mba642_t06_compensation - Compensation Paul L Schumann Ph.D...

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Unformatted text preview: Compensation Paul L. Schumann, Ph.D. © 2011 by Paul L. Schumann. All rights reserved. 1 Equity Issues External equity Internal equity Equity Theory • My situation is fair if: My Pay Other Employee's Pay = My Contributions Other Employee's Contributions 2 Market-Based Pay System Doesn’t use internal job evaluation Use market pay data directly • Use pay data collected by others (compare multiple reliable and valid sources) (problem: broad, match by job title) (sources and participants?) (good) (good at cleaning data) (good) (good) (info on pay differentials by region) (match on job descriptions, not just titles) • Use pay data you collect yourself 3 Market-Based Pay Systems Market-Based Advantages Disadvantages Easier to explain & understand than Point­Factor Method Competitive focus Reduce administrative burdens Puts the Compensation Analyst on solid ground in pay discussions You can’t market price every job Room for abuse of the statistics You get what you pay for – good surveys cost money You need to participate in the surveys, which require expertise May require a culture shift from internal equity to the market 4 Point-Factor Pay System Define compensable factors Perform job evaluation Select benchmark jobs Get market pay data for benchmark jobs Estimate pay policy lines Use pay policy lines to determine pay for all jobs (directly or pay grades) 5 Internal vs. External Conflicts Example: • Suppose market pay has been $12 per hour for a particular job We have employees at $12 • When we go to hire a new employee, we discover the market now pays $13 We hire the new employee at $13 • What do you do with the existing employees who are still at $12? 6 Internal vs. External Conflicts Example: • Internal: Job evaluation determines VP­ Marketing & VP­IT have the same value to the organization • External: Market pay of VP­IT is higher than market pay of VP­Marketing • Option 1: Pay both at VP­IT rate • Option 2: Pay both at VP­Marketing rate • Option 3: Pay VP­IT more than VP­Mrkt 7 Incentive Pay Theories Reinforcement theory Expectancy theory • Effort Performance Rewards Valence: Reward (incentive pay) must be valued Instrumentality: Must have strong link between performance & rewards Expectancy: Must have strong link between effort & performance Agency theory 8 Incentive Pay Systems Merit pay Incentive pay bonus • Individual employee incentive bonus • Group incentive bonus Profit sharing bonus Stock ownership • Stock options • ESOP Gain sharing bonus Skill based pay 9 Employee Benefits Mandatory social insurance • Social Security Benefit types: retirement, disability, family, survivors, & Medicare • Unemployment Insurance • Workers’ Compensation 10 10 Employee Benefits Private group insurance • Medical insurance Types: • Fee for service • Preferred Provider Plan (PPO) • Health Maintenance Organization (HMO) Plan design elements: • • • Deductible Co­pays Co­insurance 11 11 Employee Benefits Private group insurance (cont’d.) • • Disability insurance Pension plans Regulation: ERISA Types: • Defined benefit plan • Defined contribution plan Vesting 12 12 Employee Benefits Other benefits • • • Pay for time not worked Child care Employee wellness programs Flexible spending accounts (flex benefits, cafeteria benefits) 13 13 ...
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This note was uploaded on 03/25/2012 for the course HR 612 taught by Professor P.h during the Spring '12 term at Minnesota State University Moorhead .

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