Human resource management 8e by gomez mejia 2016 chapter 10

Chapter 10 Managing Compensation Copyright © 2016 Pearson Education, Inc 10-1 Chapter Challenges Learn about the components of total compensation Learn how to design a compensation system Understand the difference between job and individual pay options Copyright © 2016 Pearson Education, Inc 10-2 Chapter Challenges Develop familiarity with compensation tools Become familiar with the legal environment affecting compensation and pay system governance Copyright © 2016 Pearson Education, Inc 10-3 Managerial Perspective of Designing Compensation Programs • Who should be responsible for making salary decisions? • Should pay be dictated by what other employers are paying? • What types of activities should be rewarded with higher salaries? • What criteria should be used to determine salaries? • Which employee group should receive special treatment when scarce pay resources are allocated? • How does an employer balance ethical concerns for employees’ welfare versus the need to save on labor costs? Copyright © 2016 Pearson Education, Inc 10-4 What Is Compensation? Copyright © 2016 Pearson Education, Inc 10-5 Designing Compensation Systems • Enable firm to achieve its strategic objective • Mold to the firm’s unique characteristics and environment • Internal equity: perceived fairness internally • External equity: perceived fairness externally Copyright © 2016 Pearson Education, Inc 10-6 Nine Criteria for Developing a Compensation Plan Copyright © 2016 Pearson Education, Inc 10-7 Compensation Systems: Equity • Distributive Justice Model • Labor Market Model • Balancing Equity Copyright © 2016 Pearson Education, Inc 10-8 Compensation System Design Fixed vs Variable Pay Performance vs Membership Copyright © 2016 Pearson Education, Inc 10-9 Compensation Entitlements Are Going Out the Window • Shift to Variable Pay Plans Continues • Race to the Bottom: Mexico Lowers Wages to Snare International Auto Production • Making Wage Concessions at Airlines • Pensions Going Up in Smoke • Medical Doctors Being Squeezed • Documenting Pay Cuts Around the World Copyright © 2016 Pearson Education, Inc 10-10 Job-Based Pay Policies Technology is stable Jobs not change often Employees not need to cover for one another frequently Much training is required to learn a given job Turnover is relatively low Employees are expected to move up through the ranks over time Jobs are fairly standardized within the industry Copyright © 2016 Pearson Education, Inc 10-11 Individual-Based Pay Policies The firm has educated workforce with ability to learn different jobs The company’s technology and organizational structure change frequently Employee participation and teamwork are encouraged Opportunities for upward mobility are limited Opportunities to learn new skills are present The costs of employee turnover and absenteeism are high These plans are more common in manufacturing environments Copyright © 2016 Pearson Education, Inc 10-12 Compensation System Design Elitism Pay System Egalitarianism Pay System Copyright © 2016 Pearson Education, Inc 10-13 Compensation System Design Above- vs Below-Market Compensation Monetary vs Nonmonetary Rewards Copyright © 2016 Pearson Education, Inc 10-14 Compensation System Design Open vs Secret Pay Centralized vs Decentralized Pay Copyright © 2016 Pearson Education, Inc 10-15 Compensation Tools Job-Based-Approach Pay Systems Skill-Based-Approach Pay Systems Copyright © 2016 Pearson Education, Inc 10-16 Key Steps in Creating JobBased Compensation Plans Copyright © 2016 Pearson Education, Inc 10-17 Achieving Equity Internal Equity Step 1: Conduct Job Analysis Step 2: Write Job Descriptions Step 3: Determine Job Specifications Step 4: Rate Worth of All Jobs Using Predetermined System Step 5: Create a Job Hierarchy Step 6: Classify Jobs by Grade Levels External Equity Step 1: Identify Benchmark or Key Jobs Step 2: Establish Pay Policies Copyright © 2016 Pearson Education, Inc 10-18 Evaluating Job-Based Compensation Plans • Do not take into account the nature of the business • This plan is more subjective and arbitrary • These plans are less appropriate at higher levels within an organization • With job descriptions becoming more generalized, these plans are more difficult to evaluate • These plans tend to be more bureaucratic, mechanistic, and inflexible • The job-evaluation process tends to be biased against women • Wage and salary data are not definitive • Employees’ perceptions of equity are what count • High-tech skilled employees tend to not be loyal to one firm Copyright © 2016 Pearson Education, Inc 10-19 The Legal Environment • Fair Labor Standards Act o Exempt/Nonexempt Employees o Minimum Wage o Overtime Pay • The Equal Pay Act o Comparable Worth o OFCCP • Internal Revenue Code Copyright © 2016 Pearson Education, Inc 10-20 Summary and Conclusions • • • • What Is Compensation? Designing Compensation Systems Compensation Tools The Legal Environment and Pay System Governance Copyright © 2016 Pearson Education, Inc 10-21 Pearson Education, Inc Copyright Copyright © 2016 Pearson Education, Inc 10-22 ... perceived fairness externally Copyright © 2016 Pearson Education, Inc 10- 6 Nine Criteria for Developing a Compensation Plan Copyright © 2016 Pearson Education, Inc 10- 7 Compensation Systems: Equity •... Balancing Equity Copyright â 2016 Pearson Education, Inc 10- 8 Compensation System Design Fixed vs Variable Pay Performance vs Membership Copyright © 2016 Pearson Education, Inc 10- 9 Compensation Entitlements... environments Copyright © 2016 Pearson Education, Inc 10- 12 Compensation System Design Elitism Pay System Egalitarianism Pay System Copyright © 2016 Pearson Education, Inc 10- 13 Compensation System