Total Rewards and Compensation

Total Rewards Monetary and non-monetary rewards used to attract, motivate, and retain employees Rewards System Strategic Objectives Legal compliance Cost effectiveness Internal and external equity for employees Recognizing contribution to maximize performance and manage talent

Compensation Approaches
Traditional 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

Total Rewards Approach

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

Total Rewards Components

Compensation Philosophies

HR Metrics for Compensation

Typical Division of HR Responsibilities: Compensation

Compensation System Design Issues

Fairness Internal Equity

Procedural Distributive Interactional

External Equity Privacy Transparency

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Market Competitiveness and Compensation Lead the market Meet the market Lag the market

Compensation Quartile Strategies

More Compensation System Design Issues

Identification of the required competencies Progression and compensation of employees Limitations on who can acquire more competencies

CompetencyBased Pay Systems

Training in the appropriate competencies

Certification and maintenance of competencies
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More Compensation System Design Issues

Individual vs. Team Rewards

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.
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Possible Components of Global Employee Compensation

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Legal Constraints on Pay Systems

Minimum wage Child labor Exempt vs. nonexempt status Overtime

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Exempt Status Under the FLSA

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Compensation for Overtime Work

Common Overtime Issues

Compensatory Time Off

Incentives for Non-exempts

Training Time

Travel Time

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Legislation Affecting Compensation

Compensation and the Law

Davis-Bacon Act Walsh-Healy Act McNamara-OHara Act

Equal Pay Act of 1963 and Pay Equity

State and Local Laws

Garnishment Laws

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Compensation Administration Process

Pay Structure Pay grades Pay ranges

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Valuing Jobs with Job Evaluation Methods

Job Evaluation
Means used to identify the relative worth of jobs within an organization.

Compensable Factor

Job value common among a group of jobs. Something for which an organization chooses to compensate an employee.

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Examples of Compensable Factors for Different Job Families

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Job Evaluation Methods

Job Evaluation Methods

Point Method

Ranking Method

Classification Method

FactorComparison Method

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Job Evaluation Methods

Point method Ranking method Classification method Factor-comparison method

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Valuing Jobs Using Market Pricing

Market Pricing

Using market data to identify the relative value of jobs based on what other firms pay for similar jobs.
Advantages Disadvantages
It relies on market survey data.
A specific job may differ from a matching job in the survey. The market datas scope (range of sources) is a concern.

Ties organizational pay levels to the external job market, without internal job evaluation distortion.
Communicates to employees that the compensation system is market linked.

Tying pay levels to market data can lead to wide fluctuations.

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Pay Surveys
Collection of data on compensation rates for workers performing similar jobs in other organizations.

Benchmark Jobs

Jobs found in many organizations.

Internet-Based Pay Surveys

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Pay Structures
Job Family

Group of jobs with common organizational characteristics. Hourly and salaried

Common Pay Structures

Office, plant, technical, professional, managerial

Clerical, information technology, professional, supervisory, management, and executive Groupings of individual jobs having approximately the same job worth.
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Pay Grades

Compensation Administration Process

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More on Pay Structures

Market Banding

Grouping jobs into pay grades based on similar market survey amounts.

Market Line

Shows relationship between job value as determined by job evaluation points and job value based on pay survey rates. Shows distribution of pay for surveyed jobs Linear trend line to be developed by the leastsquares regression method.
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Market-Banded Pay Grades Example (Bank)

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*Computed by averaging the pay survey summary data for the jobs in each pay grade.

Example of Pay Grades and Pay Ranges

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Pay Ranges
Broadbanding Using fewer pay grades having broader pay ranges that in traditional systems. Benefits
Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization

Encourages competency development

Emphasizes career development
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Individual Pay
Rates Out of Range

Red-Circled Employee An incumbent (current jobholder) who is paid above the range set for the job. Green-Circled Employee An incumbent who is paid below the range set for the job.

Pay Compression

Pay differences among individuals with different levels of experience and performance in the organization are reduced.
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Pay Adjustment Matrix

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Compa-ratio

The pay level divided by the midpoint of the pay range.

Employee J $13.35 (current pay) 100 89 (Compa -ratio) 15.00 (midpoint)
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Standardized Pay Adjustments

Standardized Pay Increases

Seniority

Cost-of-Living Adjustments (COLA)

Across-theBoard Increases

Lump-Sum Increases (LSI)

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