compensation and benefits obhr e-100 november 6, 2007
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Compensation and Benefits
OBHR E-100
November 6, 2007
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© Houghton Mifflin Co. All rights reserved.
Figure 11.1 Components of the Compensation System
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Types of Equity
External Equity: Comparisons of similar jobs in different organizations
Internal Equity: Relationship among jobs within a single organization
Individual Equity: Comparisons among individuals in the same job within the same organization
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External Equity
Salary surveysWithin Industry – products and servicesGeographical Occupational – experience and skills
Pay level policyMatch, lead, lag the market
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Internal Equity
Job evaluationJob rankingJob classification or gradingPoint method
Compensable factors – dimensions of the job that will be the basis for paying employees
e.g. skills, knowledge, abilities, working conditions
Hay a widely used system based on “know-how, problem-solving, and accountability”
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Individual Incentives
CommissionsBonusesSkill-Based PayMerit Pay
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Variable Pay
Goal: Reward Employees Who:
Understand the goals of the organization
Know their role in accomplishing these goals
Accept that their rewards are related to their contribution to the goal attainment of the organization
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Motivation – Expectancy Theory
Expectancy – Individual perception that effort will result in desired performance.
Instrumentality – Perceptions of the probability that performance will result in rewards.
Valence – The subjective value or desirability of the award.
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Barriers to Pay-for-Performance Success
Nature of the Task
Performance Measurement
Amount of Payout
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Examples employees not having these understandings (being “misaligned”)
What is being signaled to co-workers when well-intentioned but ineffective employees are given merit increases similar to more effective employees?
What does it say when executives are given large bonuses after the organization has had a below-average year, and only small increases are given to other workers?
What is being signaled if bonuses are paid even when the organization did not earn the profits necessary?
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Benefits
Mandatory programsOptional programs
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Mandatory Programs
Social Security
Unemployment Compensation
Workers’ Compensation
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Social Security (www.ssa.gov)
Mandatory for most of working population Provides
Limited income in retirement Survivor benefits for
Spouses Unmarried children up to 18, 19 if in school Children any age if disabled before age 22 Parents over 62
Medicare – separate health insurance program for those over 65 (www.medicare.gov)
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Issues with Social Security
Changing Demographics (www.ssa.gov)
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Unemployment Compensation
Temporary income for out-of-work employees
Recipients must be looking for workIncome is at the rate of 50 to 80% of
normal payManaged by each state in accordance
with Federal guidelines
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Workers’ Compensation
No fault disability insurance for workers injured or killed on the job
Employers pay premiums based on worker injury experience
Established in accordance with state laws so provisions vary
Is the only recourse for workplace injuries for employees
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Optional Benefit Programs
HealthLifeDisabilityRetirementPaid Time OffOthers
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Issues in Health Care Design and Cost Containment
Deductible Coinsurance Coordinating Benefits Preferred Provider Organization (PPO) Health Maintenance Organization (HMO) Health Savings Accounts – High Deductible
Plans
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© Houghton Mifflin Co. All rights reserved.
Figure 13.3 Percent Change in Health Spending Compared to Other Indicators
Source: The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2004 Annual Survey (Menlo Park, CA: Henry J. Kaiser Family Foundation, 2004).
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Types of Retirement Plans
Defined ContributionBenefits are a function of contributions plus
investment gains or losses401(k) or thrift plansTax-deferred contributions
Defined BenefitBenefits based on a formula that includes
length of service and average earnings
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Paid Time Off
Compensation for Time Not WorkedHolidaysVacationSick LeavePersonal days
Other Leaves (paid and unpaid)
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Other optional benefit programs
Tuition assistanceWork / life
Child careElder careEmployee assistance program
Discounts
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© Houghton Mifflin Co. All rights reserved.
Table 13.4 Most Popular Family Workplace Initiatives
Source: Adapted from Society for Human Resource Management, “2001 Benefits Survey,” April 2000. (Available at: http://www.shrm.org/surverys/results/default.asp?page=01benefits.asp)
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Professional Development
World at Work Formerly the American Compensation
Association Intensive Certification Programs for
Compensation Professionals – Training & Testing
Publicationswww.worldatwork.org