REWARD SYSTEMS SHOULD ENCOURAGE WORKERS TO:

JOIN AND REMAIN WITH THE ORGANIZATION Attraction & Membership Loyalty & Longevity PERFORM THEIR JOBS EFFECTIVELY Attendance and Required Behavior Accomplish Specific Results Do What is Expected ENGAGE IN SPONTANEOUS, INNOVATIVE BEHAVIOR ON BEHALF OF THE FIRM Put Themselves Out by Going the 2nd Mile Demonstrate Committed We Care Behavior Doing the Unexpected, But Highly Appreciated
ORGANIZATIONAL CITIZENSHIP BEHAVIOR

COMPENSATION ISSUES
HOW TO DIVIDE THE COMPENSATION DOLLAR Base Wages Incentives Benefits PAY EQUITY (Fairness) INTERNAL Compared to other jobs within the organization EXTERNAL Compared to similar jobs outside the organization CONFIDENTIALITY OF THE PAY SYSTEM Is it secret, or are the scales and criteria public information?

COMPENSATION ISSUES, CONTD

NUMBER OF PAY SYSTEMS
SEPARATE PAY SYSTEMS FOR DIFFERENT OCCUPATIONAL GROUPS?
Different factors determine the worth of these positions (clerical, professional, skilled trades)

ONE SINGLE PAY SYSTEM FOR THE WHOLE ORGANIZATION

This approach appears fairer and avoids comparable worth issues

ABILITY TO PAY COMPETITIVE WAGES

SET PAY AT, ABOVE, OR BELOW THE GOING RATES IN THE INDUSTRY What can we afford? What other compensation do we provide?

PHILOSOPHY OF EXECUTIVE COMPENSATION

Wage differences between the top and bottom jobs in the firm ( multiples )

PHILOSOPHY OF WAGE PROGRESSION

Number of pay grades and amount of overlap between them Number of steps within each grade? On what basis is each move (step) granted? Merit? Seniority? Experience?

THREE POSSIBLE BASE PAY SYSTEMS

A SINGLE RATE FOR EACH JOB There is no range, this job pays $12.00/hr There are no pay increments awarded for either seniority or merit A PAY RANGE FOR EACH JOB The pay for this job ranges from $11.00 to $17.00/hr On what basis do employees progress through the range?
SENIORITY? TIME-IN-GRADE? MERIT?

How large should each step or increment be? $.50? $1.00? $2.00? A PAY GRADE SYSTEM Several jobs are grouped together into a single pay grade All these jobs will share a common pay range Painters, mechanics, and truck drivers are paid from $10.50 to 16.85/hr

COMPENSATION ISSUES, CONTD

NUMBER OF PAY SYSTEMS
SEPARATE PAY SYSTEMS FOR DIFFERENT OCCUPATIONAL GROUPS?
Different factors determine the worth of these positions (clerical, professional, skilled trades)

ONE SINGLE PAY SYSTEM FOR THE WHOLE ORGANIZATION

This approach appears fairer and avoids comparable worth issues

ABILITY TO PAY COMPETITIVE WAGES

SET PAY AT, ABOVE, OR BELOW THE GOING RATES IN THE INDUSTRY What can we afford? What other compensation do we provide?

PHILOSOPHY OF EXECUTIVE COMPENSATION

Wage differences between the top and bottom jobs in the firm ( multiples )

PHILOSOPHY OF WAGE PROGRESSION

Number of pay grades and amount of overlap between them Number of steps within each grade? On what basis is each move (step) granted? Merit? Seniority? Experience?

INTERNAL JOB EVALUATION METHODS

RANKING
Manager rank-orders all jobs in descending order of importance Used in small organizations with a limited number of different jobs

CLASSIFICATION SYSTEM
Jobs are grouped together into clusters with similar difficulty A generic description is written for each cluster or grade (classification) US Postal Service all jobs are slotted into one of 16 job grades

FACTOR COMPARISONS
Key jobs selected and ranked on four or five job factors (skills, effort, resp, work cond) Allocate the base wage for each key job across factors (eg, $4 for skill, $3 for effort, etc) Assemble benchmarks into a manual which can be used to set pay for other non-key jobs

POINT SYSTEM
Establish criteria (compensable factors) on which to evaluate all jobs Write degree descriptions which illustrate the variability of demand for each factor Assign weights to each factor; then assign points to each degree descriptor Assemble into a point manual, which can act as a standard to evaluate all jobs The more points allocated to the job, the higher the base wage should be

FACTOR COMPARISONS
PROCEDURES
SELECT KEY JOBS (well-known jobs which we believe are fairly-paid) CREATE RANK ORDERINGS OF THE KEY JOBS WITHIN EACH OF THE UNIVERSAL COMPENSABLE FACTORS Skills Effort (Physical and Mental) Responsibility Working Conditions ALLOCATE THE KEY JOB PAY ACROSS THE COMPENSABLE FACTORS How much of the total wage do you pay for skills? How much for effort? CREATE A FACTOR COMPARISON MANUAL USING YOUR MONETARY ALLOCATIONS TO BENCHMARK THE VALUE OF EACH KEY JOB. USE THIS FACTOR COMPARISON MANUAL TO ASSIGN BASE PAY VALUES TO THE NON-KEY JOBS WITHIN THE ORGANIZATION. THE FACTOR COMPARISON SYSTEM COMPARES JOBS TO JOBS THERE REALLY ISN T ANYTHING SPECIFIC IN THE MANUAL TO PRECISELY DEFINE WHAT SKILLS IS.

