Managing Compensation

Transcription

1 Managing Compensation Human Resource Management 1 Lecture Outline What is Compensation? Issues in Managing Compensation Elements/Criteria of Compensation System Compensation Tools Legal Environments 2 What is Compensation? Total Compensation Base Compensation Pay incentives Indirect Compensation Benefits Total Compensation Sum total of quantifiable rewards Received for an employee s labor 3 1

2 Issues in Managing Compensation Who should be responsible for making salary decisions? Should pay be dictated by what other employers are paying? What types of activities should be rewarded with higher salaries? What criteria should be used to determine salaries? Which employee groups should receive special treatment when scarce pay resources are allocated? 4 Compensation System Design Compensation affects a person economically, sociologically and psychologically Goals/objectives of compensation system Enable the firm to achieve its strategic objectives Fit with firm s unique characteristics and environment Criteria for developing a compensation plan is summarized in Figure Criteria for Developing a Compensation Plan 6 2

3 Internal versus External Equity Equity perceived fairness of the design Internal pay structure within a firm External what other employers are paying Individual of individual pay decisions Distributive Justice Model Perceptions of fairness within the firm Compare themselves to other employees What they bring and what they receive Labor Market Model Wage rate determined supply and demand by 7 Compensation System Design Balancing Equity To establish both internal and external equity Use alternate forms of compensation e.g. bonuses, add-ons, counteroffers 8 Compensation System Design Fixed versus Variable Pay Paid at fixed times via base salary or fluctuate base on criteria Depends on job types (e.g., sales vs. customer service; lower vs. higher level jobs), firm characteristics (e.g. firm size, firm strategy, organizational culture), leaders belief. Performance versus Membership Tie pay to individual or group contributions vs. members of certain groups (e.g. same jobs or seniority). 9 3

4 Job versus Individual Pay Job-Based Pay is best when: Jobs and technology are stable Training is required to learn a given job Turnover is relatively low Individual-Based Pay is best when: Company and environment are dynamic Workforce is relatively educated Workforce is able & willing to learn different jobs Participation and teamwork are encouraged Opportunities to learn new skills are available. 10 Egalitarianism vs. Elitism Egalitarian pay system: Same system for most employees Reduces barriers between workers Easier to deploy workers to other jobs Elitist pay system: Different pay systems for employees or groups at different organizational levels Result in more stable workforce 11 Compensation System Design Above vs. Below-market Above-market minimizes turnover Below-market save money Monetary vs. Nonmonetary rewards Monetary emphasis on achievement Nonmonetary reinforce organization commitment 12 4

5 Compensation System Design Open vs. Secret pay Open fosters trust and commitment Secret leads to dissatisfaction with pay Centralized vs. Decentralized pay decisions Centralized maximizes internal equity Decentralized better for large, diverse organizations 13 Compensation Tools Job-based approach Most traditional and widely used Allocate the pay so that the most important job are paid the most Examples in Figure 10.4 Skill-based approach Far less commonly used Allocate the pay so that the most flexible/capable worker who can do multiple tasks are paid the most Examples in Figure Figure 10.4 Job-Based Approach 15 5

6 Figure 10.5 Skill-Based Approach 16 Job-based Compensation Plan Three key components of developing a jobbased compensation plan Achieving internal equity Achieving external equity Achieving individual equity Figure 10.6 summarizes how these component are interrelated and the steps involved in each component 17 Job-based Compensation Plan 18 6

7 Achieving Internal Equity Job evaluation: the process of evaluating the relative value or contribution of different jobs to an organization Step 1: Conduct job analysis Step 2: Write job description Step 3: Determine job specification Step 4: Rate worth of all jobs using a predetermined system which consists of compensable factors: effort, skill, responsibility, and working conditions Step 5: Create a job hierarchy Step 6: Classify job by grade levels 19 Wage Equity and Job Evaluation High Perfect wage equity Average hourly wage rate Low Overpaid Underpaid Imperfect wage equity Low High Job evaluation points 20 Achieving External Equity Organizations do or purchase market surveys to determine the pay range for each grade identified in the first component Consist of two steps Step 1: Identify benchmark or key jobs (the job that is similar or comparable in content across firms) Step 2: Establish a pay policy 21 7

8 Achieving Individual Equity Assign each employee a pay rate within the established range Previous experience Seniority Performance appraisal The purpose of this is to achieve individual equity which refer to fairness in pay decisions for employees holding the same job 22 Job-Based Plans Advantages: Rational, objective, systematic Relatively easy to administer Drawbacks: Do not account for nature of business Job descriptions often too general Wage and salary data not definitive Job-based plans tend to be bureaucratic, mechanistic and inflexible 23 Suggestions for Practice Think strategically in making policy decisions concerning pay Secure employee input Increase each job range of pay and expanding its scope of responsibilities through job banding Avoiding biases Expanding variable proportion of pay Establish dual-career ladders 24 8

9 Skill-Based Plans Skill mastery increases pay Three types of skills: Depth skills specialized area Breadth Skills jobs/tasks in firm Vertical skills self-management Workforce is more flexible Higher training costs Skills can become rusty 25 The Legal Environment and Pay Systems Governance The Fair Labor Standards Act (1938) Exempt/Non-exempt employees Minimum wage and Overtime The Equal Pay Act (1963) Exemptions: seniority, job performance, or other factors (e.g. shift differential) Comparable worth Office of Federal Contract Compliance 26 Vietnam Legal Environment Open for research on Vietnamese legislation on salary and compensation: Vietnam Labor Code 2012 (Article ) 27 9

10 Summary and Conclusions Compensation: base, incentives, and benefits Effective compensation systems: Help firm to achieve strategic objectives Suited to organization s unique characteristics Fits organization s environment Don t forget: Employee input in job evaluation process Legal environment 28 10