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Unformatted text preview: Human Resource Human Management Management
ELEVENTH EDITION G A R Y D E S S L E R Chapter 10, 11, & 12 Part 4 | Compensation Compensation Management The elements of total compensation
• Direct compensation Pay in the form of wages, salaries, incentives, Pay commissions, and bonuses commissions, Based on performance or increments of time • Indirect compensation Pay in the form of financial benefits and services Pay (such as employer-paid insurance, vacations, health and safety, etc.) and 11–2 Basic Factors in Determining Basic Pay Rates Pay
Employee Compensation Direct Compensation (Direct Financial Payments) Indirect Compensation (Indirect Financial Payments) 11–3 Compensation management: definitions
• Compensation is what employees receive in exchange Compensation for their work for • Compensation is what used to obtain, maintain, and Compensation retain a productive workforce retain • Compensation may be in the form of salary, wages or Compensation other benefits other • Employees will leave, work less, or go on strikes if they Employees are under-compensated are • Even overcompensation can harm the organization, its Even people, causing anxiety, guilt, and discomfort people, • High compensation costs also reduce the firms High competitiveness competitiveness • Compensation policies reinforce those behaviors that Compensation support the company’s strategies support
11–4 Objectives sought through effective Objectives compensation management compensation
• Acquire qualified personnel Acquire Compensation needs to be high enough to attract Compensation applicants. Since companies compete in the labor market, pay levels must respond to the supply and demand of workers. But sometimes a premium wage rate is needed to attract applicants who are already employed in other firms already • Retain present employees When compensation levels are not competitive, When some employees quit. To prevent employee turnover, pay must be kept competitive with that of other employees other
11–5 Objectives sought through effective Objectives compensation management compensation
• Ensure equity The administration of wages and salaries strives for The four forms of equity: internal, external, individual, individual, and procedural individual, • Reward desired behavior Pay should reinforce desired behaviors and act as an incentive for those behaviors to occur in the future. Good performance, experience, loyalty, new responsibilities and other behaviors can be rewarded through an effective compensation plan 11–6 Objectives sought through effective Objectives compensation management compensation
• Control costs A rational compensation program helps an rational organization to obtain and retain its workforce at a reasonable cost. Without a systematic way and salary structure, the organization could overpay or underpay its employees underpay • Compliance with legal regulations As with other aspects of personnel management, As wage and salary administration faces legal constraints. A sound pay program considers these constraints and ensures compliance with all government regulations that affect employee compensation compensation
11–7 Objectives sought through effective Objectives compensation management compensation
• Further administrative efficiency In pursuing the other objectives of effective In compensation management, wage and salary specialists try to design the program so that it can be efficiently administrated. Administrative efficiency, however should be a secondary consideration compared with other objectives compared 11–8 Corporate Policies, Competitive Strategy, and Compensation
• Aligned Reward Strategy The employer’s basic task: To create a bundle of rewards—a total reward package— that specifically elicits the employee behaviors that the firm that needs to support and achieve its competitive strategy. needs The HR or compensation manager along with top The management creates pay policies that are consistent with the firm’s strategic aims. with 11–9 Equity and Its Impact on Pay Rates Forms of Equity External Equity Internal Equity Individual Equity Procedural Equity 11–10 Forms of equity
• Internal equity Compared to other job’s pay rate within the same company • External equity External Compared to the job’s pay rate in other companies • Individual equity Compared with what his or her co-workers are earning for the Compared same or very similar jobs within the company same • Procedural equity Perceived fairness of the processes and procedures used to Perceived make decisions regarding the allocation of pay make 11–11 Addressing Equity Issues
Salary Surveys Methods to Address Equity Issues Job Analysis and Job Evaluation Performance Appraisal and Incentive Pay Communications, Grievance Mechanisms, and Employees’ Participation 11–12 Establishing Pay Rates
Steps in Establishing Pay Rates
1 Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). Determine the worth of each job in your organization through job evaluation (to ensure internal equity). Group similar jobs into pay grades. Price each pay grade by using wave curves. Fine-tune pay rates. 2 3 4 5 11–13 Step 1: The Salary Survey Step 1. The Wage Survey: Uses for Salary Surveys To price benchmark jobs To marketprice wages for jobs To make decisions about benefits 11–14 Step1: The salary survey Step1: Sources for Salary Surveys Sources
Sources of Wage and Salary Information Employer SelfConducted Surveys Consulting Firms Professional Associations Government Agencies The Internet 11–15 Step 2: Job evaluation
• Job evaluation A systematic comparison done in order to determine systematic the worth of one job relative to another the The basic principle of job evaluation is this: Jobs The that require greater qualifications, more responsibilities, and more complex job duties should be paid more highly than jobs with lesser requirements requirements Compensable factors A fundamental, compensable element of a job, such as fundamental, skills, effort, responsibility, and working conditions skills, 11–16 Step 2: Job evaluation
Skills Step 2. Job Evaluation: Identifying Compensable Factors Effort Responsibility Working Conditions 11–17 Step 2: Job evaluation
Preparing for the Job Evaluation
1 2 3 4 Identifying the need for the job evaluation Getting the cooperation of employees Choosing an evaluation committee Performing the actual evaluation 11–18 Step 2: Job evaluation
Methods for Evaluating Jobs Ranking Job Classification Point Method Factor Comparison 11–19 Step 2: Job Evaluation Methods (Ranking)
• Ranking each job relative to all other jobs, usually Ranking based on some overall factors. based • Steps in job ranking:
1. 1. 1. Obtain job information.
