Chapter Eleven

Compensation System Development

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Chapter Outline

• Employee Satisfaction and Motivation Issues in Compensation Design

• Establishing Internal Equity: Job Evaluation Methods

• Establishing External Equity• Establishing Individual Equity• Administering Compensation Systems• The Issue of Comparable Worth

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Figure 11.1 Components of the Compensation System

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Employee Satisfaction and Motivation Issues in Compensation Design

• Equity Theory

• Satisfaction with Pay

• Designing Equitable Compensation Systems– Internal Equity– External Equity– Individual Equity

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Types of Equity

• Internal Equity: Relationship among jobs within a single organization

• External Equity: Comparisons of similar jobs in different organizations

• Individual Equity: Comparisons among individuals in the same job within the same organization

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Establishing Internal Equity: Job Evaluation Methods

• Job Ranking

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Establishing Internal Equity: Job Evaluation Methods (cont’d)

• Job Grading or Classification

• Point Method– Compensable Factors

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Table 11.4 A Typical Point Plan

Source: Richard Henderson, Compensation Management: Rewarding Performance, 5th ed., © 1989, p. 204. Adapted by permission of Prentice-Hall, Inc., Englewood Cliffs, New Jersey.

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Establishing External Equity

• Wage and Salary Surveys– Identifying Key Jobs– Selecting Organizations to Survey– Collecting Data

• Self-Surveys• Online Surveys• Government Surveys• Interpreting the Data

• Pay Level Policy– Matching the Competition– Adapting a Lead Policy– Following a Lag Approach

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Establishing Individual Equity

• Designing Pay Ranges– Establishing Pay Ranges

• Wage Ranges

– Broadbanding– Above- and Below-Range

Employees

• Setting Individual Pay– Seniority– Merit Pay– Skill Based Pay

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Administering Compensation Systems

• Pay Secrecy

• Employee Participation

• Wage Compression

• Impact of Inflation

• Wage Concessions

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The Issue of Comparable Worth

• The Earnings Gap

• Legal and Judicial Developments

• Comparable Worth and Job Evaluation

• Alternatives

• Prospects for the Future

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Review

• Employee Satisfaction and Motivation Issues in Compensation Design

• Establishing Internal Equity: Job Evaluation Methods

• Establishing External Equity

• Establishing Individual Equity

• The Issue of Comparable Worth