MANA 3320 1st Edition Lecture 14 Outline of Last Lecture I Performance Appraisal Programs II Major Cases III Alternative sources of Appraisal IV 360 Degree Appraisal V 7 Common Biases VI 4 Trait Methods of Performance Appraisal VII 4 Behavioral Methods VIII 3 Results Methods Outline of Current Lecture I Wages vs Salary II Total Compensation III 3 Compensation Philosophies IV Strategic Compensation V 7 Common Strategic Compensation Goals VI Motivating Employees Through Compensation VII Expectancy Theory and Pay VIII Factors Affecting the Pay Mix Current Lecture CH 9 Managing Compensation Wages vs Salary o o Wages Nonexempt worker can have overtime Paid hourly Salary Exempt cannot have overtime Monthly or annually These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Total compensation o o Direct real dollars cents Wages salaries Commissions Bonuses Gainsharing Indirect benefits Time not worked Vacations Breaks Holidays Insurance plans Security plans o Medical dental life Pensions Employee services Educational assistance Recreational programs Non financial compensation Psychological benefits Ex employee recognition programs certificates gift cards etc job satisfaction nice work environment 3 compensation philosophies o 1 Wage leader o Pays above average wages for pretty much all jobs in company 2 Wage meeter Most companies in the real world Wants to meet or match the market rate for that job title o 3 Wage follower Pays below market rate for job titles Strategic compensation o Links the compensation of employees to the mission objectives philosophies and culture of the organization o Serves to mesh the monetary payments made to employees with specific functions of the HR program in establishing a pay for performance standard o Seeks to motivate employees through compensation 7 Common strategic compensation goals o 1 To reward employees past performance o 2 To remain competitive in the labor market o 3 To maintain salary equity among employees o 4 To mesh employees future performance with organizational goals o 5 To control the compensation budget o 6 To attract new employees o 7 To reduce unnecessary turnover Motivating employees through compensation o Pay secrecy An organizational policy prohibiting employees from revealing their compensation info to anyone o Creates misperceptions and distrust of compensation fairness and payfor performance standards Arguments against secrecy Knowledge of base pay is the strongest predictor of pay satisfaction which is highly associated with work engagement Knowledge of base pay more strongly predicts pay satisfaction than does the actual amount of pay received by employees Designing a Pay for Performance System o How will performance be measured o How will monies be allocated for compensation increases o Which employees will be eligible o How will payouts be made o How often will payouts occur o How large will the payouts be o Will employees perceive the rewards as valued Expectancy Theory and Pay o 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 performance is valued by their employer and will result in their receiving the expected reward o 1 Direct relationship between desired work and reward o 2 Payment of the reward has to be done close in time Factors affecting the Pay Mix o 4 Internal factors 1 Compensation strategy of organization 2 Worth of job 3 Employee s relative worth Rewarding individual employee performance 4 Employer s ability to pay o Do they have enough money to be wage leaders or wage meeters More dominant factor 4 External factors 1 Labor market conditions Availability and quality of potential employees is affected by economics conditions gov t regulation and policies and the presence of unions Applicants have more bargaining power in labor shortage Employers have more power during labor surplus 2 Area wage rates A firm s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs State by state or city by city Due to state taxes etc 3 Cost of living Local housing and environmental conditions can cause wide variations in cost of living for employees Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power California Hawaii and New York are most expensive to live in Consumer Price Index o Measure of the average changes in prices over time in a fixed market basket of goods services National perspective 4 Collective bargaining Escalator clauses in labor agreements provide for quarterly upward costof living 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 earning power of wages Unionized companies tend to pay 20 more than non unionized companies