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1、Human Resource Management,Compensating Employees,Framework for the Strategic Management of Employees,Strategic Purposes of compensation,Attract(the right sort of)people to work for firmRetain(the right sort of)people to work for firmControl Costs and Maintain a budgetMotivate exceptional performance
2、 Reward employees for past performanceReduce unnecessary turnoverMaintain salary equity among employees Also-Reinforces(or conflicts with)the attitudes and behaviors encouraged with the performance management system.,What is Compensation?,To counterbalanceTo make up forTo offset(inducements)in excha
3、nge for employee contributions.Compensation refers to the monetary and nonmonetary consideration employees receive in exchange for the work they perform for an organization Must look at TOTAL compensation not just base pay,Total Compensationin exchange for work,Total Compensation,Direct:Cash,Indirec
4、t:Benefits and Services,Relational Forms,Recognition/StatusJob securityChallenging WorkLearning OpportunitiesPersonal SatisfactionGood Culture,Base PayIncentives Merit/Cost of Living Short Term bonus Long term bonus,Services&AllowancesTime away from work,Equity theory,Outcome(self)Outcome(other)Inpu
5、ts(self),or=Inputs(other)O/I(self)other Better performance,feel valued,rationalization to account for overpaymentO/I(self)otherrestore equity,seek to increase outcomes,lower inputsComparisons may be with(a)people inside the firm,(b)outside the firm,or(c)self(what it should be).,Increase inputs(e.g.,
6、time&effort)to justify higher rewards when they feel over-rewarded.Decrease inputs to compensate for lower rewards when they feel under-rewarded.Change the compensation they receive through legal or other actions(e.g.,unionization,grievance)Modify their comparisons by choosing another person to comp
7、are them-selves against.Distort reality by rationalizing that the inequities are justified.Leave the situation in inequities cannot be resolved.,Consequences of inequity,Internal Alignment,Occurs when each job in a company is valued appropriately relative to every other job in terms of its ability t
8、o help the firm achieve its goalsRelative worth hierarchy for determining salaries is established Pay rates are assigned to jobsProcess is done through job evaluation approaches:Job rankingJob classificationPoint factorFactor comparison,Internal Alignment(contd),(1)Job RankingReviewing job descripti
9、ons and listing jobs in order from highest to lowest worth to companyFairly hard to do in a large companyNeed to create a framework to process the information found in all the job descriptionsLargely subjective,Internal Alignment(contd),(2)Job ClassificationDeveloping broad descriptions for groups o
10、f jobs that are similar in terms of tasks,duties,responsibilities and qualificationsWage range is attached to each classification reflecting relative worth of the job in that classification E.g.,the federal governments prefix GSSometimes managers want to reclassify jobs to give a particular employee
11、 a higher salary,Internal Alignment(contd),(3)Point MethodQuantitative approach that uses a point value scheme resulting in a score for each jobBegins with identifying a set of factors for which the company is willing to pay called“compensable factors Point manual contains description of each factor
12、 and what each degree of the factor represents,Internal Alignment(contd),(3)Point method(contd)Represent the range of jobs in the companyScores for these jobs enable company to compare other jobs to the benchmark jobs and determine which should be paid more or lessJob grades are created to reflect h
13、ierarchy of jobs within the company,Establishing the INTERNAL Value of Jobs,Recap:Select Compensable factors Dimensions of work that the organization values,that helps it pursue its strategy and achieve its objectives.Assign factor weights what is the relative importance of each dimension of job per
14、formance?Weights enable companies to allocate more weight to more important compensable factors than other less important compensable factors.Establish degrees of factors present in job scale the factors to identify the different levels for each compensable factor.Essentially,establishing anchors fo
15、r different levels on a compensable factor.,Example of Point Values,Example:Point values,Degree/LevelCompensable Factor123 45Job Knowledge50100150200NAProblem Solving50100150200260Working Condition103050NANAOthersIn this example:The compensable factors represent the different dimensions of job perfo
16、rmance that are important for organizational success,Degree/LevelCompensable Factor123 45Job Knowledge50100150200NAProblem Solving50100150200260Working Condition103050NANAIn this example:The compensable factors represent the different dimensions of job performance that are important for organization
17、al successThe degrees reflect the relative level of responsibility,difficulty,etc.associated with each job for each compensable factor.,Degree/LevelCompensable Factor123 45Job Knowledge50100150200NAProblem Solving50100150200260Working Condition103050NANAIn this example:The compensable factors repres
