STRATEGIC COMPENSATION A Human Resource Management Approach Chapter

STRATEGIC COMPENSATION A Human Resource Management Approach Chapter 7: Building Market. Competitive Compensation Systems Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -1

Market-Competitive Pay Systems • Is a company’s compensation policy • Fits imperatives of competitive advantage • Key role in recruitment and retention Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -2

Excessive Pay Levels • Represent undue financial burdens • Undermine lowest-cost strategies • Restrict investments Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -3

Market Competitive Pay Systems • Conduct strategic analyses • Assess competitors’ practices • Integrate internal job structures with external market pay rates • Determine compensation policies Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -4

Four Activities of Market Competitive Pay Systems 1. Strategic analysis entails an examination of a company’s external market context and internal factors. - External market context: Industry profile, information on competition, long-term prospects - Internal factors: Financial condition, functional capabilities 2. Compensation surveys involve the collection and subsequent analysis of competitors’ compensation data. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -5

Four Activities of Market Competitive Pay Systems (Cont’d) 3. Compensation professionals integrate the internal job structure with the external market pay rates identified through compensation surveys. 4. Compensation professionals recommend pay policies that fit with their companies’ standing and competitive strategies. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -6

Competitors’ Pay Practices • Base pay • Incentive awards structure • Mix and level of discretionary benefits Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -7

Published Survey Sources • Professional associations • Industry associations • Consulting firms • Federal government Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -8

National Compensation Survey • Average hourly wages for over – • • • 800 occupations in approximately 80 metropolitan and nonmetropolitan locations Weekly and annual earnings and hours for full-time workers Data at three levels: Localities, broad regions, and the Nation Private, local, and state employees Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -9

National Compensation Survey (Cont’d) • Wage data are shown by – – – – Industry Occupational group Full-time and part-time status Union status Establishment size Time and incentive status Job level Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -10

Compensation Surveys • Two essential strategic considerations are: – Defining the relevant labor market – Choosing benchmark jobs Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -11

Relevant Labor Market Qualified candidates based on: • Occupational classification • Geography • Market competitors Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -12

Benchmark Jobs • Used for – Job evaluations – Compensation surveys • Established, well-known, stable • Common across employers • Entire range of jobs • Accepted for setting pay rates Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -13

Survey Data Characteristics • They contain a lot of data • Outdated data due to lag time • Statistical analysis needed to integrate internal job structures with external market Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -14

Consumer Price Index (CPI) • Indexes monthly price changes in goods and services • Most commonly used method for tracking cost changes. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -15