Compensation in Organizations: Crunch the Numbers

Chapter 1
1-7
Total average hourly rate= $19
70% of total average hourly rate allocated for wages= .70 x $19=$13.30
Amount allocated for benefits= total average hourly rate – amount allocated for wages
= $19 - $13.30
= $5.70

1-8
$19 total compensation per hour
2080 hours worked per year
100 office workers
Amount company spends on wages and benefits= hourly wage x hours worked x 100 workers
= $19 x 2080 hours x 100
= $3,952,000 per year

Total yearly spending on wages= hourly rate allocated for wages x hours worked in year x 100
workers
= $13.30 x 2080 hours x 100
= $2,766,400

Total yearly spending on benefits= hourly rate allocated for benefits x hours worked in year x
100 workers
= $5.70 x 2080 hours x 100
=$1,185,600

1-9
Company B is spending $3952600 on average yearly compensation for 100 office workers when
these office workers are spending 2080 hours at work in a year.

Total hourly compensation of one worker = $23

Total yearly compensation of one worker = $23 * 2080 = $47,840
Total yearly compensation for 100 workers = $4,784,000

Additional amount required for yearly compensation of 100 workers:

$4,784,000 - $3,952,600 = $831,400

Chapter 2
2-9
Cost of having current employees working on overtime:

Cost of 1 employee working 4 hours extra per week = $30 * 4 = $120

Cost of 1000 employees working 4 extra hours per week = $120 * 1000 = $120,000
Cost of 1000 employees working 4 hours extra for 52 weeks = $120,000 * 52 = $6,240,000

Cost of hiring new employees:

Cost of hourly pay of 100 employees for 40 hrs/week at $20/hr = 100 * 20 * 40 = $80,000
Cost for 52 weeks = $80,000 *52 = $4,160,000

Additional costs for 100 employees:

Recruitment: $5000 * 100 = $500,000

Training: $3000*100 = $300,000
Termination: $12000 * 100 = $1,200,000
Benefits: $10000*100 = $1,000,000
Total additional costs = $3,000,000

Total cost of hiring 100 new employees = $4,160,000 + $3,000,000 = $7,160,000

It is more cost effective to have current employees work overtime.

2-10
Cost of having current employees working overtime: $6,240,000

Cost of hiring new employees:

Cost of hourly pay of 100 employees for 40 hrs/week at $25/hr: 100*25*40 = $100,000
Cost for 52 weeks: $5,200,000

Additional Costs for 100 employees: $3,000,000

Total cost of hiring 100 new employees: $5,200,000 + 3,000,000 = $8,200,000

More cost effective to have existing employees work overtime.

2-11
Cost of having 500 employees working 4 hrs/week extra: $6,240,000*0.50 = $3,120,000

Cost of hourly pay of 50 employees for 40 hrs/week at $20/hr: $50*$40*$20 = $40,000

Cost for 52 weeks: $40,000*52 = $2,080,000

Additional costs for 50 employees: $3,000,000*0.50 = $1,500,000

Total cost of hiring 50 new employees: $2,080,000 + $1,500,000 = $3,580,000

More effective to have 500 existing employees working overtime

Chapter 3
3-8
Year 2015 2016 2017 2018 2019 2020
Anne Brown $50,000 $53,500 $57,245 $61,252.15 $65,539.80 $70,127.59
John Williams $35,000 $36,050 $37,131.50 $38,245.45 $39,392.81 $40,574.59
Math to Compute Adjusted Salaries for Each Year Under a Merit Pay System
Year Anne Brown John Williams
2016 50,000 x 1.07=53,500 35,000 x 1.03=36,050
2017 53,500 x 1.07=57,245 36,050 x 1.03=37,131.50
2018 57,245 x 1.07=61,252.15 37,131.50 x 1.03=38,245.45
2019 61,252.15 x 1.07=65,539.80 38,245.45 x 1.03=39,392.81
2020 65,539.80 x 1.07=70,127.59 39,392.81 x 1.03=40,574.59

3-9
Annual Longevity Payment
Year 2015 Base 2016 2017 2018 2019 2020 2020 Base
Anne Brown $50,000 $2,500 $2,625 $2,756.25 $2894.06 $3038.77 $63,814.08
John Williams $35,000 $1,750 $1,837.50 $1,929.38 $2,025.84 $2,127.14 $44,669.86

Math to Compute Annual Longevity Payment

Year Anne Brown John Williams
2016 50,000 x .05=2,500 35,000 x .05=1,750
2017 52,500 x .05=2,625 36,750 x .05=1,837.50
2018 55,125 x .05=2,756.25 38,587.50 x .05=$1,929.38
2019 57,881.25 x .05=2,894.06 40,516.88 x .05=2,025.84
2020 60,775.31 x .05=3,038.77 42,542.72 x .05=2,127.14
2020 Base 60,775.31 + 3,038.77=63,814.08 42,542.72 + 2,127.14=44,669.86

3-10
Anne Brown: $50,000 x 1.05= $52,500 at end of 2016
5 percent increase= $2,500

John Williams: $35,000 + $2,500= $37,500 at end of 2016

Percent increase for John Williams= $37,500/$35,000= 1.0714
= 7.14 percent annual increase rate