18、ent the different dimensions of job performance that are important for organizational successThe degrees reflect the relative level of responsibility,difficulty,etc.associated with each job in terms of each compensable factor.The differences in the numerical values associated with each degree for ea
19、ch compensable factor reflects the weight or relative importance for each factor.,Degree/LevelCompensable Factor123 45Job Knowledge50100150200NAProblem Solving50100150200260Working Condition103050NANAProblem Solving Degree anchor statementDegree 1 actions are performed in a set order according to in
20、struction.Problems referred to a supervisor.Degree 3 Various problems are solved that require general knowledge of company policies and procedures within own area of responsibilityDegree 5-Complex tasks involving new or constantly changing problems or situations are planned,delegated,coordinated,and
21、/or implemented.,Internal Alignment(contd),(4)Factor ComparisonRanking benchmark jobs in relation to each other on factors like mental or physical requirements,skill,responsibility,and working conditionsCombines job ranking and the point methodMonetary rates are included,so as the market changes,it
22、needs to be updated frequently,External Competitiveness,External competitiveness ensures that jobs in the company are valued appropriately relative to similar jobs in the companys external labor market.Salary SurveysJob PricingCompany Pay PolicyPay Grades and RangesBroadbanding,Establishing Market V
23、alue,Conducting a Survey to assess external market ratesIdentify Relevant Labor Markets(Ex:relevant labor market for secretary(local)likely to differ than for engineer(regional)Identify Benchmark Jobs(Key Jobs)The contents are well-known,relatively stable,and agreed upon by the employees involved.Th
24、e supply and demand for these jobs are relatively stable and not subject to recent shiftsThey represent the entire job structure under studyA majority of the workforce is employed in these jobs.Market Survey Data Collection,External Competitiveness(contd),(1)Salary SurveysProvides a systematic way t
25、o collect information about wages in the external labor marketCompanies can conduct their own surveys or purchase survey dataShould look at companies in the same industry and other industries that might be competing with you for employeesShould come from appropriate geographic labor market,External
26、Competitiveness(contd),(2)Job Pricing Systematic process of assigning monetary rates to jobs so that internal wages are aligned with external wages in the marketplace Begins with plotting results of salary survey for benchmark jobs Market line,also know as wage curve,is drawn to represent relationsh
27、ip between job evaluation points and salaries paid for jobs Plot actual salaries paid for benchmark jobs and compare them to results from market,Matching external pay and internal job evaluation points for key jobs,120 160 200 240 280 320 360Job Evaluation points WITHIN Firm,7654321,Survey Monthly P
28、ay($000),X,X,X,X,X,X,X,X,X,X=Key benchmark jobs-job evaluation point by salary data point from market survey,Matching external pay and internal job evaluation points for key jobs,120 160 200 240 280 320 360Job Evaluation points WITHIN Firm,7654321,Survey Monthly Pay($000),X,X,X,X,X,X,X,X,X,X=Key ben
29、chmark jobs-job evaluation point by salary data point from market survey,“Line of best fit”External Market Policy Line,The Goal What should non-key jobs be paid?,120 160 200 240 280 320 360Job Evaluation points WITHIN Firm,7654321,Survey Monthly Pay($000),X,X,X,X,X,X,X,X,X,O=Non-key benchmark jobs m
30、apping other jobs onto the pay system,“Line of best fit”External Market Policy Line,O,O,O,O,O,O,O,O,Roughly$1800,Roughly$4300,The Reality Where do jobs really fall?,120 160 200 240 280 320 360Job Evaluation points WITHIN Firm,7654321,Survey Monthly Pay($000),X,X,X,X,X,X,X,X,X,O=Non-key benchmark job
31、s mapping other jobs onto the pay system,“Line of best fit”External Market Policy Line,O,O,O,O,O,O,O,O,O,O,O,O,External Competitiveness(contd),(3)Company Pay PolicyIf a companys wage curve is below or above the market wage curve,decisions have to be made about whether to move wages or leave them as
32、they areFirms can pay at the market level(follow),above the market(lead),or below the market(lag)Companies paying below market will have a harder time attracting employees,External Competitiveness(contd),(4)Pay Grades and Pay RangesJobs are grouped into job grades associated with a pay rangeEach ran
33、ge has a midpoint,a minimum,and a maximumMidpoints represents an employee who is fully qualified and functioning at an acceptable level of performance Ranges will have overlapthe less overlap the more difference between jobs in each grade,Designing the internal pay structure:Pay Grades,A pay grade i
34、s a horizontal group of different jobs that are considered substantially equal for pay purposesGrades enhance an organizations ability to move people among jobs within a grade with no change in pay.The objective is for all the jobs that are similar for paypurposes to be placed within the same grade.