FACTOR COMPARISONS
KEY JOBS Systems Programmer Plumber Carpenter Painter Office Secretary BENCHMARKS
SKILL Programmer $ 10 Secretary $ 6 Carpenter $ 5 Plumber $ 4.50 Painter $ 3 EFFORT Plumber $ 6 Carpenter $ 5.50 Painter $ 5 Programmer $ 3 Secretary $ 1 RESPONSIB Programmer $ 6 Secretary $ 4.50 Carpenter $ 3.50 Plumber $ 3 Painter $ 2 WORK COND Plumber $ 4.50 Painter $ 4 Carpenter $ 3 Secretary $ 1.50 Programmer $ 1

Fair Base Pay Rate $ 20/hr $ 18/hr $ 17/hr $ 14/hr $ 13/hr

POINT METHOD
PROCEDURES Establish criteria (more specific examples of compensable factors) on which to evaluate all jobs Write degree descriptions to illustrate the variability of demand for each factor Assign weights to each factor Assign points to each degree descriptor in harmony with the weightings Assemble these descriptions and points into a manual, which can act as a standard to evaluate all jobs Validate the manual by evaluating KEY JOBS on each criterion. Allocate the corresponding points, run a regression analysis on the assigned points and the fair base pay for each key job. If the regression is a good statistical fit, and at least 90% of the key jobs stay within 10% of the calculated regression line, the manual has been validated, and can be used to assign base pay rates to all non-key jobs in the organization. The more points allocated to the job, the higher the base wage should be.

Developing Factors for a Job Evaluation Manual

EDUCATION (20%)
Education represents the knowledge required to perform the duties involved in the job; usually acquired through formal education. Consider only what the job requires, not the education of the current employee on the job. Exclude consideration of on-the-job experiences for this factor. The degrees are expressed in terms of formal education for convenience. Degree 1 Points Definitions

20 Able to read and follow simple oral and written instructions. Can add and subtract. Can fill out simple reports and forms. Equivalent to an eighth grade elementary education. 35 Able to give clear oral and written instructions. Writes reports. Makes simple computations and comparisons. Can multiply and divide, equivalent to skills acquired by a tenth grade education. 50 Good knowledge of high school subjects such as algebra, geometry, physics, chemistry, English, computing or knowledge of commercial, mechanical, or vocational subjects equivalent to a typical high school graduate. 80 One year of college or vocational/technical training beyond the high school level in a specific technical or theoretical subject area. 115 Two years of specific subject knowledge beyond high school is required. Specialized subject knowledge may demand registration, certification, or licensure. Required education is equivalent to an AS degree. 155 200 A specialized baccal aureate degree is required. A specialized master's degree is required.

6 7

A Job Evaluation Manual (outline/illustration) - 1

I. EDUCATION (20%)
1 2 3 4 5 6 7 1 2 3 4 1 2 3 4 5 1 2 3 4 5 6 (20) (35) (50) (80) (115) (155) (200) (10) (40) (80) (100) (20) (60) (120) (170) (200) (18) (40) (70) (105) (150) (180) Able to read, do simple math (add/subtract), and follow instructions (eighth-grade level) Makes comparisons, computes (multiply/divide), writes instructions & reports (tenth grade level) Good knowledge of math, chemistry, English, or computing equivalent to a high school graduate One year of specific subject knowledge technical or trade school equivalent Two years of specific subject knowledge certification/licensure required equivalent to an AS degree Bachelor s degree specialized degree required Master s degree specialized degree required No previous experience required can learn on the job Three to six months previous experience is required At least one year of previous experience is required Must have at least two years previous experience None Informal supervision, provides advice and guidance to 1-4 coworkers Formal supervision, schedules and appraises 1-4 workers Formal supervision of 5-9 workers Formal supervision of ten or more workers Mostly sits; visual demands less than 20% of the day; no required standing or walking Sits about 75% of the day; visual demands less than 50% of the day; stands or walks about 25% of the day High visual demands more than 50% of the day; constant finger motion; moderate standing/walking Rapid hand coordination much of the day; stands more than 50% of the day; occasionally carries loads up to 20 lbs Regularly lifts/carries loads of 50 lbs or more; stands/walks all day long; constant physical activity Regularly lifts/carries loads > 80 lbs; stands, pushes, crawls; very strenuous physical activity much of the day

