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CHAPTER 11

Establishing r ewar ds
and pay plans

DeCenzo and Robbins HRM 7th Edition 1


CHAPTER 11 TOPICS:
❘ 1: Rewards classifications
❘ 2: Membership-based rewards
❘ 3: Goal of compensation administration
❘ 4: Approaches to job evaluation
❘ 5: Developing the final wage structure
❘ 6: Competency-based compensation
❘ 7: Executive pay
❘ 8: Global issues

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1: REWARD
CLASSIFICATIONS

❚ Intrinsic - Extrinsic

❚ Financial-
Nonfinancial

❚ Membership-
Performance

DeCenzo and Robbins HRM 7th Edition 3


1: INTRINSIC REWARDS

❚ Personal
satisfaction from
the job itself
❚ Consistent with own
value system
❚ Decision making
❚ Freedom
❚ Control
❚ AND/OR….

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1: INTRINSIC REWARDS

❚ Responsibility
❚ Interesting work
❚ Personal growth
❚ Diversity of
activities

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1: EXTRINSIC REWARDS

❚ Beyond the work


itself
❚ Come from
management
❚ Financial and/or
non-financial
❚ Financial may be
performance- or
membership-based
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1: EXTRINSIC FINANCIAL
REWARDS

❚ Wages
❚ Bonuses
❚ Profit-sharing
❚ Vacations
❚ Sick leave
❚ Purchase discounts

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1: EXTRINSIC
NONFINANCIAL REWARDS

❚ Extras at the
disposal of the
company
❚ Do not affect the
financial position of
the employee
❚ Creative
❚ Varied

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1: EXTRINSIC
NONFINANCIAL REWARDS

❚ Office furnishings
❚ Lunch hours
❚ Parking spaces
❚ Work assignments,
locations
❚ Business cards
❚ Secretary
❚ Titles

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2: MEMBERSHIP-BASED
REWARDS

❚ Most organizational
rewards
❚ Regardless of
performance
❚ Examples
❙ Cost-of-living increases
❙ Benefits
❙ Salary due to labor
market conditions

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3: COMPENSATION
ADMINISTRATION GOALS

❚ Job evaluation
based
❚ Cost-effective pay
structure
❙ Attract, motivate,
retain
❚ Fair
❚ Legal

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3: COMPENSATION
ADMINISTRATION LAWS

❚ FAIR LABOR
STANDARDS ACT

❚ EQUAL PAY ACT

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3: FAIR LABOR
STANDARDS ACT

❚ Exempt -
professional and
managerial
❚ Overtime pay
❚ Minimum wage
❚ Prevailing wage
❚ Child labor
restrictions
❚ Record keeping

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3: EQUAL PAY ACT

❚ Prevents
discrimination
❚ Equal pay for equal
work
❚ Women still earn
only 75% of what
male counterparts
earn

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4: JOB EVALUATION

❚ Job ranking indicates


value to
organization
❚ Higher value jobs
should be paid more
❚ Skills and
performance levels
of individuals are
additional issues

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4: JOB EVALUATION
CRITERIA

❚ Present in all jobs


❚ Present in varying
degrees
❚ Measurable
❚ Compensable factors

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4: COMPENSABLE
FACTORS

❚ Use 3 to 5
❚ May be subdivided
❚ Examples
❙ Skill
❙ Education
❙ Working conditions
❙ Effort
❙ Responsibility

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4: METHODS OF JOB
EVALUATION

❚ Ordering

❚ Classification

❚ Point

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4: ORDERING METHOD
❙ No attempt to
identify compensable
factors
❙ Rank order jobs from
most important to
least
❙ No distance
identification
❙ Simple, good for
small companies

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4: CLASSIFICATION
METHOD

❚ Government
❚ General Schedules
❚ Compensable factors
❙ Skill
❙ Knowledge
❙ Responsibility
❚ Complicated to
develop
❚ Easy to use, stable

