Human Resource Management - Lesson

1. Chapter 11
Establishing Rewards and Pay Plans
Fundamentals of Human
Resource Management
Eighth Edition
DeCenzo and Robbins

2. Introduction
• People do what they do to satisfy some
need and they look for a payoff or
reward.
• The most obvious reward is pay, but
there are many others, including:
– promotions
– desirable work assignments
– peer recognition
– work freedom

3. Introduction

4. Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Intrinsic rewards (personal
satisfactions) come from the job itself,
such as:
– pride in one’s work
– feelings of accomplishment
– being part of a work team

5. Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Extrinsic rewards come from a source
outside the job
– include rewards offered mainly by
management
– Money
– Promotions
– Benefits

6. Types of Reward Plans
Financial versus Nonfinancial Rewards
• Financial rewards include:
– wages
– bonuses
– profit sharing
– pension plans
– paid leaves
– purchase discounts
• Nonfinancial rewards emphasize making life
on the job more attractive; employees vary
greatly on what types they find desirable.

7. Types of Reward Plans
Performance-based versus Membership-
Based Rewards
• Performance-based rewards are tied to
specific job performance criteria.
– commissions
– piecework pay plans
– incentive systems
– group bonuses
– merit pay
• Membership-based rewards such as cost-of-
living increases, benefits, and salary
increases are offered to all employees.

8. Compensation Administration
• The process of managing a
compensation program so that the
organization can attract, motivate and
retain competent employees who
perceive that the program is fair.

9. Compensation Administration
• Job evaluation – the process used to
determine each job’s appropriate worth
within the organization.
• Based on job analysis information.

10. Compensation Administration
Government Influence on
Compensation Administration
• Fair Labor Standards Act: 1938 act
which requires
– minimum wage
– overtime pay
– record-keeping
– child labor restrictions

11. Compensation Administration
Government Influence on Compensation
Administration
Fair Labor Standards Act
• Exempt employees
– include professional and managerial employees
– not covered under FLSA overtime provisions
• Nonexempt employees
– eligible for premium pay (time and one-half)
– when they work more than 40 hours in a week

12. Compensation Administration
Government Influence on
Compensation Administration
• Equal Pay Act of 1963 act requires that
men and women hired for the same job
be paid the same.

13. Compensation Administration
Government Influence on
Compensation Administration
• Civil Rights Act:
– broader than Equal Pay Act
– prohibits discrimination on the basis of
gender
– used to support comparable worth concept
• Salaries should be established on the
basis of skill, responsibility, effort, and
working conditions.

14. Job Evaluation and the Pay
Structure
Job Evaluation
• Use of job analysis information to
determine the relative value of each job
in relation to all jobs within the
organization.
– The ranking of jobs
– Labor market conditions
– Collective bargaining
– Individual skill differences
?

15. Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
• Judgment is involved in defining what
factors should be used to compare jobs.
• Typical criteria:
– mental requirements
– supervisory control
– complexity
– physical demands
– personal contacts

16. Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
• Typically jobs are grouped according to
type and compared within their group
– clerical jobs
– sales jobs
– professional jobs

17. Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Ordering method: A
committee places jobs in a
simple rank order from
highest (worth highest pay) to
lowest.

18. Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Classification method:
– Jobs are placed in classification grades
– Compare their descriptions to the
classification description and benchmarked
jobs
– Look for a common denominator such as
skills, knowledge, or responsibility

19. Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Point method:
– Jobs are rated and allocated points on
several identifiable criteria, using clearly
defined rating scales.
– Jobs with similar point totals are placed
in similar pay grades.
– Offers the greatest stability.

20. Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Compensation surveys
– Used to gather factual data on
pay rates for other organizations
– Information is often collected on
associated employee benefits as
well

21. Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Wage curves
– Drawn by plotting job evaluation data (such
as job points or grades) against pay rates
(actual or from survey data).
– Indicate whether the pay structure is logical

22. Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Wage structure
– Designates pay ranges for groups of jobs
which are
• similar in value to the organization
• grouped by their classifications, grades or
points.
– Results in a logical hierarchy of wages,
consisting of ranges that overlap.

