task Data – describes actual work performed and the purpose of these tasks • Behavioral Data – behaviors expected of workers • Essential Job Duties Copyright 2000 - South-Western College Publishing 21

How can Data be Collected? • • Narrative Questionnaires Standardized Questionnaires Interviews Observation (Time

Who is Involved? • Who Collects the Data? – Usually a new employee – However, should be an experienced employee familiar with the company and its jobs. • Who Provides the Data? – Job holders, Supervisors, Subordinates, Peers, Analyst Copyright 2000 - South-Western College Publishing 23

The Job Description: The Result of Job Analysis • • General Format of a Job Description Job Title Fair Labor Standards Act (FLSA) Exemption Status General Summary of Job Essential Job Duties and Responsibilities Knowledge, Skills, and Abilities Required Working Conditions Dates and Approvals Disclaimer Statement Copyright 2000 - South-Western College Publishing 24

Tips on Writing Job Descriptions • Avoid jargon and “inflationary” adjectives • Use the most descriptive verb possible to describe job tasks and activities. • Knowledge, skills and abilities listed must be specific, realistic, and justifiable. • Indicate the intensity, frequency and duration for physical or mental effort. • Include the FLSA Code • All JD’s should include a disclaimer statement to ensure flexibility in the administration of a pay program. • Accurate, legally defensible JD’s are a necessity! Copyright 2000 - South-Western College Publishing 25