Chapter 9: Managing Compensation
Linking Compensation to Organizational Objectives
(1) reward employees' past performance (2) remain competitive in the labor market (3) maintain salary equity among employees (4) mesh employees' future performance with organizational goals (5) control the compensation budget (6) attract new employees (7) reduce unnecessary turnover.
External Factors
1 Labor Market Conditions 2 Area Wage Rates 3 Cost-of-living adjustments
Job Ranking Systems Disadvantages
Does not provide a precise measure of each job's worth. Final job rankings indicate the relative importance of jobs, not the extent of differences between jobs. Method can used to consider only a reasonably small number of jobs.
Wage and Hour Provisions
Federal law establishes a minimum wage for employers covered by the FLSA. The minimum rate applies to the actual earnings rate before any overtime premiums have been added. Individual states may have higher, or lower minimum wages. Lower minimum wages apply to businesses not engaged in interstate commerce (Federal law applies to interstate commerce). Under the FLSA, covered employers must pay overtime at the rate of 1½ times the base rate for all hours worked in excess of forty hours in a given week.
Red Circle Rates
Payment rates above the maximum of the pay range
Exemptions from Overtime Provisions
The FLSA does permit the exemption from overtime payments for certain "exempt" employees. Five employee groups—executives, administrators, professionals, computer and outside sales¬persons—are specifically excluded from the overtime provisions.
Child Labor Provisions
The FLSA prohibits employers from employing minors between the ages of sixteen and nineteen in hazardous occupations in industries such as mining, logging, and meat packing
Pay Secrecy
The degree of openness or secrecy that an org allows regarding its pay system
Problems with Wage-rate compression
The first is when supply and demand is out of sync, when the need for a particular skill set exceeds the availability. Nurses and software engineers come to mind as recent examples. The second cause can be when your internal compensation structure becomes stale and out of alignment with the external market data
Labor Market Conditions
The forces of supply and demand for employees having specific skills, abilities, or educational levels influence the wage rate for the job.
Equal Rights Provisions
The law prohibits paying one sex less than the other sex for jobs that are equal or similar in nature and performed in the same organization. was amended by the Equal Pay Act of 1963
loose labor market
The supply of labor exceeds the demand for labor; you can pay less--there are more people than jobs so you can pay less because everyone's looking for a job
Area Wage Rates
The wages paid to jobs in different organizations influence an individual organization's wage rates.
Fair Labor Standards Act of 1938
These are minimum wages and overtime payment, child labor, and equal rights.
wage curve
a curve in a scattergram representing the relationship between relative worth of jobs and pay rates
Hay profile method
a job evaluation technique using three factors-knowledge, mental activity, and accountability- to evaluate executive and managerial positions
consumer price index (CPI)
a measure of the average change in prices over time in a fixed "market basket" of goods and services
point system
a quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it
pay-for-performance standard
a standard by which managers tie compensation to employee effort and performance
wage and salary survey
a survey of the wages paid to employees of other employers in the surveying organization's relevant labor market
job classification system
a system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades
job evaluation
a systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization
Internal Factors
affecting wage rates include the employer's compensation strategy, worth of a job, the value of the employee to the organization, and the employer's ability to grant compensation increases.
pay equity
an employee's perception that compensation received is equal to the value of the work performed
escalator clauses
clauses in labor agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the consumer price index
nonexempt employees
employees covered by the overtime provisions of the Fair Labor Standards Act
exempt employees
employees not covered by the overtime provisions of the Fair Labor Standards Act
pay grades
groups of jobs within a particular class that are paid the same rate
Point Manual
is a handbook that contains a description of the comprehensible factors and the degrees to which these factors may exist with the jobs.
work valuation
is based on the concept that work should be valued based on its contributions to important business goals, rather than comparing one job against another.
rate ranges
min and max for each pay grade
Wage-rate compression
occurs when the pay difference between successive wage grades narrows. This compression is frequently found between highly paid hourly employees and their immediate supervisors
competence-based pay
pay based on an employee's skill level, variety of skills possessed, or increased job knowledge
red circle rates
payment rates above the maximum of the pay range
broadbanding
practice in which the number of grades in a payscale structure is reduced, and the differential between one grade and the next is increased
comprehensible factors
such as skill, effort, responsibility, and dealing with adverse working conditions
Tight labor market
the demand for labor exceeds the available labor supply; you have to pay more--there's more jobs than there are people to fill them, which is why you'd have to pay them more
job ranking system
the simplest and oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth
real wages
wage increases larger than rises in the consumer price index, that is, the real earning power of wages
piecework
work paid according to the number of units produced
hourly work
work paid on an hourly basis