PowerPoint Presentation CHAPTER 5 COMPENSATION SYSIEM 5 2 5 3 5 1 Content Definintion and role of compensation Method of compensation Organizing the compensation system 5 1 Definition and role of comp[.]
Content 5.1 Definintion and role of compensation 5.2 Method of compensation 5.3 Organizing the compensation system 5.1 Definition and role of compensation • Compensation system is a powerful tool for meeting the organization’s goals • Compensation system has a large impact on employee attitudes and behaviors • It influences the kinds of people who are attracted to (or remain with) the organization Compensation System Total rewards/compensation/remuneration Role of Compensation system Organization • Attract and Retain quality employees • Build productivity labor force • Improve the organizational brand • Improve the relationship employees and employers Employee • Maintain high productivity • Encourage employee motivation • Encourage employee’s innovation • Employee’s loyalty Society • Increasing economic benefit • Improve citizen’s benefit 5.2 Method of compensation system Financial compensation • Direct monetary for employees Non-financial compensation • In-direct monetary for employees 5.3 Organizing the compensation system Building the compensation policy Organizing the compensation Evaluate the compensation How to Develop Pay Systems? Internal alignment o o Design an internal structure Establish internal equity External competitiveness o o Pricing the structure Establish external equity Employee contributions o Design pay-for-performance plans Internal Alignment and External Competitiveness - Overview Market pay level Level (425-575pts) 150000 L5 (500) y = 161.85x + 15767 Level (315-425pts) 100000 Level (225-315pts) Level (175-225pts) HR L1I (150) (150) L2 (200) 50000 Level (125-175pts) Policy line (Pay) L4 (370) L3 (270) 0 100 200 300 Level Level Level Market Pay Level - $48K Level - $50K Level - $52K Level (Grade) 500 600 Job evaluation point Range Level 400 Level - $75K Level - $102K Phase #1: Internal Alignment ▪ Focuses on the differentials across job levels/ranks within job families Pay Assistant Engineers Junior Senior Engineering Engineers Engineers Managers ▪ Levels/Ranks and Differentials Hierarchical Egalitarian Phase #1: Internal Alignment ▪ Job evaluation – determination of the relative worth of jobs within an organization o o Based on job descriptions Point system most commonly used Phase #1: Internal Structure Example Level/Grade Project Leader (480) Implementation Consultant (430) Level/Grade Administrative Leader (390) Software Developer (320) Level/Grade Project Support Assistant (290) Usability Engineer (260) Travel coordinator (245) Administrative Assistant II (230) Level/Grade Administrative Assistant I (145) Phase #1: Internal Structure Example Level/Grade Project Leader (480) Implementation Consultant (430) Level/Grade Administrative Leader (390) Software Developer (320) Level/Grade Project Support Assistant (290) Usability Engineer (260) Travel coordinator (245) Administrative Assistant II (230) Level/Grade Administrative Assistant I (145) Phase #2: External Competitiveness ▪ Convert job evaluation points to a dollar amount using market pay rates ▪ Collect market data ▪ ▪ Define your firm’s market Firms usually collect market pay data from consulting firms Phase #2: External Competitiveness Policy line Stone (2010) Phase #2: External Competitiveness ▪ Involves a number of decisions ▪ Internal equity vs external equity ▪ Pay level policy ▪ Lead-match-lag Market pay rates Job evaluation points Market pay rates Lead Match Lag Job evaluation points Phase #2: External Competitiveness ▪ Grades and ranges (Pay) Policy line Maximum Range Midpoint Minimum Grade Grade Grade Grade (Grade) Job A Job D Job G Job I Job B Job E Job H Job J Job C Job F Phase #3: Employee Contributions ▪ “Pay-for-performance” ▪ Variety of plans ▪ ▪ ▪ ▪ ▪ Merit pay Individual incentives Profit sharing Gainsharing Stock ownership (e.g., share options) Phase #3: Employee Contributions