managing compensation_incentive (1)

8/12/2019 Managing Compensation_Incentive (1)

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Compensation Management


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Total Compensation

Direct Indirect

Bonuses

Gainsharing

Security PlansPensions

Employee ServicesEducational assistanceRecreational programs

Commissions

Wages / Salaries

Insurance PlansMedicalDentalLife

Time Not WorkedVacationsBreaksHolidays


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The Key Steps in Creating Job-Based

Compensation Plans

1998 by Prentice Hall

Job AnalysisJob Evaluation for Internal Equity

Job Descriptions

Identify

Compensable Factors

Job Specifications

Rate Worth of All Jobs

Using a PredeterminedSystem

Job Hierarchy

Establish Final PayPolicy

Individual PayAssignment

Classify Jobs by

Grade Levels

1. Check Market Value

Using Benchmark or KeyJobs

Market Surveys for

External Equity

Within-Pay-Range Positioning Criteriafor Individual Equity

Criteria for PayPositioning WithinRange for Each Job Experience

Seniority Performance


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Job Evaluation Systems

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.


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Different Job Evaluation Systems

JOB AS JOB PARTS

BASIS FOR A WHOLE OR FACTORS

COMPARISON (NONQUANTITATIVE) (QUANTITATIVE)

Job vs. job Job ranking Factor comparisonsystem system

Job vs. scale Job classification Pointsystem system

SCOPE OF COMPARISON


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Job Evaluation Systems

Method 1-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 between jobs.

Method can used to consider only a reasonably small

number of jobs.


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Job Evaluation

Method 1:Ranking

Obtain job information

Select raters and jobs

Select compensable factors

Rank jobs

Combine ratings

Try not to rely on guesstimates

Best for small organizations


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Method 2: Job Classification

Rates categories of jobs into groups

Groups called classes if jobs are

similar

Called grades if groups contain

different jobs of similar difficulty

Write-up class or grade descriptionsDraw up a set of guidelines


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Method-3: Point System

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 elementscompensable factorsthat constitute the job.

The Point Manual

A handbook that contains a description of the

compensable factors and the degrees to which these

factors may exist within the jobs.


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Point Values for Job Factors of the American

Association of Industrial Management


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Work Valuation Methods

Work Valuation

A job evaluation system that seeks to measure a

jobs worth through its value to the organization.

Jobs are be valued relative to financial,

operational, or customer service objectives of theorganization.

Considers that work should be valued relative to the

business goals of the organization rather than by an

internally applied point-factor job evaluation system.

Work valuation serves to direct compensation

dollars to the type of work pivotal to organizational

goals.


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Job Evaluation for Management Positions

Hay Profile Method

Job evaluation technique using three factors

knowledge, mental activity, and accountabilityto

evaluate executive and managerial positions.


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Compensation Design - 4 Steps

Step 1: Identify competitive anchor

Step 2: Identify Positioning

Step 3: Use market data for desired positioning as controlpoint

Step 4: Define ranges around the control point

Finally, design is about permutations and combinationon :

Control Point Amount

Range Spread

Mid Point Progression


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Establishing Pay Plans

The 5 step process:The salary

survey

Job

evaluation

Pay grade

grouping

Price pay grade-

wage curves

Fine tune

pay rates


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Relationship between Pay Equity and

Motivation


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Expectancy Theory and Pay

Expectancy Theory

A theory of motivation that holds that employees

should exert greater work effort if they have reason

to expect that it will result in a reward that they

value.

Employees also must believe that good performanceis valued by their employer and will result in their

receiving the expected reward.


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WAGE MIX


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Factors Affecting the Wage Mix


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The Wage MixInternal Factors

Employers Compensation Strategy

Establishes the internal wage relationship among

jobs and skill levels

Sets organization compensation policy to lead, lag,

or match competitors pay. Rewards employee performance

Guides administrative decisions concerning elements

of the pay system such as overtime premiums,

payment periods, and short-term or long-termincentives.


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The Wage MixInternal Factors (contd)

Worth of a Job

Establishing the internal wage relationship among

jobs and skill levels.

Employees Relative Worth

Rewarding individual employee performanceEmployers Ability-to-Pay

Having the resources and profits to pay employees.


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The Wage MixExternal Factors

Labor Market Conditions

Availability and quality of potential employees is

affected by economic conditions, government

regulations and policies, and the presence of

unions.

Area Wage Rates

A firms formal wage structure of rates is

influenced by those being paid by other area

employers for comparable jobs.


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The Wage MixExternal Factors

Collective Bargaining

Escalator clauses in labor agreements provide for

quarterly upward cost-of-living (COLA) wage

adjustments for inflation to protect employees

purchasing power.

Unions bargain for real wage increases that raise

the standard of living for their members.

Real wages are increases larger than rises in the

consumer price index; that is, the real earningpower of wages.

Cl ifi i f E i i W k @ b


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Classifications for Engineering Work @ by

Clark Consulting- Illustrative


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The Compensation Structure

Wage and Salary survey

A survey of the wages paid to employees of other

employers in the surveying organizations relevant

labor market.

Helps maintain internal and external pay equity for

employees.

Labor Market

The area from which employers obtain certain types

of workers.


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Bands

Narrow Broad

10 or more bands Typically 5-6

Less spans Large spans

Easier to make distinctions between

levels of responsibility

Suitable for flat structures

Easier to manage expectations -

promotions

Manage annual increases without

forced promotions

Constant pressure for upgrading

leading to grade drift

Easier to align to market without

change in structure

Can become rigid and difficult tomanage

Budgets can become un managebledue to uncontrolled progression

Promotion only means of pay

progression

Flexible but more chances of getting

it wrong ( different job families in

same band)


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Freehand Wage Curve


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Single Rate Structure


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Wage Structure with Increasing Rate

Ranges


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Executive Compensation

The Executive Pay Package

Base salary

Short-term incentives or bonuses

Long-term incentives or stock plans

Perquisites (perks)


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Types of Long-Term Incentive Plans


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Correcting Out-of-Line Rates

Correct pay for gradeToo lowraise pay

Freezing wages,

transferring or

promoting

Too highlower by

Green circled jobs

Red

circled


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managing compensation_incentive (1)

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