Chapter 8
Timing
Companies typically take one of two approaches in timing of pay raises: Common review date or common review period & Employee's anniversary date
Salary-Plus-Commission Plans
Commissions based on percentage of price, Spreads risks, Designed to attract quality sellers, Allows employees to do other tasks
Skill and Knowledge Blocks
-Include job descriptions: Skills and knowledge needed, Training required, Accurate evaluation process. -Organize jobs into family/group: List similar skills and tasks per job. -Group skills and knowledge into blocks EX. BLOCK SLIDE 42
Sales Compensation Plans
-Salary only -Salary plus bonus -Salary plus commission -Commission plus draw -Commission only
Compa-ratio meanings
1 = market match rate, < 1 = market lag rate, > 1 = market lead rate
Commission-Plus Draw Plans
1. Draw: Advance pay for living expenses, Charged against future commissions, Recoverable or non recoverable 2. Provides strong incentive to excel
In-House vs. Outsourced Training
1. Expertise: Needed and available 2. Timeliness: How soon and how often 3.Number of trainees 4. Proprietary nature of topic: Too sensitive to share
Merit Pay Systems
1. Pay for Performance 2. Considerations: Communicate link between pay and performance, Use effective appraisal methods, Establish increase amounts and types, Settle on base pay level.
Commission Only
1. Straight: Based on fixed percentage of sales price EX: 10% commission, service sold $100 → $10 2. Graduated: Increased percentage rates for higher sales volume EX: 5% commission, per unit for 100 units → 8% commission per unit from 101 to 500, 12% commission per unit in excess of 500 3. Multi-tiered: Increased percentage rates for meeting and exceeding sales goal EX: 8% if total sales volume < 1,000 units, 12% if total sales volume > 1000 units.
The Merit Pay Grid
Amounts are determined by two factors: 1. Performance ratings, 2. Position of employees' present base pay rates within pay ranges EX. TABLE 8-2 SLIDES (26-27)
Step 3: Define Pay Grades
Based on compensable factors, values, management philosophy & Widths: Narrow or wide, Affects hierarchy and social distance, Absolute or percentage-based job evaluation points
Pay Structure Variations
Broadbanding & Two-tier wage structures
Step 4: Calculate Pay Ranges
Build upon pay grades, Pay grades represent horizontal dimension, Pay ranges represent vertical dimension
Broadbanding
Consolidates pay grades and ranges, Flattens corporate hierarchies, Emphasizes teamwork, Broadens job duties and responsibilities, Promotes quicker decision making, More latitude in pay rate decisions EX. SLIDE 48
Increases within Budget
Determine performance categories and percentage of employees in each, Place percent in quartiles, Put percent and quartiles into cells, Estimate performance distribution, Distribute increase to each cell, Ensure total is within budget
Step 1: Decide on Pay Structures
Exempt and nonexempt: companies establish these pay structures for administrative ease, Based on job families: executive, managerial, professional, technical, clerical, and craft represent distinct job families, Based on geography: companies with multiple, geographically dispersed locations such as sales offices, manufacturing plants, service centers, and corporate offices
Exempt and Nonexempt Pay Structures
Exempt: Not subject to overtime provisions, Salaried supervisors, managers, professionals, and executives. Nonexempt: Subject to overtime provisions and Hourly, nonsupervisory
Constructing a Pay Structure
Five steps: 1. Decide how many pay structures to construct 2. Determine a market pay line 3. Define pay grades 4. Calculate pay ranges & 5. Evaluate results.
Salary-Only Plans
Fixed base compensation, From the employees' perspective → risk-free, From a company's perspective → burdensome
Transition Matters
From job-based pay to person-focused pay: Assessment of skills and knowledge (Who assesses, On what, How often) Align pay with skills and knowledge structure, Access to training ( Equal access to all)
Step 2: Determine a Market Pay Line
Market pay rates relative to company's job structure, Pay levels corresponding with pay line are market competitive, Rates promote internal consistency
How are merit pay systems designed and implemented
Merit increase amounts, timing, type of merit increase
Two-tier wage structures
New employees paid less, Temporary or permanent rewards, Mainly in unionized companies, May hinder recruiting, Can lower employees' morale EX. TABLE 8-4 SLIDES 51-52
Pay Range Overlap
Overlapping ranges and non-over lapping pay ranges
Red Circle rates
Paying above maximum pay rates. Results from: Failure to raise pay range maximums, Attempt to retain exemplary employees not ready for promotion to jobs in successive pay grade and Demotion of employee from a higher pay grade to a lower pay grade
Green Circle rates
Paying below minimum pay rates. Result from: Paying employees who do not meet the minimum requirements less than the minimum rate and Failure to raise pay range minimum and maximum rates
Merit Increase Amounts
Reflects prior job performance levels, Needs to motivate, Needs to be meaningful, Influenced by the cost of living, Indexed as a percentage of budget
Person-Focus Pay Programs
Reward employees based on learning new skills and knowledge AND Compensates on potential - the promise of future performance
Salary-Plus-Bonus Plans
Set salary coupled with a bonus AND Bonuses usually are single payment
Essentials of person-focused pay program design
Skill and Knowledge Blocks, Transition matters, In-house vs.Outsourced Training
Step 5: Evaluate the Results
The use of compa-ratios evaluates pay structures. Compa-ratios index competitiveness of internal pay rates based on midpoints. Divide pay rates by midpoint
Fixed Pay and Compensation Mix
Three main factors: 1. Salesperson's influence on decision 2. Competitive pay standards within industry 3. Amount of non sales duties
Pay Compression
When the pay spread between newly hired or less qualified individuals, and more qualified job incumbents is small, it Threatens competitive advantage & is Caused by: Failure to raise pay range minimum and maximum rates and Scarcity of qualified applicants
Non overlapping pay ranges
adjacent pay ranges do not overlap where highest rate in one range is equal to or greater than the minimum pay rate in the successive pay grade
Overlapping ranges
adjacent pay ranges overlap where the highest rate paid in one range is above the minimum pay rate, but less than the maximum rate, in the successive pay grade
Pay structures
represent: Pay rate differences for jobs of unequal worth & The framework for recognizing differences in employee contributions. Companies recognize these differences by paying individuals according to their: Credentials, Knowledge, Job performance