Atomic Dog Publishing, Inc.

Report
Chapter 9
Determining Pay and Benefits
Copyright Atomic Dog Publishing, 2004
Outline
• 9-1 Gaining Competitive Advantage
• 9-2 HRM Issues and Practices
• 9-3 The Manager’s Guide
Copyright Atomic Dog Publishing, 2004
9-1 Gaining Competitive Advantage
• Linking pay and benefits to competitive advantage
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Improving cost efficiency
Achieving legal compliance
Enhancing the success of recruitment efforts
Reducing morale and turnover problems
Copyright Atomic Dog Publishing, 2004
9-2 HRM Issues and Practices—
Equity Theory
• Formulated by J. Stacy Adams
• People form equity beliefs based on two factors:
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Inputs (I)
- Refer to the perceptions that people have concerning what they
contribute to the job (e.g., skill and effort)
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Outputs (O)
- Refer to the perceptions that people have regarding the returns
they get (e.g., pay) for the work they perform
• Comparison person is referred to as one’s “referent
other”
Copyright Atomic Dog Publishing, 2004
Equity Theory
• Inequity
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Occurs when the ratio of outputs to inputs is perceived to be
unequal
When employees’ O/I ratios are less than that of their referent
others they feel they are being underpaid
When employees’ O/I ratios are greater, they feel they are
being overpaid
• Equity
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Occurs when the ratio of outputs to inputs is perceived to be
equal
Copyright Atomic Dog Publishing, 2004
Impact of Equity Perceptions
on Employee Behavior
• Responses to feeling underpaid
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Decrease inputs
Escape the situation
Absenteeism
Turnover
Decrease amount of effort exerted on the job
• Responses to feeling overpaid
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As satisfying as equity
May be somewhat dissatisfying
- Not nearly as dissatisfying as underpayment
Copyright Atomic Dog Publishing, 2004
Establishing Pay Rates with
an Organization
• Achieving internal consistency
• Achieving external competitiveness
• Recognizing employee contributions
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Achieving Internal Consistency
• Standards for job evaluation
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Consistency
Freedom from bias
Correctability
Representativeness
Accuracy of information
• Assigning jobs to pay grades
Copyright Atomic Dog Publishing, 2004
Point-Factor Method Steps
• Step 1: Select and carefully define the compensable
factors that will be used to determine job worth
• Step 2: Determine the number of levels or degrees for
each factor
• Step 3: Carefully define each degree level
• Step 4: Weight each compensable factor in terms of
its relative importance
• Step 5: Assign point values to the degrees associated
with each compensable factor
Copyright Atomic Dog Publishing, 2004
Assigning Jobs to Pay Grades
• Jobs are grouped into pay grades based on the total
number of points received
• Job with the same or similar point values are grouped
together
• Administrators use pay grades
Copyright Atomic Dog Publishing, 2004
Achieving External Competitiveness
• Collecting salary survey information
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Provides information on pay rates offered by a firm’s
competitors for certain benchmark jobs
• Establishing a pay policy
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Stipulates how well a company will pay its employees relative
to the market
• Establishing pay rates
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Market rates identified by salary surveys are used for
benchmark jobs
Non-benchmark job pay rates are calculated by a pay policy
line
- Pay policy line is figured out by using a statistical analysis of the
benchmark job data
Copyright Atomic Dog Publishing, 2004
Recognizing Employee Contributions
• Equity is achieved when employees believe that their
pay fairly reflects their contribution
• An organization must establish a pay range for each
pay grade
• Each employee must then be placed within that range
based on their contribution to the organization
Copyright Atomic Dog Publishing, 2004
Establishing a Pay Range
• Pay range
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Specifies the minimum and maximum pay rates for all jobs
within a grade
• Market rate usually serves as the midpoint of the
range
• Different ranges have different spreads
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Office and production work—10 to 25 percent
Professional and lower-level management—35 to 60 percent
Top-level management—60 to 120 percent
Copyright Atomic Dog Publishing, 2004
Skill-Based Pay
• Based on the assumption that workers who acquire
additional skills can make a greater contribution to the
