HR Management Ch 11

Employee compensation

All forms of pay going to employees and arising from their employment

Direct financial payments

Wages, salaries, incentives, commissions, bonuses

Indirect financial payments

Financial benefits like employer paid Insurance and vacations

2 ways to make direct financial payments

Time-based
Performanced-based: piecework, sales commission

External equity

refers to how pay compares with rates in other organizations.

Internal equity

refers to employees viewing their pay as equitable given other pay rates in the organization.

Individual equity

refers to the fairness of an individual's pay as compared to what his/her coworkers are earning for the same or very similar jobs in the company.

Procedural equity

refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.

Fair Labor Standards Act (1938)

regulates the minimum wage and requires that overtime be paid. Employees are categorized as exempt or non-exempt from the provisions of the act

Employee Retirement Income Security Act (1974)

Provided for the creation of government run, employer financed corporations to protect employees against the failure of their employers' pension plans

Pay compression

occurs when valued employees are at the top of their salary grade and deserve a performance increase yet company policies do not permit exceeding the maximum of the pay grade.

2 basic approaches to setting pay rates

1. market based approaches- involves conducting formal or informal salary surveys to determine what others in the relevant labor markets are paying for particular jobs
2. Job evaluation approaches- assigning values to each of the company's jobs

2 job evaluation considerations

1.Compensable factors- those that jobs have in common that can be used to establish how the jobs compare to one another
2.preparation- identifying the need for the program, getting cooperation, then choosing an evaluation committee. The committee then per

Job ranking method

1. obtain job information, 2. select and group jobs, 3. select compensable factors (job difficulty), 4. rank jobs, and 5.combine ratings.

Job classification (job grading)

a simple, widely used method in which raters categorize jobs into groups. For pay purposes, all the jobs in each group are of roughly the same value. The groups are called classes if they contain similar jobs or grades if they contain jobs that are simila

Point method

involves identifying several compensable factors for the jobs. The method also includes the degree to which each factor is present in each job

2 main components of computer aided job evaluation

1. Structured questionnaire- "enter total number of employees who report to this position
2. Statistical models

How to create a market-competitive pay plan (1-8)

1. Choose benchmark jobs
2. Select compensable factors (skill, effort, responsibility, working conditions)
3. Assign weights
4. Convert percentages to points
5. Define each factor's degrees
6. Determine the degrees and assign points for each job
7. Review

What is a market competitive pay system?

is a pay system that aligns the organization's pay with the relevant labor markets.

What are wage curves?

show the relationship between the value of the job and the average wage paid for the job.

How to create a market competitive pay plan (9-16)

9. Draw current (internal wage curve
10. Conduct market analysis: salary surveys
11. Draw the market (external) wage curve
12. Compare and adjust current and market wage rates for jobs
13. Develop pay grades
14. Establish rate ranges
15. Address remaining

Basic compensation elements for top executives

1. Base pay- person's fixed salary as well as, often, guaranteed bonuses regardless of if the company makes a profit
2. Short term incentives- cash or stock bonuses for achieving ST goals, such as year to year increases in sales revenue
3. Long term incen

What determines executive pay?

1. Elements of executive pay
2. Managerial job evaluation
Job complexity, ability to pay, human capital

5 contemporary compensation topics

1. Competency-based pay
2. Broadbanding
3. Talent management
4. Comparable worth
5. Executive pay

Competency-based pay

The company pays for the employee's range, depth, and types of skills and knowledge rather than for the job title they hold.
4 main components:
1)system that defines skills and processes;
2)training system;
3)competency testing system; and
4)work design t

3 reasons why you should consider using competency-based pay

1. in a high performance work system, you want employees to be enthusiastic about learning and moving into other jobs.
2. you can enhance your strategic plans by paying for skills that are critical to those plans.
3. measurable skills, knowledge, and comp

Broadbanding

Collapsing salary grades into just a few wide levels or bands, each of which contains a relatively wide range of jobs and pay levels. Broadbanding injects greater flexibility into employee assignments, and it allows an employee to move up or down along th

Comparable worth

Refers to the requirement to pay men and women equal wages for jobs that are of comparable value to the employer