BSAD 310 Spring 2017 - CH 10

Chapter 10:
Compensation
Management

Compensation
• Total of an employee’s pay and benefits
• Costs are frequently 65% to 70% of total
production costs in today’s firms.
• Affects process of attracting and retaining
employees.
– Firms should design system to meet various
needs of employees.
– Poor compensation management practices
produce negative effects on performance.
2Lussier and Hendon, Fundamentals of Human Resource Management. © 2017, SAGE Publications.

Compensation System
• Includes anything that employees may
value and desire and that employers can
offer in exchange.
• Compensation Components
– Rewards that can be classified as monetary
and in-kind payments
• Non-Compensation Components
– Rewards other than monetary and in-kind
payments (e.g., company cafeterias and
gyms)

Motivation and Compensation
Planning
• Goal of Compensation: To motivate
employees to perform what the firm needs
• Expectancy Theory: Developed by
Victor Vroom at Yale, who postulated that
employees believe rewards for
accomplishing a task are worth the effort
– Clearly define goals and how to achieve them.
– Tie performance to rewards.
– Be sure rewards have value to employees.
– Make sure management does what it says it
will.

Exhibit 10-1: Expectancy
Theory and Compensation

Motivation and Compensation
Planning
• Equity Theory – J. Stacy Adams developed
that employees are motivated when the ratio of
their perceived outcomes to inputs is at least
roughly equal to other referent individuals.
– Employees who perceive being under-rewarded
decrease inputs and increase outcomes.
– Employees who perceive being over-rewarded
are not usually bothered.
• Employees who perceive being equitably
rewarded will continue to perform if content
that their incomes and outputs are in balance.

Types of Compensation
• Base Pay: Wages paid on an hourly basis;
salary based on a time period
• Wage and Salary Add-Ons: Includes overtime
pay, shift differential, premium pay for working
weekends and holidays, etc.
• Incentive Pay (“Variable Pay”): Otherwise
known as “pay for performance”; commonly
includes piecework in production and
commission sales
• Benefits: Indirect compensation that provides
something of value to employee

Direct Versus Indirect
Compensation
• Direct Compensation
– Base pay, salary add-ons, and incentive
pay—all of which appear in a pay check
• Indirect Compensation
– Provides something of value to employee
(i.e., benefits), such as sickness and
accident protection, retirement pay
contributions, cafeteria services, company
physicals

Organizational Philosophy 
Decisions
• Ability to Pay
– What is your company’s pay policy?
– Are employees viewed as assets or investments?
– What types of compensation are offered?
– Pay for performance or for longevity (seniority)?
– Skill-based or competency-based?
– At, above, or below the Market–Efficiency Wage
Theory ?
• Wage Compression
• Pay Secrecy/ Rights to Privacy

Legal and Fairness Issues
in Compensation
• Firms must offer equal pay for equal
work unless there is a difference in
productivity, seniority, merit, or other
factors “other than sex.”

Exhibit 10-2: Major EEO
Laws and Legal Concepts

Fair Labor Standards Act
(FLSA) of 1938 (Amended)
• Covers minimum wage, overtime
issues, and child labor rules for most
U.S.-based businesses.
• Minimum wage is the lowest hourly rate
of pay generally permissible by federal
law.
• Employees with specific duties are
exempt from minimum wage, overtime,
and child labor rules.

Overtime
• Federally mandated, higher-than-
minimum wage, required for nonexempt
employees if they work more than 40
hours/week
• Currently set by FLSA as “time and a
half,” or 150% of employee’s normal
wages

See Exhibit 10-3: Duties Tests
for General Employee
Exemptions (p. 256)
• Executive Exemption
• Professional Exemption (Learned or
Creative)
• Administrative Exemption
• Outside Sales Exemption
• Computer Employee Exemption

FLSA and Child Labor
• 14- and 15-Year-Olds: may work outside
school hours no more than “3 hours on a
school day, 18 hours in a school week, 8
hours on a non-school day, and 40 hours
in a non-school week”; permissible work
hours also restricted
• 16- and 17-Year-Olds: cannot be
employed in hazardous jobs, but their
work hours are unrestricted
• Individuals 18 or Older: can be hired for
all work

Employee Misclassification
Under the FLSA
• Misclassification of employees as exempt
from minimum wage or overtime is one of
the most common areas where companies
get into serious trouble.
• Just paying an employee a “salary” and
then working that person for unlimited
hours is obviously illegal under the
general exemption FLSA rules noted
above.

Pay Equity and Comparable
Worth
• Comparable Worth
– When jobs are distinctly different but entail
similar levels of ability, responsibility, skills,
and working conditions, they are of equal
value and should have same pay scale.
– The concept is broader than “equal pay for
equal work” because the work need only
be similar, not the same.

Other Legal Issues
• Mandatory employee pension and benefits
legislation also includes the following:
– Social Security
– Workers’ compensation
– Unemployment insurance
– Family and Medical Leave Act (FMLA)
– Patient Protection and Affordable Care Act (ACA)
– Employee Retirement Income Security Act
(ERISA)
– Health Insurance Portability and Accountability
Act (HIPPA)

Job Evaluation
• Determining worth of each position relative to
other positions.
• Job Ranking – Subjectively ordering jobs from
lowest to highest or vice versa in terms of
value to company
• Point-Factor – Objectively breaking down job
into “compensable factors” and applying points
to factors based on job’s level of difficulty
• Factor Comparison – Analyzing and ranking
“compensable factors” of benchmark jobs in
pay surveys and ranking firm’s jobs against
benchmark

Exhibit 10-4:
Creation of a
Pay
Structure
and
Individual
Pay Rates

Job Structure and Pay Levels
• Pay structure creates a hierarchy of jobs
and their rates of pay within the
organization. It is made up of job
structures and pay levels.
• Job structure is stacking up jobs in
organization from lowest to highest levels.
• Pay levels provide minimum to maximum
pay for a group or subset of jobs in
organization.

Creation of Pay Levels
• A single pay level, or “pay grade,” applies
to many different jobs.
• Each pay level has a maximum and
minimum pay rate.
• Pay rates are determined by comparisons
with Labor Market Competition (minimum
pay level), Product Market Competition
(top pay level), supply and demand, and
insure equity.

Exhibit 10-5: Supply and
Demand Curve

Exhibit 10-6: Product Market
Competition Limits

Exhibit 10-7: Pay Levels

Exhibit 10-8: Pay Structure

Delayering and Broadbanding
• Delayering: Changing company
structure to rid vertical hierarchy
(reporting levels); process of “flattening”
hierarchical levels found in command
and control organizational structures
• Broadbanding: Combining multiple
pay levels into one

Exhibit 10-9: Broadbanding of
Multiple Pay Levels

Trends and Issues in HRM
• A Shift From Base Pay to Variable Pay
– One of the biggest reasons is to lower the
risk to the company when markets fail or
economies go into recession.
• The Technology of Compensation
– Since compensation is typically one of the
largest costs in most organizations,
management needs to be mindful of what
it gets for its money.

BSAD 310 Spring 2017 - CH 10

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (20)

Ähnlich wie BSAD 310 Spring 2017 - CH 10

Ähnlich wie BSAD 310 Spring 2017 - CH 10 (20)

Mehr von Janice Robinson

Mehr von Janice Robinson (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

BSAD 310 Spring 2017 - CH 10