organization
• Pay increases are given to employees who acquire
new, job-related skills
Copyright Atomic Dog Publishing, 2004
Implementing a Skill-Based Pay
Program
• Step 1: Identify tasks that need to be performed
• Step 2: Determine what skills are needed to perform
the tasks
• Step 3: Develop tests or measures to determine
whether an individual has learned the skills
• Step 4: Price each skill based on its value to the
organization
• Step 5: Communicate to employees the skills they can
learn and how much they will be paid for learning
them
Copyright Atomic Dog Publishing, 2004
Skill-Based Pay Strengths
& Weaknesses
• Strengths
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Financial incentive to
improve skills
Broadened skills which lead
to a wider perspective
Better communication skills
Flexibility in
staffing/scheduling
Commitment to the
organization
• Weaknesses
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Copyright Atomic Dog Publishing, 2004
Additional labor costs
May lead to inequity
perceptions
Not cost effective if company
does not use the acquired
skills
Problems determining the
skill levels of different
employees
Possible administrative
burden to develop additional
training programs
Legal Constraints on Pay Practices
• Minimum wage and overtime
• Pay and discrimination
• Workers’ compensation
• Unemployment compensation
• Social security
• Insurance
• Pensions
Copyright Atomic Dog Publishing, 2004
Minimum Wage and Overtime
• Primary law regulating minimum wage and overtime
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Fair Labor Standards Act (FLSA)
• Exempt employees
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Not governed by minimum wage and overtime requirements
Employees consist of those holding executive, administrative,
professional, and outside sales jobs
• Nonexempt employees
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Governed by minimum wage and overtime requirements
Consists of all employees not considered exempt
Copyright Atomic Dog Publishing, 2004
Minimum Wage and Overtime
Provisions
• Minimum wage provisions
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Raised to $5.15 an hour by Congress in 1996
Training wage of $4.25 an hour for teenagers in the first 90
days of a job
If a states minimum wage level differs from the federal
minimum wage level, the employer must pay the higher of the
two rates
• Overtime provisions
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Applies to nonexempt employees who work in excess of 40
hours/week
Overtime pay rate must be no less than 1.5 times the
employees regular pay rate
Copyright Atomic Dog Publishing, 2004
Pay and Discrimination
• The Equal Pay Act
• The gender pay gap
• Comparable worth and the law
Copyright Atomic Dog Publishing, 2004
The Equal Pay Act
• Passed as an amendment to the FLSA in 1963
• Prohibits sex discrimination in pay
• Unequal pay is allowed for equal work under
circumstances that are based on differences in:
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Seniority
Productivity
Merit
Or any factor other than sex
Copyright Atomic Dog Publishing, 2004
The Gender Pay Gap
• Women only earn $0.72 for every $1 that men earn at
the EPA
• Those who espouse the “market factor” of the pay gap
attribute the differences to the following factors:
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Many more women than men work part-time
Women tend to stay in the workforce for shorter periods of
time
- This means that women have less seniority
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Women voluntarily choose to enter lower paying career fields
Copyright Atomic Dog Publishing, 2004
Comparable Worth and the Law
• To win a comparable worth case:
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Plaintiffs must prove disparate impact caused by intentional
discrimination
• When arguing a comparable worth case under Title
VII:
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Employees must demonstrate that significant salary
differences exist between workers in male- and femaledominated jobs of comparable worth
• Employers can still win a case if they can prove that
pay differences are not the result of intentional
discrimination
Copyright Atomic Dog Publishing, 2004
Workers’ Compensation
• Designed to provide financial protection for individuals
injured on the job
• Compensation is provided for:
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Medical expenses
Lost wages
Death, dismemberment, or permanent disability
Copyright Atomic Dog Publishing, 2004
Unemployment Compensation
• Provide income to unemployed individuals who have
lost a job through no fault of their own
• Eligible workers receive weekly stipends for 26 weeks
• Disqualifications for receiving benefits:
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Quitting one’s job without good cause