- Job descriptions and job specifications Select and group jobs.
- Rank jobs by department or in clusters Select compensable factors.
- In the ranking method, it is common to use just one factor (such In as job difficulty) and to rank jobs based on the whole job as 1. 1. Rank jobs.
- Rank from lowest to highest Combine ratings.
- The rating committee can simply average the raters’ rankings
11–20 TABLE 10–3 Job Ranking by Olympia Health Care Ranking Order 1. Office manager 2. Chief nurse 3. Bookkeeper 4. Nurse 5. Cook 6. Nurse’s aide 7. Orderly Annual Pay Scale $43,000 42,500 34,000 32,500 31,000 28,500 25,500 11–21 Step 2: Job Evaluation Methods (Job Classification)
• Job classification (or grading) method A method for categorizing jobs into groups • Raters categorize jobs into groups or classes of Raters jobs that are of roughly the same value for pay purposes. purposes. • The groups are called classes if they contain The similar jobs. similar • The groups are called grades if they contain The jobs that are similar in difficulty but otherwise different different
11–22 FIGURE 10–4 Example of a Grade Level Definition This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance work. Do not use this chart alone for classification purposes; additional grade level criteria are in the Web-based chart. Source: www.opm.gov/fedclass/gscler.pdf. Accessed May 18, 2007.
11–23 Step 2: Job Evaluation Methods
• Point Method • Factor comparison method • Computerized job evaluation 11–24 Step 2: Job Evaluation Methods Step
Point method Point • A quantitative technique that involves quantitative identifying: identifying: Several compensable favors, each having several Several degrees degrees The degree to which each compensable factor is The present in the job. Award points for each degree of each factor. each Calculating a total point value for the job by adding Calculating up the corresponding points for each factor. up
11–25 Step 2: Job Evaluation Methods
• Factor comparison method A widely used method of ranking jobs according to a widely variety of skill an difficulty factors, then adding up these rankings to arrive at an overall numerical rating for each given job for • Computerized job evaluation Using quantitative job evaluation methods, such as Using the point or factor comparison plans can be timethe consuming Computer-aided job evaluation can streamline the Computer-aided tedious process in which evaluation committees debate the level of each compensable factor in a job debate
11–26 Step 3: Group similar jobs into pay grades Point Method Step 3. Group Similar Jobs into Pay Grades Ranking Method Classification Methods 11–27 Step 4. Price Each Pay Grade—Wage Step Curve Curve
• Shows the pay rates paid for jobs in each pay Shows grade, relative to the points or rankings assigned to each job or grade by the job evaluation. evaluation. • Shows the relationships between the value of Shows the job as determined by one of the job evaluation methods and the current average pay rates for your grades. pay 11–28 FIGURE 10–5 Plotting a Wage Curve 11–29 Step 5. Fine-Tune Pay Rates
• Developing pay ranges Flexibility in meeting external job market rates. Easier for employees to move into higher pay grades. Allows for rewarding performance differences and seniority. • Correcting out-of-line rates Raising underpaid jobs to the minimum of the rate range for Raising their pay grade. their Freezing rates or cutting pay rates for overpaid (“red circle”) Freezing jobs to maximum in the pay range for their pay grade. jobs 11–30 FIGURE 10–6 Wage Structure 11–31 TABLE 10–4 Federal Government Pay Schedule: Grades GS-8, GS-9, GS-10, GS-11 for Dallas-Fort Worth, Texas EFFECTIVE JANUARY 2007 Annual Rates by Grade and Step GS-8 GS-9 GS-10 GS-11 41,246 45,556 50,169 55,119 42,621 47,074 51,841 56,957 43,997 48,593 53,513 58,794 45,372 50,111 55,185 60,632 46,747 51,630 56,857 62,469 48,122 53,148 58,529 64,307 49,498 54,666 60,201 66,145 50,873 56,185 61,873 67,982 52,248 57,703 63,545 69,820 53,623 59,221 65,218 71,657 Source: http://opm.gov/oca/07tables/pdf/DFW.pdf. Accessed May 18, 2007. 11–32 Other Compensation Trends
• Broadbanding Consolidating salary grades and ranges into just a Consolidating few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels. relatively Pro and Cons More flexibility in assigning workers to different job grades. Provides support for flatter hierarchies and teams. Promotes skills learning and mobility. Lack of permanence in job responsibilities can be unsettling Lack to new employees. to 11–33 FIGURE 11–8 Broadbanded Structure and How It Relates to Traditional Pay Grades and Ranges 11–34 Direct financial payments
• Financial Incentive program Financial rewards paid to workers whose production exceeds Financial some predetermined standard some • Individual employee incentive and recognition programs