35、,Pay Ranges,Refer to the vertical dimension of the pay structureEach pay grade is associated with a pay range consisting of a midpoint and a specific minimum and maximumMidpoints:Correspond to competitive pay policy where the pay policy line crosses each pay grade Are the control points of the range
36、Range spread judgment about how the ranges support career paths,promotions,etc.Typically range between 10 and 120%.Minimum of pay range=Midpoint/1+(1/2 range spread)Maximum=Minimum+(range of spread*minimum),Setting the pay grade structure,120 160 200 240 280 320 360Job Evaluation points WITHIN Firm,
37、7654321,Survey Monthly Pay($000),Pay Grade,Pay Range,Maximum,Minimum,Mid Point,Differential Ranges,External Competitiveness(contd),(5)BroadbandingConsolidates a large number of pay grades into a few“broad”bands,usually 3 to 10 Maximum pay for a particular band can be as high as 100-400%above the ban
38、ds minimum payBands are usually wide enough that changes in the market dont require adjustments as often,Pay for Individual Performance,Initial pay based on the persons previous experience,education and negotiating skillsIncreases can be tied to meeting goals,providing higher levels of service or re
39、sults of performance appraisalRed circled job person being paid above the maximum wage for gradeGreen circled job person being paid below minimum of gradeManager can adjust salary,reclassify or reevaluate the job,External Competitiveness,Ensures jobs are valued appropriately relative to similar jobs
40、 in the external labor marketAffects how attractive the firm is to potential employeesAlso affects attitude and motivation of current employees,Additional Considerations,Labor Market Conditions Labor demand theoriesCompensating Differentials work with negative characteristics requires higher pay to
41、attract workEfficiency Wage Theory above market wages will improve efficiency by attracting workers who will perform better and be less willing to leaveSignaling pay policies signal kinds of behavior the employer seeks,Additional Considerations,Labor Market ConditionsLabor Supply theoriesReservation
42、 Wage job seekers wont accept jobs whose pay is below a certain wage,no matter how attractive Human Capital Theory the value of an individuals skills is a function of the time and expense required to acquire them.,Alternative Compensation Approaches,(1)Skill-Based Pay and Knowledge-Based PayRequire
43、employees to acquire certain skills or knowledge to receive an increaseMakes it clear what employees have to do to increase payMay have more employees at higher levels of mastery than needed,Alternative Compensation Approaches(contd),(2)Competency-based PayIdentify the competencies(attitudes,behavio
44、rs,abilities)employees need to master for pay raisesManagers need to outline a valid process to determine achievement of competenciesCan lead to higher labor costs or employee frustration if they do not use additional training,Alternative Compensation Approaches(contd),(3)Direct Market PricingCollec
45、ting salary information from external labor market rather than starting with internal structure based on value of jobsWorks well as long as data is accurate,Administering Compensation,Anyone making employee pay decisions needs to receive trainingHow pay rates are set and raises are determinedHow fre
46、quently they are reviewedWhat can and cannot be communicated to employeesClosed system details about individual pay rates not made public except as required by law(high-ranking executives)Open system pay information is public(school districts with published pay scales)Communication will enhance empl
47、oyees perceptions of equity and justice,Total Compensation in Practice,Organizational Demands,EnvironmentalInfluences,Regulations,Compensation,Strategy&Compensation,Internal value of jobs strategy will determine tasks,duties,and responsibilities a firm considers most valuable in achieving its goalsA
48、 firms strategy affects the pay mix(base pay vs.variable pay)Ways to increase employee base pay:Cost-of-living adjustments(COLAs)keep salaries from lagging behind external market and to offset rise in prices of goods and services(uses CPI)Merit increases salary increase based on how well employee ha
49、s performedVariable pay includes bonuses,commissions,and stock options,Company Characteristics&Compensation,Small firms may pay less-than-market wagesEstablished firms have more resources to pay at or above marketWhether a job is a core job or a support position affects pay decisionsThe size and age
50、 of a firm plays a major role in determining the type of pay it offers(e.g.,startup firms stock options,older firms more complex pay systems),Company Culture&Compensation,Company culture establishes the priorities for the pay policy(i.e.,if firm values teamwork,teamwork will be rewarded)Company cult