Being discharged for misconduct connected with work
Refusing suitable work while unemployed
Copyright Atomic Dog Publishing, 2004
Social Security
• Provides monthly benefits to retired workers who are
at least 62 years of age, disabled workers, and their
eligible spouses and dependents
• Financed by contributions made by the employee and
matched by the employer
• Computed as a percentage of the employee’s
earnings
• Act also provides Medicare coverage for anyone who
is entitled to retirement benefits
Copyright Atomic Dog Publishing, 2004
Continuation of Health Benefits
• Consolidated Omnibus Budget Reconciliation Act
(COBRA)
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Provides continuation of health insurance coverage for a
period of up to three years for employees who leave a
company through no fault of their own
Employees are required to pay premiums at the company’s
group rate
Copyright Atomic Dog Publishing, 2004
Insurance
• Health insurance
• Long-term disability (LTD) insurance
• Life insurance
Copyright Atomic Dog Publishing, 2004
Health Insurance
• Types of health insurance programs
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Traditional
Health maintenance organizations (HMOs)
Preferred provider organizations (PPOs)
Point-of-service plans (POS)
Self-insured medical coverage
Copyright Atomic Dog Publishing, 2004
Long-Term Disability Insurance
• Provides replacement income for an employee who
cannot return to work for an extended period of time
due to illness or injury
• Program may be temporary or permanent
• Benefits are customarily set between 50 and 67
percent of that person’s income
Copyright Atomic Dog Publishing, 2004
Life Insurance
• Life insurance plans cover 94 percent of all full-time
employees
• Premiums are usually paid by the employers
• Employee contributions, if required, are typically a set
amount per $1,000 coverage based on age
• Employees are often given the opportunity to expand
their coverage by purchasing additional insurance
Copyright Atomic Dog Publishing, 2004
Pensions
• May be the largest single benefit employees receive
• Defined benefit plans
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Specify the amount of pension a worker will receive on
retirement
• Defined contribution plans
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Specify the rate of employer and employee contributions
• Employee Retirement Income Security Act of 1974
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Ensures that employees will receive the pension benefits due
to them, even if the company goes bankrupt or merges with
another firm
Copyright Atomic Dog Publishing, 2004
Perquisites and Services
• Employee perquisites
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Reimbursement for educational expenses
Discount on company products or services
• Employee services
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Wellness programs
Employee assistance programs
• Executive perquisites
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Stock options
Company cars
Copyright Atomic Dog Publishing, 2004
Flexible Benefit Plans
• Also known as cafeteria plans
• Allow employees to choose among various benefits
and levels of coverage
• Employees may choose to receive cash or purchase
benefits from among the options provided under the
plan
• Such plans are now being offered by nearly one-third
of all U.S. companies
Copyright Atomic Dog Publishing, 2004
Cost Containment
• Contains worker’s compensation costs
• Delete benefits
• Implement utilization review programs
• Choose the right health insurance carrier
• Increase the attractiveness of benefits
Copyright Atomic Dog Publishing, 2004
9-3 The Manager’s Guide—
Compensation & the Manager’s Job
• Manager’s responsibilities regarding pay
• Manager’s responsibilities regarding benefits
• How the HRM department can help
Copyright Atomic Dog Publishing, 2004
Manager’s Responsibilities
Regarding Pay
• Evaluating the worth of jobs
• Negotiating starting salaries
• Recommending pay raises and promotions
• Compliance with the FLSA
• Notifying the HRM department of job changes
Copyright Atomic Dog Publishing, 2004
Manager’s Responsibilities
Regarding Benefits
• Dealing with employees on workers’ compensation
leave
• Helping to contain unemployment compensation costs
Copyright Atomic Dog Publishing, 2004
How the HRM Department Can Help
• Pay-related responsibilities
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Establish rates of pay
Establish procedures for administering pay plans
Ensuring compliance with antidiscrimination laws
• Benefit-related responsibilities
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Selecting and administering the organization’s benefit options
Communicates benefits-related information to employees
Copyright Atomic Dog Publishing, 2004

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