Piecework Piecework A system of pay based on the number of items processed by each system individual worker in a unit of time, such as items per hour or items per day per Merit pay as an incentive Any salary increase awarded to an employee based on his or her Any individual performance individual Recognition-based awards (non-financial incentive program) Social recognition (e.g. praise, expressions of appreciation for a job Social well done, personalized plaques, parties, movie tickets, golf lessons, team shirts and jackets, etc) lessons, Performance feedback provides quantitative or qualitative Performance information on task performance for the purpose of changing or maintaining performance and specific ways maintaining
11–35 Direct financial payments Pay-for-knowledge/pay-for-skills system Pay levels are not based on what an employee does but on Pay the range of jobs that the employees can do. Employees are rewarded for each new knowledge or new skill acquired are Especially in sales jobs where the seller may be paid a Especially percentage of the selling price or a flat amount for each unit sold sold Commissions 11–36 Direct financial payments
• Organizationwide incentive plan: Incentive Organizationwide plans in which all or most employees can participate participate Profit-sharing plan
A plan whereby employees share in the company’s profits Profits are shared with the employees, usually reserve a Profits percentage of the company’s overall profits and distribute those profits to employees those E.g. Home Depot instituted a bonus program for all its store E.g. workers workers Employee stock ownership plan (ESOP) A corporation contributes shares of its own stock a trust in corporation which additional contributions are made annually. The trust distributes the stock to employees on retirement or separation from service separation
11–37 Direct financial payments Gainsharing plans
An incentive plan that engages employees in a common An effort to achieve productivity objectives and share the gains effort E.g. bonuses 11–38 Indirect compensation
• Comprises benefits and services • Help to achieve societal, organizational and employee Help objectives objectives Societal objectives Through health, life and other insurance benefits, the burden of Through health costs or decreased workers does not fall totally on the society society Organizational objectives Benefits may aid recruitment with attractive offerings, reduce Benefits turnover among among employees, who do not want to lose their fringe benefits fringe Employee objectives In some cases, group insurance benefits enable employees to get In adequate insurance coverage adequate Benefits are extended to the employee’s spouse, and children
11–39 Different types of employee benefits & Different services services
• Employee security benefits Severance pay and guaranteed minimum income Retirement securities:Mandatory Provident Fund Retirement (MPF) (MPF) Time-off benefits
On-the-job breaks Sick days Holidays and vacations Leaves of absence: paid leave or unpaid leave Work scheduling benefits Shorter week times, flexitime, job sharing 11–40 Different types of employee benefits & Different services services
• Employee services Educational assistance Financial assistance Social services: personal and family problems • Cafeteria benefits A variable benefits approach allowing employees to variable select a package of benefits that is best suited their situation situation Employee must take their selections within the limits Employee of what the employer is wiling to pay for benefits and services services
11–41 Employee health and safety
• Common objectives of employers and Common employees employees “working safely in healthy conditions” 11–42 Making the work safe
• Main responsibility rests with work designer and Main production engineer production • Achieved through removing hazards or Achieved controlling hazards controlling • Hazards may be a side effect of the production Hazards process, e.g. a noisy production environment process, • Careful matching between engineering Careful standards and employees’ response to these standards to ensure ready and willing compliance by employees compliance
11–43 Health at work
• Two aspects of concern Occupational health of workers and occupational Occupational hygiene of the workplace hygiene Occupational health relates to occupational disease Occupational prevention prevention Occupation hygiene relates to evaluate and control Occupation of physical, chemical and biological hazards in the working environment working 11–44 The Health and Safety legislation
• The Factories and Industrial Undertakings The Ordinance and its subsidiary relations are relevant legislative controls and they are being enforced by the factory inspectorate of the Labor Department Labor • Reference to these regulations may be made to Reference the “Reference Manual for Factory Inspection Reports” published by the Labor Department of HK HK 11–45 ...
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This note was uploaded on 03/21/2011 for the course ACCOUNTING 110 taught by Professor Mcwilliams during the Spring '09 term at San Jose State.
- Spring '09
- Financial Accounting