1 total rewards and compensation total rewards monetary and non-monetary rewards used to attract,...
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Total Rewards and CompensationTotal Rewards and Compensation
Total RewardsTotal Rewards Monetary and non-monetary rewards used to Monetary and non-monetary rewards used to
attract, motivate, and retain employeesattract, motivate, and retain employeesRewards System Strategic ObjectivesRewards System Strategic Objectives Legal complianceLegal compliance Cost effectivenessCost effectiveness Internal and external equity for employeesInternal and external equity for employees Recognizing contribution to maximize Recognizing contribution to maximize
performance and manage talentperformance and manage talent
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Compensation ApproachesCompensation Approaches
Traditional Approach
Total Rewards Approach
• Compensation primarily base pay
• Bonuses for executives only
• Fixed benefits tied to seniority
• Pay grade progression based on organizational promotions
• One organization-wide pay plan for all employees
• Variable pay used with base pay
• Annual/long-term incentives provided to all employees
• Flexible and portable benefits offered
• Knowledge-based broadbands determine pay grades
• Multiple pay plans consider job family, location, and business units
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Compensation System Design Compensation System Design IssuesIssues
Fairness Fairness
Internal EquityInternal Equity Procedural Procedural DistributiveDistributive InteractionalInteractional
External EquityExternal Equity
PrivacyPrivacy
TransparencyTransparency
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Market Competitiveness and Compensation
Lead the marketLead the market
Meet the marketMeet the market
Lag the marketLag the market
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More Compensation System Design More Compensation System Design IssuesIssues
Identification of the required competencies
Progression and compensation of employees
Limitations on who can acquire more competencies
Training in the appropriate competencies
Certification and maintenance of competencies
Competency-Based Pay Systems
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More Compensation System Design More Compensation System Design IssuesIssues
Team
How to develop compensation programs that
build on the team concept.
Individual
How to compensate the individuals
whose performance may also be
evaluated on team achievements.
Individual vs. Team Rewards
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Legal Constraints on Pay SystemsLegal Constraints on Pay Systems
Minimum wageMinimum wage
Child labor Child labor
Exempt vs. nonexempt statusExempt vs. nonexempt status
OvertimeOvertime
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Compensation for Overtime Compensation for Overtime WorkWork
Common Overtime
Issues
Compensatory Time
Off
Incentives for Non-exempts
Training Time
Travel Time
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Legislation Affecting CompensationLegislation Affecting Compensation
Compensation and the
Law
Davis-Bacon Act
Walsh-Healy Act
McNamara-O’Hara Act
Equal Pay Act of 1963 and Pay Equity
State and Local Laws
Garnishment Laws
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Valuing Jobs with Job Valuing Jobs with Job Evaluation MethodsEvaluation Methods
Job EvaluationJob EvaluationMeans used to identify the relative worth of jobs Means used to identify the relative worth of jobs
within an organization.within an organization.
Compensable FactorCompensable Factor Job value common among a group of jobs.Job value common among a group of jobs. Something for which an organization Something for which an organization
chooses to compensate an employee.chooses to compensate an employee.
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Examples of Compensable Factors for Examples of Compensable Factors for Different Job FamiliesDifferent Job Families
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Job Evaluation MethodsJob Evaluation Methods
Job Evaluation Methods
Point Method
Ranking Method
Classification Method
Factor-Comparison Method
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Job Evaluation MethodsJob Evaluation Methods
Point methodPoint method
Ranking methodRanking method
Classification methodClassification method
Factor-comparison methodFactor-comparison method
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Valuing Jobs Using Market PricingValuing Jobs Using Market Pricing
Market PricingMarket Pricing Using market data to identify the relative value of Using market data to identify the relative value of
jobs based on what other firms pay for similar jobsjobs based on what other firms pay for similar jobs..
Advantages Disadvantages
• Ties organizational pay levels to the external job market, without “internal” job evaluation distortion.
• Communicates to employees that the compensation system is “market linked.”
• It relies on market survey data.
• A specific job may differ from a “matching” job in the survey.
• The market data’s scope (range of sources) is a concern.
• Tying pay levels to market data can lead to wide fluctuations.
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Pay SurveysPay Surveys
Collection of data on compensation Collection of data on compensation rates for workers performing similar rates for workers performing similar jobs in other organizations.jobs in other organizations.
Benchmark JobsBenchmark Jobs
Jobs found in many organizationsJobs found in many organizations..
Internet-Based Pay SurveysInternet-Based Pay Surveys
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Pay StructuresPay StructuresJob FamilyJob Family Group of jobs with common organizational Group of jobs with common organizational
characteristics.characteristics.
Common Pay StructuresCommon Pay Structures Hourly and salariedHourly and salaried Office, plant, technical, professional, managerialOffice, plant, technical, professional, managerial Clerical, information technology, professional, Clerical, information technology, professional,
supervisory, management, and executivesupervisory, management, and executive
Pay GradesPay Grades Groupings of individual jobs having approximately the Groupings of individual jobs having approximately the
same job worth.same job worth.
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More on Pay StructuresMore on Pay StructuresMarket BandingMarket Banding
Grouping jobs into pay grades based on similar Grouping jobs into pay grades based on similar market survey amounts.market survey amounts.
Market LineMarket Line
Shows relationship between job value as Shows relationship between job value as determined by job evaluation points and job determined by job evaluation points and job value based on pay survey rates.value based on pay survey rates.
Shows distribution of pay for surveyed jobsShows distribution of pay for surveyed jobs
Linear trend line to be developed by the Linear trend line to be developed by the least-least-squares regression method.squares regression method.
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Market-Banded Pay Grades Example (Bank)
*Computed by averaging the pay survey summary data for the jobs in each pay grade.
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Pay RangesPay Ranges
BroadbandingBroadbanding Using fewer pay grades having broader pay ranges Using fewer pay grades having broader pay ranges
that in traditional systems.that in traditional systems. BenefitsBenefits
Encourages horizontal movement of employeesEncourages horizontal movement of employees
Is consistent with trend towards flatter Is consistent with trend towards flatter organizationsorganizations
Creates a more flexible organizationCreates a more flexible organization
Encourages competency developmentEncourages competency development
Emphasizes career developmentEmphasizes career development
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Individual PayIndividual Pay
Rates Out of RangeRates Out of Range Red-Circled EmployeeRed-Circled Employee
An incumbent (current jobholder) who is paid An incumbent (current jobholder) who is paid above the range set for the job.above the range set for the job.
Green-Circled EmployeeGreen-Circled Employee
An incumbent who is paid below the range set for An incumbent who is paid below the range set for the job.the job.
Pay CompressionPay Compression Pay differences among individuals with different levels Pay differences among individuals with different levels
of experience and performance in the organization of experience and performance in the organization are reduced.are reduced.
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Pay Adjustmen
t Matrix
Compa-ratioCompa-ratio The pay level divided by the The pay level divided by the
midpoint of the pay range.midpoint of the pay range.
ratio)-(Compa 89 100(midpoint) 15.00
pay)(current $13.35 Employee J
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