Week 11 - Compensation

Types of Pay for Organizational Performance

-Profit sharing - Stock Options - Employee Stock Ownership Plans ( ESOPs)

team award?

Similar to group bonuses, but more likely to use a broad range of performance measures: Cost savings Successful completion of a project Meeting deadlines

job structure

The relative pay for different jobs within the organization. Important to define key jobs (have relatively stable content and are common in many organisations) Creation of a pay structure requires that the organization develop an internal structure showing the relative contribution of its various jobs. One typical way of doing this is with a Job evaluation

what does the balanced scorecard do

combine advantages of different incentive pay plans helps employees understand the org goals communicate to employees and show what goals are and whats expected

job structure decision?

defining key jobs

performance bonuses

not rolled into base pay employee must re-earn them during each performance period may be one time reward may be linked to objective performance measures, rather than subjective ratings

bonuses

bonuses for groups tend to be for smaller groups these bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output linked to performance appraisal

straight piecework plan

incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces

differential piece rate

incentive pay in which the piece rate is higher when a greater amount is produced

pay level?

Average amount the organization pays for a particular job.

pay structure?

Pay policy resulting from job structure and pay‐level decisions. an organization's pay structure could include the range of pay that a person may earn in the job of entry-level accountant.

pay for individual performance

1. Piecework rates 2. Standard hour plans 3. Merit pay 4. Individual bonuses 5. Sales commissions

4 categories of a balanced scorecard

1. financial 2. customer 3. internal 4. learning and growth

Effective incentive pay plans meet the following requirements:

1. performance measures linked to org goals 2. employees believe they can meet performance standards 3. org gives employees the resources they need to meet their goals 4. employees value the rewards given 5. employees believe the reward system is fair 6. the pay plan takes into account that employees may ignore any goals that are not rewarded

legal requirements for pay?

All of an organization's decisions about pay should comply with the applicable laws. A company needs to follow existing rules. Equal employment opportunity Minimum wages Overtime pay

job evaluation?

An administrative procedure for measuring the relative internal worth of the organization's jobs. Usually, the organization does this by assembling and training a job evaluation committee, consisting of people familiar with the jobs to be evaluated. The committee often includes a human resource specialist and, if its budget permits, may hire an outside consultant.

market forces: economic influences on pay?

An organization cannot make spending decisions independent of the economy. Organizations must keep costs low enough that they can sell their products profitably, yet they must be able to attract workers in a competitive labor market. Decisions about how to respond to the economic forces of product markets and labor markets limit an organization's choices about pay structure. product markets labour markets

alternatives to job based pay

Delayering Skill based pay systems

ESOPs

Employee stock ownership plans distribute company stock to employees as a form of profit sharing mostly US orgs

pay for group performance

Gainsharing Bonuses Team Awards

labour markets?

In general, workers prefer higher-paying jobs and avoid employers that offer less money for the same type of job. In this way, competition for labor establishes the minimum an organization must pay to hire an employee for a particular job. If an organization pays less than the minimum, employees will look for jobs with other organizations. Organizations must compete to obtain human resources in labour markets. Competing for labour establishes the minimum an organization must pay to hire an employee for a particular job. Over time, the cost of living tends to rise. When the cost of living is rising rapidly, labor markets demand pay increases.

job structure design?

Job structure job evaluation compensable factors

pay rates?

Organization obtains pay survey data for its key jobs. Pay policy line is established. The vertical axis shows a range of possible pay rates, and the horizontal axis measures the points from the job evaluation. The analyst plots points according to the job evaluation and pay rate for each key job. Finally, the analyst fits a line, called a pay policy line, to the points plotted. The pay policy line reflects the pay structure in the market, which does not always match rates in the organization. Pay rates for non‐key jobs are then determined.

pay for overtime?

Overtime pay is required, whether or not the employer specifically asked or expected the employee to work more than (usually) 40 hours. if the employer knows the employee is working overtime but does not pay time and a half, the employer may be violating the FLSA. United States: Overtime rate is 1½ times employee's usual hourly rate, including any bonuses, and piece‐rate payments. exempt employees non-exempt employees

pay level decision?

Pay level: The average amount the organization pays for a particular job. When organizations have a broad range in which to make decisions about pay, they can choose to pay at, above, or below the rate set by market forces.

delayering

Reducing the number of levels in the organization's job structure more assignments are combined into single layer broader groupings = broad brands more emphasis on acquiring experience, rather than promotions

job structure?

Relative pay for different jobs within the organization It establishes relative pay among different functions and different levels of responsibility. For example, job structure defines the difference in pay between an entry-level accountant and an entry-level assembler, as well as the difference between an entry-level accountant, the accounting department manager, and the organization's comptroller.

sample pay grade structure?

pay grades pay ranges

compensable factors

The characteristics of a job that the organization values and chooses to pay for, e.g.: experience, education, working conditions

product markets?

The organization's product market includes organizations that offer competing goods and services. In other words, the organizations in a product market are competing to serve the same customers. Organizations compete on quality, service, and price. The cost of labour is a significant part of an organization's costs. If an organization's labor costs are higher than those of its competitors, it will be under pressure to charge more than competitors charge for similar products. Organizations under pressure to cut labor costs may respond by reducing staff levels, freezing pay levels, postponing hiring decisions, or requiring employees to bear more of the cost of benefits such as insurance premiums.

gathering information about market pay?

