Day 15- Guest Lecture- Compensation Flashcards
Compensation Management
Phase I
Job Analysis
- initial job analysis
- Identify and study jobs
- -Job descriptions
- -Job Standards
Understand what the performance standards are of the job
Compensation Management
Phase II
Job Evaluation
- Determine relative worth or value of jobs
- Provides for internal equity
- Job evaluation methods
- –job ranking
- –job grading
- –points systems
Job size is involved in ALL compensation systems
Compensation Management
Phase III
Salary Surveys
- Discover what other employers are paying for specific key jobs
- Provide for external equity
- Sources of data:
- -HRSDC
- -Consultants
- -Employer Associations
- -Professional Associations
Look at what other people are paying for the same jobs
Reliability issue: Cant always be sure if all the companies are completely comparing apples to apples
Points Systems are really useful to help create more accurate matches within the Survey Data.
Compensation Management
Phase IV
Pricing Jobs
- Establishing the pay level for each job
- -Combines job evaluation rankings, survey wage rates, and other considerations
- -wage-trend line developed
- Creating compensation structure
- -Job classification
Determining exactly how much each job should be paid
Job Evaluation
The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
Establish some sense of internal equity
-logical and rational- to employees as well.
Job Ranking System
Oldest system of job evaluation by which jobs are arrayed on the basis of their relative worth.
Disadvantages:
- Does not provide a precise measure of each jobs worth
- Final job rankings indicate the relative importance of jobs, not the extent of differences b/t jobs
- Method can used to consider only a reasonably small number of jobs. (Hard is amount of employees is in the hundreds)
Job Classification or Grading System
A system of job evaluation in which jobs are classified and grouped according to a series of predetermined wage grades.
Successive grades require increasing amounts of job responsibility, skill, knowledge, ability, or other factors selected to compare jobs.
Note:
Establish grades
Jobs are then slotted into each grade
Better than ranking, b/c it helps show the difference b/t positions
Point System
A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it.
Permits jobs to be evaluated quantitatively on the basis of factors or elements—compensable factors—that constitute the job.
Note:
- Most precise, but most difficult to do and implement
- try to assign points to different aspects of the job
- usually determined through a committee
- 3 or 4 areas of the job that are usually rated.
Hay Profile Method
Know-how:
- depth and range of technical know-how
- management breadth
- human relations skills
Problem Solving:
- thinking environment
- thinking challenge
Accountability:
- freedom to act
- nature of impact
- area of impact
These aspects create the total job size
The Wage Curve
Wage Curve
-Curve in a scattergram representing the relationship b/t relative worth of jobs and wage rates
Wage Curve:
Pay Grades
Groups of jobs within a particular class that are paid the same rate
Wage Curve:
Rate Ranges
A range of rates for each pay grade that may be the same for each grade or proportionately greater for each successive grade
Wage Curve:
Red & Green Circle
Payment rates above the maximum (red circle) or below the minimum (green circle) of the pay range
Red circle- happens when there are jobs that are very very unique on the market
Types of Incentive Plans
Individual
Piecework
Bonuses
Commission
Nonmonetary Awards
Types of Incentive Plans
Group
Team Results
Types of Incentive Plans
Enterprise
Profit-Sharing
Employee Stock Ownership
Cost Reduction
Piecework
Employees receive a certain rate for each unit produce (straight piecework)
Or a premium if production exceeds a set standard
Piecework
Benefits
Direct relationship between compensation and productivity
Simple to compute
Labour costs predicted accurately
Piecework
Problems
Rate busting
Quality may suffer
Difficult to establish/change benchmarks
Reduce cooperation
Bonuses
Incentive payment that is supplemental to the base wage
May be determined based on cost reduction, quality improvement, or other performance criteria
Bonuses
Benefits
Can be an effective motivator if large enough
Can be tied to performance
Given out at the end of the year once overall performance is known
Bonuses
Problems
Can become expected
Employee may not understand how they are tied to performance
spot bonuses may improve upon this
Commissions
Compensation plan based on percentage of sales
Can be combined with base pay
Commissions
Benefits
Maximum incentive
Easy to compute and understand
Flexible
Good in highly aggressive industries
Commissions
Problems
Stressing high priced products
Customer service may suffer
Employee earnings can fluctuate greatly
Non-monetary Rewards
Let employees know that they are valued and appreciated
Can be tied to seniority
Non-monetary Rewards
Benefits
Often less costly
Non-taxable for employees
Can be more effective than money as a motivator
Can allow choice in rewards
Non-monetary Rewards
Problems
Need to recognize generational differences
If they are not valued, they can become a joke
Team or Group Incentives
All team members receive an incentive bonus payment when production or service standards are met or exceeded
Team or Group Incentives
Benefits
Encourage teamwork and collaboration
Desirable when individual performance difficult to measure
Encourages employee involvement
Team or Group Incentives
Free riders
Individuals not sure how their efforts contribute to success (but better than profit-sharing)
Payout formulas are usually complex
Profit Sharing
Paying employees special current or deferred sums based on the profits of the enterprise
Profit Sharing
Benefits
Create culture of ownership
Simple to understand
Profit Sharing
Problems
Profits determined by factors outside of employees’ control
Immediate reinforcement is low (i.e., high temporal discounting)
Employee Stock Ownership
Stock options, employee ownership
Employee Stock Ownership
Benefits
Create culture of ownership
Options reduce need for cash payouts, allowing company to invest money instead
Employees can become rich through ESOPs
Employee Stock Ownership
Problems
Stock price determined by factors outside of employees’ control
Employee ownership can be risky
Managers need to allow employee involvement in decision-making
Cost Reduction
Employees receive a bonus based on reducing costs
Bonus is often tied to amount of cost reduction
Cost Reduction
Benefits
Employees may have more control over cost reduction than profits
Can help create cohesion and promote ownership mentality
Cost Reduction
Problems
Still subject to free rider problems
Employees may be less focussed on innovation
Requires a high degree of employee investment—may reduce productivity
Successful Incentive Plans
Standards relate to strategic objectives.
Employees are encouraged to participate.
Employees see a clear connection between the incentive payments they receive and their job performance.
Standards are challenging but achievable.
Payout formulas are simple and understandable.
Fair and transparent.
Constantly communicate the value of the program!