23. Special Cases of
Compensation
Incentive Compensation Plans
Incentives can be added to the basic
pay structure to provide rewards for
performance.

24. Special Cases of
Compensation
Incentive Compensation Plans
• Individual Incentives include
– merit pay plans (annual
increase, based on performance)
– piecework plans (pay based on
number of units produced
typically in a specified time
period.)
– time-savings bonuses and
commissions

25. Special Cases of
Compensation
Incentive Compensation Plans
Individual Incentives:
– Work best where clear objectives can be
set and tasks are independent.
– Many organizations today require
employees to place a percentage of their
salary “at risk” so that merit pay does not
become a substitute for automatic cost-of-
living raises.

26. Special Cases of
Compensation
Incentive Compensation Plans
• Group Incentives
– Incentives can be offered to groups, rather
than individuals, when employees' tasks
are interdependent and require
cooperation.

27. Special Cases of
Compensation
Incentive Compensation Plans:
• Plant-wide Incentives:
• Direct employee efforts toward organizational
goals (such as cost reduction)
– Scanlon Plan - supervisor and employee
committees suggest labor-saving improvements
– IMPROSHARE - formula is used to determine
bonuses based on labor cost savings

28. Special Cases of
Compensation
Paying for Performance
• Pay is based on some measure of
performance.
• Common performance measures are:
– piece-rate plans
– gainsharing
– wage incentive plans
– profit sharing
– lump sum bonuses

29. Special Cases of
Compensation
Paying for Performance
• Competency-based compensation
– Rewarded for skills, knowledge and behaviors
• leadership
• problem solving
• decision making
• strategic planning
– Broad-banding - pre-set pay levels that
determine what people are paid based
upon the type and level of competencies
they possess.

30. Special Cases of
Compensation
Team-Based Compensation
– Incentives for empowered work teams to
exceed established goals and share
equally in rewards.
– Depends on:
• clarity of team purpose and goals
• ability of the team to obtain needed resources
• effective team communication skills and trust

31. Executive Compensation
Programs
Salaries of Top Managers
– Executive salaries, bonuses and stock
options may seem high.
– Top twenty CEOs average more than
$100 million in total compensation.
– Competition for executive talent raises
the price of hiring an executive.
– High salaries can be a motivator for
executives and lower-level managers

32. Executive Compensation
Programs
Supplemental Financial Compensation
– Deferred bonuses – paid to executives
over extended time periods, to encourage
them to stay with the company.
– Stock options – allow executives to
purchase stock in the future at a fixed
price.
– Hiring bonuses – compensate for the
deferred compensation lost when leaving a
former company.

33. Executive Compensation
Programs
Supplemental Nonfinancial Compensation:
Perquisites
• Perks may include:
– paid life insurance
– club memberships
– company cars
– expense accounts
– interest-free loans
– free financial
– legal and tax counseling
– mortgage assistance

34. Executive Compensation
Programs
• Supplemental Nonfinancial
Compensation: Perquisites
– Golden parachutes protect executives
when a merger or hostile takeover occurs
by providing severance pay or a
guaranteed position.

35. International Compensation
• Important to understand the statutory
requirements of each country.
• International compensation packages
generally utilize the “balance-sheet
approach,” using the four factors below:
– Base Pay
– Differentials
– Incentives
– Assistance Programs

36. International Compensation
• Base Pay: The pay of employees in
comparable jobs at home.
• Differentials: Compensation given to
offset higher costs of living abroad.

37. International Compensation
• Incentives: Inducements given to
encourage employees to accept
overseas assignments.
• Assistance Programs: Payment for
expenses involved in moving a family
abroad and in providing some services
overseas.