To compete for talent, organisations use benchmarking - a procedure in which an organization compares its own practices against those of successful competitors In terms of compensation, benchmarking uses Pay surveys - These provide information about the going rates of pay at competitors in the organization's product and labor markets. An organization can conduct its own surveys, but the federal government and other organizations make a great deal of data available already. Available to: Trade and industry groups Professional groups

equal employment opportunity?

Two employees who do the same job cannot be paid different wages because of gender, race, or age. Any differences in pay must instead be tied to such business-related considerations as job responsibilities or performance. The goal is for employers to provide equal pay for equal work. Job descriptions, job structures, and pay structures can help organizations demonstrate that they are upholding these laws. women earn on average 21% less than men - lower positions - less likely to work overtime - sectors with lower salaries - less likely to negotiate salary

balanced scorecard

a combination of performance measures directed toward the company's long and short term goals and used as the basis for awarding incentive pay

pay policy line?

a graphed line showing the mathematical relationship between job evaluation points and pay rate.

what do job structure and pay levels establish?

a pay structure that helps the organization achieve goals related to employee motivation, cost control, and the ability to attract and retain talented human resources.

pay?

a powerful tool for meeting the organization's goals and a major cost. Pay has a large impact on employee attitudes and behaviours. It influences the kinds of people who are attracted to (or remain with) the organization. Employees attach great importance to pay decisions when they evaluate their relationship with their employer. An unplanned approach, in which each employee's pay is independently negotiated, will likely result in unfairness, dissatisfaction, and rates that are either overly expensive or so low that positions are hard to fill. People are attracted to an organization if it provides a good pay, also people inside the organization don't want to leave

merit pay

a system of linking pay increases to ratings on performance scale they make use of a merit increase grid the system gives the lowest paid best performers the biggest increases

piecework rate

a wage based on the amount workers produce

standard hour plan

an incentive plan that pays workers extra for work done in less than a preset "standard time" these plans are much like piecework plans they encourage employees to work as fast as they can, but not necessarily to care about quality or sevice

Non-exempt employees

employees covered by FLSA (Fair Labour Standards Act; U.S.) requirements for overtime pay.

legal requirements

equal pay for equal work, minimum wage, overtime pay, restrictions on child labor

incentive pay

forms of pay linked to an employee's performance as an individual, group member, or organization member its influential because the amount paid is linked to certain predefined behaviours or outcomes plans must be well designed so contribute to orgs success when only reward certain parts of the job and not others, those parts not performed well

gainsharing

group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each gain to employees frees employees to determine how to improve their own and their groups performance

drawback of pay grades?

grouping jobs will result in rates of pay for individual jobs that do not precisely match the levels specified by the market and the organization's job structure.

organisational goals

high quality workforce cost control equity and fairness legal compliance

commissions

incentive pay calculated as a percentage of sales some salespeople only earn base salary some only commission some salary and commission on top

profit sharing

incentive pay in which payments are a percentage of the organization's profits and do not become part of the employees' base salary

what are the 3 decisions about pay?

job structure pay level pay structure

key jobs

jobs that have relatively stable content and are common among many organizations. Organizations can make the process of creating the job structure and the pay structure more practical by defining key jobs. Research for creating the pay structure is limited to the key jobs that play a significant role in the organization.

Issues in Developing a Pay Structure

legal requirements, market forces, organization's goals

exempt employees?

managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay meaning employers need not pay them one and a half times their regular pay for working more than 40 hours per week.

skills based pay systems

pay structures that set pay according to the employees' levels of skill or knowledge and what they are capable of doing appropriate in orgs where changing technology requires employees to continually widen to deepen their knowledge

market forces

product markets labour markets

pay structure decision?

putting it altogether. The organization's pay structure should reflect what the organization knows about market forces, as well as its own unique goals and the relative contribution of each job to achieving the goals.

stock options

rights to buy a certain number of shares of stock at a specified price

pay ranges?

set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade. Usually pay ranges overlap somewhat, so that the highest pay in one grade is somewhat higher than the lowest pay in the next grade. Overlapping ranges gives the organization more flexibility in transferring employees among jobs, because transfers need not always involve a change in pay. On the other hand, the less overlap, the more important it is to earn promotions in order to keep getting raises.

pay grades?

sets of jobs having similar worth or content, grouped together to establish rates of pay.

what are the 2 piecework rates

straight piecework plan differential piece rate

general principles of pay

take complaints about pay easily don't fall below market pay levels realise most of best employees want strong pay performance relationships evaluate current pay systems with respect to strength of pay performance relationships examine whether executive pay is moving in the same direction and at roughly proportionate rates, as employee pay increases

minimum wages?

the lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour From the standpoint of social policy, an issue related to the minimum wage is that it tends to be lower than the earnings required for a full-time worker to rise above the poverty level.

pay structure

the pay policy resulting from job structure and pay-level decisions the HR department should compare actual pay to the pay structure, making sure that policies and practices match compa ratio: average / midpoint

pay at...

the rate set by the market - paying above the going rate may be advantageous for an organization that empowers employees or that cannot closely watch employees. a rate above the market a rate below the market

compa ratio?

the ratio of average pay to the midpoint of the pay range average = midpoint, CR is 1 average > midpoint = CR > 1 average < midpoint = CR < 1