Compensation

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Compensation

• The most misunderstood HR tool

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Goals

• Complexity of compensation as HR Tool
• Pay fairness (not motivational, more retention,
  recruitment)
• Ways to determine base pay
• Ways to determine merit pay
• Strategic implications of compensation
• More from HR perspective
• Supervisorunderstanding of issues.

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A scenario

• John and Sarah do the same job. John is paid 60G
  Sarah is paid 50G.
• Is this pay difference fair. Why or why not?
• There are lots of possible explanations.

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Complexity issues

• Attraction of job applicants
• Retention of current employees
• Motivation
• Managing Labor Costs
• Legal issues
• Communication of strategic issues

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• How to motivate, retain, recruit, create
  organizational competencies?
• Add to this Pay secrecy
• Policy to match competitive offers.
• Strategic HRM helps to address these issues.
• Example, what does Lincoln electric try to do?
  What are elements of plan?

6
Benefits, Base pay vs Performance based pay.

• Benefits entitlements based on organizational
  membership (next week).
• Base Pay financial remuneration based on work
  performed. Hourly pay, contract period pay (This
  week).
• Performance based pay allows for pay
  differentials based on quality and quantity
  performance dimensions. (next week)

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Influences on Base Pay

• Base Bay is largely a recruitment and retention
  issue.
• Consequently job satisfaction is an issue.

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Impact of base pay on job satisfaction

• Herzberg and dissatisfiers.
• Base pay issues makes people look for other jobs
  long term.
• Short term it helps with retention attraction.
• Base pay is a part of the honeymoon job
  satisfaction. But that diminishes over time.
• Base pay increases similar diminish over time.

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Second perspective Equity drives job base pay job
satisfaction

• Outcomes/inputs relative to
• others outcomes/inputs
• Perceptual and people tend to exaggerate own
  inputs and diminish others inputs.
• More complex than herzberg, but not incompatible.

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How should organizations manage equity issues.

• Example There are seven business professors (not
  administrators) get paid 110,000 for nine months
  (not me), and there is at least one faculty
  member in each Dept in the COB who exceeds this
  figure. 13 in Vet med. More than the governor
  earns. Legislators feel this is not good.
  Students complain about tuition increases. Some
  of these faculty members are not satisfied with
  their wages. How can that be?

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Benchmark
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Lets begin to address the complexities

• Begin with Base Pay. How does one determine base
  pay?
• Remember purpose of base pay!

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Internal equity

• Being paid relative to the inputs (SKAs needed to
  do the job) and outputs (soft and hard measures
  of performance) of other co-employees

14
External Equity

• Being paid relative to the inputs (SKAs needed to
  do the job) and outputs (soft and hard measures
  of performance) of the general labor markets.
• Back to example with Business professors.

15
Common problems

• Wage compression
• Rate of pay increases internally less than rate
  of pay increases externally. Often technical
  specialists--MIS, Engineers. Hot demand.
• New hires who know less get more more than
  experienced workers.

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cont

• Comparable worth
• Internal inputs--pay discrimination. Similar
  work women get paid less regardless of
  occupation! Complex reasons, but just the facts.
  
• Outputs--merit increases and more later.

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Strategic HR to Decide importance of

• Internal vs External equity
• Pay dispersion within and between pay
  classifications
• Depends on the type of fit.
• Example Which type of fit is going to value
  internal equity, external equity.

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How determine External Equity

• Wage and Salary surveys.

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Lincoln Electric

• Cleveland based pay. Does this on a periodic
  basis and makes adjustments. All external
  equity. Machine tools.

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What do you pay your new employee as base bay?

• What influences that choice
• Market leader/laggard. Why market leader, market
  laggard.

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Or

• Have a policy that match external job offers

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As external equity importance increases

• Need to pay above average wages by occupation.
• offer matching policy.

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Internal equity--base pay

• Comparison of inputs.

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Determining Internal Equity

• Job evaluation--skills needed to do the job based
  on job description or other methods

25
Old system of supervisor did not work

• Problems--variances for same work across
  departments.
• Biases and favors.
• Internal and external inequities abound.

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Job evaluation

• Need to take comp course (MGMT 575) to fully be
  conversant in this.
• Examples from class--what do people use in their
  companies to determine base pay?

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Exercise

• Book does not address
• Assign degrees to factors
• Collect information about jobs and measure
  against elements.
• Determine pay grades (including dispersion within
  and between)
• Not Rocket science

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• Link compensable factors to strategic directions.
  Example Hay problem solving, know how,
  accountability. Emphasis PJ fit.
• Need to think what is central to company.
• Hard to know how to do internal equity and pg
  fit.

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Pay secrecy case.
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Summary
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Nothing next week.