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Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
Managing compensation
Chapter 12
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-2
Managing compensation Objectives
List the major decision areas and concepts in employee compensation management.
Describe the major administrative tools used to manage employee compensation.
Explain the importance of competitive labour-market and product-market forces in compensation decisions.
Discuss the significance of process issues, such as communication, in compensation management.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-3
Managing compensation
ObjectivesDescribe new developments in the design
of pay structures.Explain the reasons for the controversy
over executive pay.Describe the regulatory framework for pay
in Australia.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-4
Compensation: key terms
Pay structureThe relative pay of different jobs (job
structure) How much they are paid (pay level)
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-5
Equity theory
People evaluate the fairness of their situations by comparing them with those of other people.
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Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-6
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-7
Job evaluation
An administrative procedure used to measure job worth.
Job evaluation is used to design job structures.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-8
Job evaluation
Key concepts:Distributive justice (also distributive
fairness). The perception that rewards are distributed in relation to contribution.
Procedural justice (also procedural fairness). A concept of justice focusing on the methods used to determine the outcomes received.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-9
Market pressures
Product-market competition Labour-market competition
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-10
Market pay surveys
Key questions to address:Which employers should be included in
the survey?Which jobs are included in the survey?If multiple surveys are used, how are all
the rates of pay weighted and combined?
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-11
Issues in market pay surveys
Award restructuring (structural efficiency principle)
Key jobs and non-key jobs
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-12
Developing a job structure
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-13
Developing a pay structure
Pay-policy lineA mathematical expression that describes
the relationship between a job’s pay and its job evaluation points.
Pay gradeJobs of similar worth or content grouped
together for pay administration purposes.Range spread
the distance between the minimum and maximum amounts in a pay grade.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-14
Pay grade
12345
Minimum Maximum Minimum MaximumMidpoint
Job evaluation points range Fortnightly pay rate range
100150200250300
150200250300350
$1740$2648$3555$4463$5370
$2175$3310$4444$5579$6713
$2610$3971$5333$6694$8056
Table 12.7 Sample pay grade structure
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-15
Monitoring compensation costs
Compa-ratio An index of the correlation between actual
and intended pay.
Grade compa-ratio = Actual average pay for grade
Pay midpoint for grade
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-16
Important processes in compensation
Participation Communication
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-17
Current challenges in compensation
Problems with job-based pay structures
Responses to these problems:Delayering and bandingPaying the person: skill-based pay
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-18
Comparing the competitiveness of the Australian labour force
Average hourly labour costs (cash and benefits)
Instability of country differences in labour costs
Skill levels Productivity Non-labour factors
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-19
Executive pay in Australia
Accountability and relationship to organisational performance
Governance Design and structure
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-20
Source: P.J. Holland, P.J. Dowling & P.A. Innes, CEO compensation in Australia: Is there a relationship between principles, policies and practices?, Asia Pacific Journal of Human Resources, 39(3), 2001, p. 50.
Figure 12.5 A comparison of CEO pay and stock-market-based indicators
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-21
Government regulation of compensation
Minimum wage Wage laws Wage determination Restructuring and efficiency principle Award restructuring Enterprise bargaining principle
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-22
Summary
Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay.
Pay benchmarking surveys and job evaluation are two administrative tools widely used in managing the pay-level and job-structure components of the pay structure, which influence employee social comparisons.
Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance
by De Cieri & Kramar
12-23
Summary (continued)
The nature of pay structures is undergoing a fundamental change in many organisations.
How a new program is designed, decided on, implemented and communicated is perhaps just as important as its core characteristics.