CHAPTER 12 Total Rewards and Compensation S E C T I O N Compensating Human Resources © 2008 Thomson/South-Western All rights reserved PowerPoint Presentation by Charlie Cook The University of West Alabama Chapter Chapter Objectives Objectives After you have read this chapter, you should be able to: ■ Identify the three general components of total rewards and examples of each ■ Discuss four compensation system design issues ■ List the basic provisions of the Fair Labor Standards Act (FLSA) ■ Outline the process of building a base pay system ■ Describe the two means of valuing jobs ■ Explain two ways individual pay increases are determined © 2008 Thomson/SouthWestern All rights reserved 12–2 Nature Of Total Rewards and Compensation • Total Rewards Monetary and non-monetary rewards provided to employees in order to attract, motivate, and retain them • Rewards System Strategic Objectives: Legal compliance with all laws and regulations Cost effectiveness for the organization Internal, external, and individual equity for employees Performance enhancement for the organization Performance recognition and talent management for employees © 2008 Thomson/SouthWestern All rights reserved 12–3 Compensation Approaches Traditional Approach Total Rewards Approach • Compensation is primarily base pay • Variable pay used with base pay • Bonuses are for executives only • Annual/long-term incentives provided to all employees • Fixed benefits tied to long tenure • Pay grade progression is based on organizational promotions • One organization-wide pay plan for all employees © 2008 Thomson/SouthWestern All rights reserved • Flexible and portable benefits offered • Knowledge-based broadbands determine pay grades • Multiple pay plans consider job family, location, and business units 12–4 FIGURE 12-1 Total Rewards Components © 2008 Thomson/SouthWestern All rights reserved 12–5 FIGURE 12-2 Continuum of Compensation Philosophies © 2008 Thomson/SouthWestern All rights reserved 12–6 FIGURE 12-3 HR Metrics for Compensation © 2008 Thomson/SouthWestern All rights reserved 12–7 FIGURE 12-4 Typical Division of HR Responsibilities: Compensation © 2008 Thomson/SouthWestern All rights reserved 12–8 Compensation System Design Issues Compensation Fairness and Equity External Equity Internal Equity Procedural Justice Distributive Justice © 2008 Thomson/SouthWestern All rights reserved Pay Secrecy vs Openness 12–9 Compensation System Design Issues (cont’d) Market Competitiveness and Compensation “Meet the Market” Strategy “Lag the Market” Strategy © 2008 Thomson/SouthWestern All rights reserved “Lead the Market” Strategy 12–10 Valuing Jobs with Job Evaluation Methods • Job Evaluation The formal systematic means used to identify the relative worth of jobs within an organization • Compensable Factor A job value commonly present throughout a group of jobs Something for which an organization will compensate an employee © 2008 Thomson/SouthWestern All rights reserved 12–23 FIGURE 12-9 Examples of Compensable Factors for Different Job Families © 2008 Thomson/SouthWestern All rights reserved 12–24 Job Evaluation Methods Job Evaluation Methods Point Method Ranking Method © 2008 Thomson/SouthWestern All rights reserved Classification Method FactorComparison Method 12–25 Valuing Jobs Using Market Pricing • Market Pricing Using market pay data to identify the relative value of jobs based on what other firms pay for similar jobs Advantages Disadvantages • Ties organizational pay levels to the external job market, without “internal” job evaluation distortion • It relies on market survey data • Communicates to employees that the compensation system is “market linked.” © 2008 Thomson/SouthWestern All rights reserved • A specific job may differ from a “matching” job in the survey • The market data’s scope (range of sources) is a concern • Tying pay levels to market data can lead to wide fluctuations 12–26 Pay Surveys • Pay Survey Collection of data on compensation rates for workers performing similar jobs in other organizations • Benchmark Jobs Jobs found in many organizations • Internet-Based Pay Surveys Pay survey questionnaires are distributed electronically rather than as printed copies © 2008 Thomson/SouthWestern All rights reserved 12–27 Using Pay Surveys Participants Broad-based Survey Data Relevance and Validity Job-matches Timeliness Methodology © 2008 Thomson/SouthWestern All rights reserved 12–28 Pay Structures • Job Family A group of jobs having common organizational characteristics • Common Pay Structures Hourly and salaried Office, plant, technical, professional, managerial Clerical, information technology, professional, supervisory, management, and executive • Pay Grades Groupings of individual jobs having approximately the same job worth © 2008 Thomson/SouthWestern All rights reserved 12–29 FIGURE 12-10 Compensation Administration Process © 2008 Thomson/SouthWestern All rights reserved 12–30 Pay Structures (cont’d) • Market Banding Grouping jobs into pay grades based on similar market survey amounts • Market Line Shows relationship between job value as determined by job evaluation points and job value as determined by pay survey rates Shows distribution of pay for the surveyed jobs, allowing a linear trend line to be developed by the least-squares regression method © 2008 Thomson/SouthWestern All rights reserved 12–31 FIGURE 12-11 Market-Banded Pay Grades for Community Bank © 2008by averaging Thomson/South*Computed the pay survey summary data for the jobs in each pay grade Western All rights reserved 12–32 FIGURE 12-12 Example of Pay Grades and Pay Ranges © 2008 Thomson/SouthWestern All rights reserved 12–33 Pay Ranges • Broadbanding The practice of using fewer pay grades having broader pay ranges that in traditional systems Benefits Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency development Emphasizes career development © 2008 Thomson/SouthWestern All rights reserved 12–34 Individual Pay • Rates Out of Range Red-Circled Employees An incumbent (current jobholder) who is paid above the range set for the job Green-Circled Employees An incumbent who is paid below the range set for the job • Pay Compression A situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small © 2008 Thomson/SouthWestern All rights reserved 12–35 FIGURE 12-13 Pay Adjustment Matrix 89 • Compa-ratio The pay level divided by the midpoint of the pay range $13.35 (current pay) × 100 = 89 (Compa -ratio) 15.00 (midpoint) Thomson/SouthEmployee J = © 2008 Western All rights reserved 12–36 Standardized Pay Adjustments Standardized Pay Increases Seniority Cost-of-Living Adjustments (COLA) © 2008 Thomson/SouthWestern All rights reserved Across-theBoard Increases Lump-Sum Increases (LSI) 12–37 [...]... common organizational characteristics • Common Pay Structures Hourly and salaried Office, plant, technical, professional, managerial Clerical, information technology, professional, supervisory, management, and executive • Pay Grades Groupings of individual jobs having approximately the same job worth © 2008 Thomson/SouthWestern All rights reserved 12–29 FIGURE 12-10 Compensation Administration