1PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West AlabamaManaging Human ResourcesManaging Human ResourcesBohlander Bohlander •• SnellSnell1414ththeditionedition© 2007 Thomson/South© 2007 Thomson/South--Western.Western.All rights reserved.All rights reserved.Managing Managing CompensationCompensation© 2007 Thomson/South-Western. All rights reserved. 9–2ObjectivesAfter studying this chapter, you should be able to:1. Explain employer concerns in developing a strategic compensation program.2. Indicate the various factors that influence the setting of wages.3. Differentiate the mechanics of each of the major job evaluation systems.4. Explain the purpose of a wage survey.5. Define the wage curve, pay grades, and rate ranges as parts of the compensation structure.© 2007 Thomson/South-Western. All rights reserved. 9–3Objectives (cont’d)After studying this chapter, you should be able to:6. Identify the major provisions of the federal laws affecting compensation.7. Discuss the current issues of equal pay for comparable worth, pay compression, and low wage budgets.© 2007 Thomson/South-Western. All rights reserved. 9–4Compensation• Pay is a statement of an employee’s worth by an employer.• Pay is a perception of worth by an employee.© 2007 Thomson/South-Western. All rights reserved. 9–5Total CompensationTotal CompensationDirectDirect IndirectIndirectBonusesBonusesGainsharingGainsharingSecurity Plans• PensionsEmployee Services• Educational assistance• Recreational programsCommissionsCommissionsWages / SalariesWages / SalariesInsurance PlansInsurance Plans•• MedicalMedical•• DentalDental•• LifeLifeTime Not WorkedTime Not Worked••VacationsVacations•• BreaksBreaks•• HolidaysHolidays© 2007 Thomson/South-Western. All rights reserved. 9–6Compensation Management and Other HRM FunctionsPay rates affect selectivityPay rates affect selectivitySelectionSelectionSelection standards affect Selection standards affect level of pay requiredlevel of pay requiredPay can motivate trainingPay can motivate trainingTraining and Training and DevelopmentDevelopmentIncreased knowledge leads Increased knowledge leads to higher payto higher payTraining and development may Training and development may lead to higher paylead to higher payCompensation Compensation ManagementManagementA basis for determining A basis for determining employee’s rate of payemployee’s rate of payAid or impair recruitmentAid or impair recruitmentRecruitmentRecruitmentSupply of applicants Supply of applicants affects wage ratesaffects wage ratesLow pay encourages Low pay encourages unionizationunionizationLabor RelationsLabor RelationsPay rates determined Pay rates determined through negotiationthrough negotiation2© 2007 Thomson/South-Western. All rights reserved. 9–7Strategic Compensation Planning• Strategic Compensation Planning Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization. Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay-for-performance standard. Seeks to motivate employees through compensation.© 2007 Thomson/South-Western. All rights reserved. 9–8Linking Compensation to Organizational Objectives• Value-added Compensation Evaluating the individual components of the compensation program (pay and benefits) to see if they advance the needs of employees and the goals of the organization. “How does this compensation practice benefit the organization?” “Does the benefit offset the administrative cost?”© 2007 Thomson/South-Western. All rights reserved. 9–9Common Strategic Compensation Goals1. To reward employees’ past performance2. To remain competitive in the labor market3. To maintain salary equity among employees4. To mesh employees’ future performance with organizational goals5. To control the compensation budget6. To attract new employees7. To reduce unnecessary turnover© 2007 Thomson/South-Western. All rights reserved. 9–10Strategic Compensation Policy Concerns1. The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate.2. The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities. 3. The pay level at which employees may be recruited and the pay differential between new and more senior employees.4. The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises. 5. The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered.© 2007 Thomson/South-Western. All rights reserved. 9–11The Pay-for-Performance Standard• Pay-for-Performance Standard The standard by which managers tie compensation to employee effort and performance. Refers to a wide range of compensation options, including merit-based pay, bonuses, salary commissions, job and pay banding, team/ group incentives, and various gainsharing programs.© 2007 Thomson/South-Western. All rights reserved. 9–12Designing a Pay-for-Performance System• How will performance be measured?• How will monies to be allocated for compensation increases.• Which employees will be eligible?• How will payouts be made?• How often will payouts occur?• How large will the payouts be?• Will employees perceive the rewards as valued?3© 2007 Thomson/South-Western. All rights reserved. 9–13Motivating Employees through Compensation• Pay Equity (also Distributive Fairness) An employee’s perception that compensation received is equal to the value of the work performed. A motivation theory that explains how people respond to situations in which they feel they have received less (or more) than they deserve. Individuals form a ratio of their inputs to outcomes in their job and then compare the value of that ratio with the value of the ratio for other individuals in similar jobs.© 2007 Thomson/South-Western. All rights reserved. 9–14Figure 9Figure 9––1 1 Relationship between Pay Equity and MotivationRelationship between Pay Equity and MotivationDoing More and Receiving Less Doing the Same and Receiving the Sam e Doing Less and Receiving MoreThe greater the perceived disparity between my input/output