Managing Human Resources Bohlander Snell

Transcription

1 5 MANAGING PEOPLE Compensation & Incentive Plans Managing Human Resources Bohlander Snell 14 th edition PowerPoint Presentation by Charlie Cook The University of West Alabama

2 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 2

3 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 3

4 Compensation & Incentive Plans What is Compensation: "Employee compensation refers to all forms of pay / benefits going to employees and arising from their employment." The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer whilst employer gets the best outcome for the incurred cost. 2 4

5 Compensation & Incentive Plans Components of a Compensation Package: Direct Compensation - Wages / Salary - Incentives - Bonuses - Commissions Indirect Compensation - Other Financial benefits Non Financial Compensation - Recognition - Organizational Support - Work Environment - Carrier Guidance 2 5

6 Compensation & Incentive Plans What is Strategic Compensation: Compensation of employees in ways that enhance motivation & growth while alligning employee efforts with the objectives of the organization" According to the above view, a compensation strategy has become a tool of securing a competitive advantage for the business. - Finalization of Organizational Objectives - Identifying what kinds of behaviors and skills to be rewarded - Deciding on the Compensation base for the organization 2 6

7 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 7

8 Compensation Management Components of a Compensation Allignment: 2 8

9 Compensation Management Linking Compensation to Organizational Objectives; Common Goals of a Strategic Compensation Policy: To reward employees past performance To remain competitive in the labor market To maintain salary equity among employees To allign employees future performance with organizational goals To control the compensation budget To attract new employees To reduce unnecessary turnover 2 9

10 Compensation Management Pay for Performance Standard; Standard by which managers tie compensation to employee effort and performance & this refers to a wide range of compensation options Merit-based pay Bonuses Salary commissions Job and pay banding Team/group incentives Gainsharing programs 2 10

11 Compensation Management Pay for Performance Standard; Pay equity: Employee s perception that compensation received is equal to the value of the work performed 2 11

12 Compensation Management Pay for Performance Standard; Pay equity: Employee s perception that compensation received is equal to the value of the work performed Relationship between Pay Equity and Motivation 2 12

13 Compensation Management Pay for Performance Standard; Expectancy Theory: A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value / expect. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward. Pay-for-Performance and Expectancy Theory 2 13

14 Compensation Management Pay for Performance Standard; Pay Secrecy: An organizational policy prohibiting employees from revealing their compensation information to anyone which Creates misperceptions and distrust of compensation fairness and pay-for-performance standards. 2 14

15 Compensation Management Bases for Compensation; Hourly work - Work paid on an hourly basis Piece work - Work paid according to the number of units produced Salaried employees - Employees whose compensation is computed on the basis of weekly, or monthly pay periods Non-exempt employees - Employees covered by the overtime provisions Exempt employees - Employees who not covered in the overtime provisions 2 15

16 Compensation Management Compensation Design Internal & External Factors; Factors Affecting the Wage Mix 2 16

17 Compensation Management Compensation Design Job Evaluation Syatems; The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization. Job Ranking System - Jobs are arrayed on the basis of their relative worth. Directions: Place an X in the cell where the value of a row job is higher than that of a column job. 2 17

18 Compensation Management Compensation Design Job Evaluation Syatems; Job Classification System A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades. Point System A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it. Work Valuation A job evaluation system that seeks to measure a job s worth through its value to the organization. Jobs are be valued relative to financial, operational, or customer service objectives of the organization. 2 18

19 Compensation Management Compensation Design Job Evaluation Syatems; Job Classification System for Management Positions Job evaluation technique uses three factors to evaluate executive and managerial positions. Knowledge Mental activity Accountability 2 19

20 Compensation Management Compensation Implementation Pay Tools Wage & Salary Survey Survey of the wages paid to employees of other employers in the surveying organization s relevant labor market Labor market - Area from which employers obtain certain types of workers Collecting available survey data HRIS and web based salary surveys Employer-initiated surveys 2 20

21 Compensation Management Compensation Implementation Pay Tools Wage Curve, Pay Grades, and Rate Ranges 2 21

22 Compensation Management Compensation Implementation Pay Tools Wage Curve, Pay Grades, and Rate Ranges Freehand Wage Curve 2 22

23 Compensation Management Compensation Implementation Pay Tools Wage Curve, Pay Grades, and Rate Ranges Single Rate Structure 2 23

24 Compensation Management Compensation Implementation Pay Tools Competence-Based Pay Compensation for the different skills or increased knowledge employees possess rather than for the job they hold in a designated job category. Greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover. Broadbanding Collapses many traditional salary grades into a few wide salary bands. 2 24

25 Compensation Management Compensation Assessment Assessing the effectiveness of compensation system is important to linking compensation with corporate strategy; Compensation Assessment Will; Help the company detect potential compensation problems Make compensation decisions more transparent Improve the alignment of compensation decisions with organizational objectives 2 25

26 Compensation Management Compensation Assessment Compensation scorecard: This displays the results for all the measures that a company uses to monitor and compare compensation among internal departments or units Creates a comparative tool within the organization that can reinforce desired outcomes that are unique to the company s strategy 2 26

27 Compensation Management Government Regulation Factors Davis-Bacon Act 1931 Required minimum wage, prevailing wage rates, 1½ overtime premium payments by federal contractors. Walsh-Healy Act 1936 Required overtime payments after 8 daily or 40 regular work hours for workers on federal contracts. Fair Labor Standards Act (FLSA) 1938 (as Amended) Interstate commerce clause used to cover workers except agricultural and exempted (managerial) employees, child labor (under 16) is prohibited. Wage & Hour Provisions Minimum Wage & Pay Compression Chils Labour Provisions Exemption from Overtime Provisions Pay Equity Provisions 2 27

