Ch. 11 Compensation Management

Incentive pay

(a.k.a. "variable pay") is "pay for performance", and commonly includes piece work in production and commission sales.

Steps to Establish Pay Structure

1. Conduct a salary survey of benchmark jobs. (external equity) 2. Conduct job evaluation to establish internal equity. 3. Group similar jobs into pay levels. 4. Price each pay level by using wage curves. 5. Develop pay structure.

Fair Labor Standards Act

Contains minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor provisions covering the majority of U.S. workers.

Internal equity

Each employee should view his or her pay as equitable, given other employees' pay in the organization.

maximum & minimum.

Each pay level has a _______________ and ___________ pay rate.

• Executive • Administrative • Outside Sales • Professional/Creative • Computer Professional

Employees are exempt from minimum wage and overtime requirements of FLSA if they work in the following jobs:

Two factors of Compensation Management

External equity & Internal equity

National Labor Relations Act (NLRA)

Granted employees the right to organize, to bargain collectively, and to engage in concerted activities for the purpose of collective bargaining.

Factor Comparison method

Identifies compensable factors and ranks benchmark jobsoncompensablefactors. Marketratesfor benchmark jobs are used to assign monetary values for each compensable factor.

$23,660 and $100,000

If salary between ________ and _______ must meet some specific guidelines for duties to be considered exempt.

Point method

Involves identifying several compensable factors, each having several degrees, and then assigning points based on the number of degrees, to come up with an actual number of points for each job.

compensable factors

Jobs are compared on common factors such as skills, effort, responsibility, and working conditions which are referred to as ______________________.

less than $455.

Most employees earning ______________ per week are non-exempt and covered by FLSA.

External equity

Pay must compare favorably with rates in other companies, or an employer will find it hard to attract and retain qualified employees.

Ranking method

Ranks each job relative to all other jobs.

responsibilities duties salary

The Fair Labor Standards Act states that exemption depends on an employee's _______________, _____________, & ____________.

• Compensation • Non compensation

The compensation system is made up of two components ____________ & ____________.

compensation

The goal of _______________ is to motivate employees to do the things the organization needs, consistently, over time.

Organizational Philosophy

The purpose is to create a total reward package which encourages the desired employee behaviors to support the company's strategic goals.

Base pay

Wages are paid on an hourly basis; salary is based on a longer time period.

• Organizational Philosophy or Policies • Laws Concerning Compensation • Presence of a Union • Internal and External Equity

What Determines Compensation for Employees?

• What is the company's ability to pay? • How should funds be divided between direct and indirect payments? • Do the company pay for performance or longevity? • Does the company pay for skills and competencies brought to the job or performance of job tasks? • Where does the company position itself - above, at or below market in compensation?

What questions does Organizational Philosophy

Compensation components

all monetary rewards such as wages, salaries, incentives, commissions, and bonuses.

Non compensation components

all rewards other than monetary rewards. (e.g., company cafeterias and gyms)

Broad banding

collapsing salary grades and ranges into just a few wide levels or bands, each of which contains a relatively wide range of jobs and salary levels.

Pay structure

creates a hierarchy of jobs and their rates of pay within the organization; made up of job structures and pay levels.

Equity theory

employees are motivated when the ratio of their perceived outcomes to inputs is at least roughly equal to other referent individuals.

Expectancy Theory

employees believe the rewards for accomplishing a task are worth the effort.

The compensation system

includes anything that an employee may value and that the employer is willing and able to offer in exchange for work.

Wage and salary add-ons

includes overtime pay, shift differential, premium pay for working weekends and holidays, etc.

Benefits

indirect compensation that provides something of value to the employee.

Job evaluation

is a systematic comparison of jobs to determine the worth of one job relative to another.

Job structure

is the stacking up of the jobs in the organization from the lowest to the highest levels.

Pay levels (or pay grades)

provide minimum to maximum pay for a group or subset of jobs in the organization.

Employee compensation

refers to all forms of pay or reward going to employees from their work.

Special exemptions do to the FLSA requirements:

• Airline employees • Baby sitters on a casual basis • Companions for elderly • Live-in domestic employees • Fishing • House parents • Railroad employees • Youth employed by parents • Youth employed as actors

Types of Compensation

• Base pay • Wage and salary add-ons • Incentive pay • Benefits

Characteristics of Expectancy Theory

• Clearly define goals and how to achieve them. • Tie performance to rewards. • Be sure rewards have value to employees. • Make sure management does what it says it will.

Characteristics of Employee compensation

• Costs are frequently 65 to 70 percent of total production costs in today's firms. • Affects the organization's ability to both attract and retain employees.

will continue to perform if incomes and outputs are in balance.

• Employees perceive being equitably rewarded...

Laws Prohibiting Discrimination in Compensation

• Equal Pay Act • Title VII of Civil Rights Act • Age Discrimination in Employment Act • Americans with Disabilities Act • Lilly Ledbetter Fair Pay Act • Vietnam Era Veterans' Readjustment Assistance Act

Characteristics of Job evaluation

• Establishes internal equity in pay rates. • Jobs are compared on compensable factors.

Laws Affecting Direct or Indirect Payments

• Fair Labor Standards Act • Social Security Act • Family and Medical Leave Act • National Labor Relations Act

this does not usually disturb employees.

• If an employee perceives that he/she is over-rewarded...

decrease inputs, increase outcomes.

• If an employee perceives that he/she is under-rewarded...

Pay rates are determined by comparisons with

• Product Market Competition (top pay level) • Labor Market Competition (minimum pay level) • Supply and demand, to insure equity.

Characteristics of Broad banding

• Provides more flexibility in compensating individual skills • More flexibility in assigning jobs or duties for growth and development. • Pay ranges are often 100% and can be as much as 200% • Reduce number of pay ranges by as much as one-half or two-thirds

Three Job Evaluation Methods

• Ranking method • Point method • Factor Comparison method

Proposed Rule Changes by Dept. of Labor

• Salary level to be considered exempt to be set at the 40th percentile of weekly earning for full-timed salaried workers (Bureau of Labor Statistics). That would be $921 per week, or $47,892 annually. • Establish mechanism for automatically updating salary and compensation levels going forward. • Comment period is complete. Actual ruling expected in 2016.

Major Provisions of the Fair Labor Standards Act

• Sets a minimum wage (currently $7.25) • States that employers must pay overtime rate of 1.5 times normal pay for hours over 40 in work week. • Use of child labor - Minors, 16-17 year olds in non-hazardous jobs. • Establishes categories of employees who are exempt from the provisions.