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4: POINT METHOD

❚ Compensable factors
❚ Divided into degrees
❚ Flexibility
❚ Good to address
comparable worth

❘ See Exhibit 11-3

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Exhibit 11-3: Excerpts from a Point Method

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5: ESTABLISHING THE
PAY STRUCTURE

❚ Compensation surveys
❙ Industry
❙ Location
? ❚ Items
❙ Wage levels
❙ Shift differentials
❙ Vacation days
❙ Holiday allowances
❙ Minimum wage levels

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5: ESTABLISHING THE
WAGE STRUCTURE

❚ Wage curves
❚ Relationship between
job value and wages
❚ Plot on a graph
❚ Identify outliers
❚ Red circled - high
❚ Green circled - low

– See Exhibit 11-4

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Exhibit 11-4: A Wage Curve

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5: THE WAGE STRUCTURE

❚ After drawing wage


curve
❚ Develop wage
structure

• See Exhibit 11-5

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Exhibit 11-5: A Sample Wage Structure

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6: COMPETENCY-BASED
COMPENSATION

❚ Individual incentives
❙ Merit pay
❙ Piecework plans
❙ Commissions
❙ Time saving bonuses

❚ Group incentives

❚ AND….

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6: COMPETENCY-BASED
COMPENSATION

❚ Plant-wide
incentives
❙ Scanlon Plan
❙ IMPROSHARE
❙ Cost reduction
❙ Profit sharing
❙ Gain-sharing
❙ Dilution effect
problem

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6: PAYING FOR
PERFORMANCE
❚ More than time on
the job

❚ Piecework
❚ Gainsharing
❚ Wage incentive
plans
❚ Lump sum bonuses

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6: PAYING FOR
PERFORMANCE

❚ Performance>>>>
rewards
❚ Motivation
❚ Popular
❚ Not added to base
❚ Control of
individual or group

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6: PAYING FOR
PERFORMANCE

❚ EXAMPLES
❚ Competency-based
❚ Broad-banding
❚ Team-based
compensation

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7: EXECUTIVE PAY

❚ Salaries
❚ Supplements
❙ Deferred
compensation
❙ Hiring bonus
❙ Stock options
❚ Golden parachutes
❚ AND….

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7: EXECUTIVE PAY

❚ Perquisites
❙ Cars
❙ Country clubs
❙ Consulting fees
❙ Retirement
supplements
❙ Expense accounts

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8: GLOBAL ISSUES

❚ Base pay

❚ Differentials

❚ Incentives

❚ Assistance programs

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REVIEW CHAPTER 11

❚ REMEMBER THESE
TERMS???
❙ Wage structure
❙ Compensation survey
❙ Perquisite
❙ Piece rate
❙ Red circled job
❙ Membership based
rewards
❙ Compensable factor

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QUICK: REVIEW
CHAPTER 11

❙ ANSWER THESE QUESTIONS ON A


SHEET OF PAPER.
❘ 1. THE MOST IMPORTANT THING WE DID IN
CLASS TODAY _______.
❘ 2. I STILL HAVE QUESTIONS ABOUT___.
❘ 3. THE BEST THING ABOUT CLASS TODAY
WAS _______________.
❘ 4. DON’T DO ____________ ANYMORE.
• TURN THEM IN, PLEASE. NO NAMES. WE’LL TALK
NEXT CLASS SESSION

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PREVIEW: CHAPTER 12

❚ Ask 3 employees you know:


❘ 1 20-year-old
❘ 1 40-year-old
❘ 1 60-year-old
❚ Which is more important to you???
❙ Vacation days or education allowance
❙ Dental insurance or child care allowances
❙ Work at home or more life insurance
❘ Write up their responses for 1 extra point on your final grade.

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Exhibit 11-1: Structure of Rewards

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Exhibit 11-2: Federal Minimum Wage

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Exhibit 11-3: Excerpts from a Point Method

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Exhibit 11-6: A Sample Banding

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