28 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 28

29 Compensation & Incentive Plans Incentive Plans: Incentive Payment of the organization is considered under the variable pay programmes of the entity and in general following types of incentive plans are practiced. Individual Group Enterprise Piecework Team Compensation Profit Sharing Standard Hour Plan Scanlon Plan Stock Options Bonuses Improshare ESOP s (Employee Stock Ownership Plans) Merit pay Lump sum Merit Pay Incentive Awards Sales Incentives 2 29

30 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 30

31 Compensation & Incentive Plans Strategic Reasons for Incentives Plans: Global Acceptance of the variable pay to reward Strong Performance Minimum impact created to the overhead costs Allowing organizations to align employee interests & Organizational Performance To maintain Fairness & Equity amongst staff members Contribution towards Employee Motivation 2 31

32 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 32

33 Compensation & Incentive Plans Setting Performance Measures: Performance Measures that are Quantitative, Simple & Structured are essential for a successful Incentive Scheme. Complex methods of Measurements must be avoided. Clear understanding on how the employee involvement could influence the measurements. Setting achievement standards which are not unattainable. 2 33

34 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 34

35 Compensation & Incentive Plans Individual Incentive plans: Piecework In straight piecework method employees receive a certain rate for each unit produced. In differential piece work method once the production exceeds the standard output will receive a higher rate for their work. - A simple method to use - Cost can be assigned for the level of performance - Good for a standard production flow - Maintenance of the Product Quality will be important - Suited for the production sector 2 35

36 Compensation & Incentive Plans Individual Incentive plans: Standard Hour Plan Incentive rates are set on the basis of predetermined standard time for completing a job. Early completion will enable the staff member to gain an incentive. 2 36

37 Compensation & Incentive Plans Individual Incentive plans: Bonuses This a lump sum incentive payment given to employees beyond their normal pay - A Powerful tool to enhance current employee motivation - A method of increasing future employee performance - Rational of bonus payment must be fair and logical - Spot bonus is practiced to reward an employee immediately for an exceptional performance level with out waiting for the normal time line of announcing the company bonus. 2 37

38 Compensation & Incentive Plans Individual Incentive plans: Merit Pay These are the increments offered by fixing to the base pay due to the exceptional performance of the employee. Organization will not be able to take the benefit back in future even though there will be a possibility of under performance in future

39 Compensation & Incentive Plans Individual Incentive plans: Awards & Recognition Organization may offer recognition to employees in terms of appraising their high performance and normally this can be done in regular time intervals. Organization may use a specific performance evaluation guideline to define the employee eligibility for the above recognition & reward. 2 39

40 Compensation & Incentive Plans Individual Incentive plans: Sales Incentives Sales staff is motivated through a Sales Incentive scheme by recognizing their additional efforts taken in driving a high sales volume. Organizations generally use following methods to activate above; - A Straight Salary Plan - A Straight Commission Plan - Combined Salary & Commission Plan 2 40

41 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 41

42 Compensation & Incentive Plans Group Incentive plans: Team Compensation In order to appraise the collective combined efforts take by the employees, Team Compensation schemes are used. The contents of the Incentive Scheme will depend on the nature of the team, Nature of the task and other situational and contingency factors. Organizations generally use a three step approach in establishing a Team Incentive plan based on the output of employees. - Setting Performance Measures - Determining the Size of the Incentive Payment - Establishing a Pay Out Formula 2 42

43 Compensation & Incentive Plans Group Incentive plans: Gain sharing Incentive Plans These are Organizational programmes designed to increase productivity or decrease cost and to share the gains with employees. Involved employees will gain a share of the incremental positive result of the increased productivity of cost reduction. Productivity can be improved through; a) Getting higher output with a similar level or less input b) Gaining equal output with les input 2 43

44 Compensation & Incentive Plans Group Incentive plans: Scanlon Plan This is a specific type of a Gain Sharing Plan. Under this employees should offer innovative / creative ideas to improve productivity Employees must actively participate and get involved in activating the proposed productivity improvement initiatives. 2 44

45 Compensation & Incentive Plans Group Incentive plans: Improshare Improshare incentives / bonuses are paid on the overall productivity of the work team. Incentive is paid based on the productivity gains resulted from the reduction of time taken to produce a finished good. 2 45

46 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 46

47 Compensation & Incentive Plans Enterprise Incentive plans: Profit Sharing These are the incentives offered based on the overall profitability of the company. Employees are given the opportunity to increase their earning parallel to the profit growth of the company. Profit Sharing basis will definitely improve the overall scope of the employee in maintaining the performance level by sharing a feeling of business ownership. 2 47

48 Compensation & Incentive Plans Enterprise Incentive plans: Stock Options Under the Stock Option alternative, employees are offered the right of purchasing a specific number of shares of the company's stocks at a guaranteed attractive price. This method also creates a feeling of ownership to the employee which in return will motivate him to enhance his performance. 2 48

49 Compensation & Incentive Plans Enterprise Incentive plans: Employee Stock Ownership Plans (ESOP) ESOP is an employer established trust which holds corporate shares contributed by the company. Stock allocation will be done based on employee seniority and wages. At the time of retirement employees will be able to realize the benefits by disposing their own allocated shares. 2 49

50 Chapter Contents Summarized Chapter Contents: 1. What is Compensation 2. Compensation Management 3. Incentive Plans 4. Strategic Reasons for Incentive Plans 5. Setting Performance Measures 6. Individual Incentive Plans 7. Group Incentive Plans 8. Enterprise Incentive Plans 2 50

51 THANK YOU! Managing Human Resources Bohlander Snell 14 th edition PowerPoint Presentation by Charlie Cook The University of West Alabama