II. EXPERIENCE (10%)

III. SUPERVISION (20%)

IV. PHYSICAL DEMANDS (18%)

A Job Evaluation Manual (outline/illustration) - 2

V. PROPERTY/LIABILITY (10%)
1 2 3 4 5 1 2 3 4 5 (10) (35) (55) (75) (100) (12) (30) (55) (85) (120) Potential loss < $100; minor equipment maintenance; products; cash; no exposure to confidential information Potential loss $1000; equipment; product quality; cash; lawsuit; exposure/loss of semi-confidential information Potential loss $3000; equipment; product quality; cash; lawsuit; exposure/loss of semi-confidential information Potential loss $6000; cash; equipment; product quality; lawsuit; exposure/loss of highly-confidential information Potential loss $10000; cash; equipment; products; lawsuit; exposure/loss of highly-confidential information Deals only with departmental personnel; rarely has contact with people in other departments Has several important contacts within the organization (other departments); occasionally meets publics (outsiders) Has frequent public contacts and many internal contacts within the organization Nearly constant public contact and many internal contacts; more than 90% of all contacts are friendly Constant public and internal contacts; > 15% of contacts are stressful; tact and negotiating skills needed

VI. PUBLIC CONTACTS (12%)

VII. WORK ENVIRONMENT (10%) 1 (10) Pleasant, well-lit, climate-controlled environment; safe
2 3 4 (35) (60) (100) Workplace is a bit uncomfortable, cramped; dirty/dim/damp; noisy environment; hot/cold Minor injury possible if care is not exercised; exposure to sharp surfaces, minor cuts, slippery floors, sprains and strains Major injury possible if care is not exercised; exposure to fumes, falls, unguarded equipment; safety equipment required

To Validate the Job Evaluation (Point) Manual

1---SELECT 10-15 KEY JOBS FROM WITHIN THE ORGANIZATION. --a KEY job is one that has a well-known job description, and is fairly paid in other words, we believe the current pay for the job is correct/fair. 2---EVALUATE EACH KEY JOB, USING THE JOB DESCRIPTION AND THE POINT MANUAL 3---FOR EACH COMPENSABLE FACTOR, ASSIGN THE APPROPRIATE DEGREE AND THE APPROPRIATE POINT VALUE ASSOCIATED WITH IT. 4---ONCE COMPLETE, TOTAL UP THE POINTS ASSIGNED TO EACH KEY JOB. 5---REPORT THE CURRENT PAY FOR EACH POSITION ( which we assume is fair/correct). 6---PLOT EACH KEY JOB ON A GRAPH (Points assigned on the bottom, Pay rate on the left) 7---RUN A REGRESSION ANALYSIS OF THE DATA. 8---IF THE REGRESSION MODEL IS STATISTICALLY APPROPRIATE, THE MANUAL IS USABLE

Evaluate the Job and Assign Degrees (and Points)

COMPENSABLE FACTORS (Job Specifications) Explanation

FINISH SPRAYER
Assign degree
1 1 1

Points
20 10 20

Education Able to read, write, and make simple math calculations Experience No previous experience needed, can learn on-the-job Supervision Physical Demands No supervisory duties Lifts 50 lbs or more, stands constantly, must turn pieces by hand Keep equip unclogged; paint mistakes cause rework + lost production Works alone all work-related contacts are internal Exposed to fumes and overspray, must wear respirator at all times TOTAL POINTS ASSIGNED

150

Property/Liability

35

Public Contacts

12

Work Environment

100 347

VALIDATING THE POINT MANUAL 1 - Graph the Key Jobs

Point-Factor Method 14 Key Jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 200 250 300 350 400 450

Points Assigned

VALIDATING THE POINT MANUAL 2 - Plot the Regression Line

Point-Factor Method 14 key jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 200 250 300 350 400 450

Points Assigned

Y = 6.4075 + 0.01075(X)

VALIDATING THE POINT MANUAL 3 - Graph 10% Above and Below the Regression Line Are >90% of Key Jobs Within the Bounds?
Point-Factor Method 14 key jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 200 250 300 350 400 450

10% above: Y1.1 = 7.0482 + 0.01183(X)

10% below: Y0.9 = 5.7667 + 0.00968(X)

Points Assigned

Y = 6.4075 + 0.01075(X)

VALIDATING THE POINT MANUAL 4 - Graph 15% Above and Below the Regression Line Are ALL Key Jobs Within the Bounds?
Point-Factor Method 14 key jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 200

15% above: Y1.15 = 7.3686 + 0.01236(X)

15% below: Y0.85 = 5.4463 + 0.00914(X)

250 300 350 400 450 Points Assigned

Y = 6.4075 + 0.01075(X)

CREATING PAY GRADES AND RANGES Build Pay Grades 50 Points Wide Between the High and Low Regression Lines
Point-Factor Method 14 key jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 200

15% above: Y1.15 = 7.3686 + 0.01236(X)

Pay Grades

15% below: Y0.85 = 5.4463 + 0.00914(X)

250 300 350 400 450 Points Assigned

Y = 6.4075 + 0.01075(X)

DISPLAY FINAL PAY GRADES AND RANGES (Point Method Pay System is now Complete)
Point-Factor Method 14 key jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100

12.62 12.00

11.39 10.77 Pay Grades 9.53 8.91 8.87 8.42 7.96 7.50 6.69
150 7.05 200 250 300 350 400 450

10.15

9.33

Points Assigned

PLOT NON-KEY JOBS ON GRAPH WITH PAY GRADES AND RANGES

Point-Factor Method 40 Non-key Jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100 150 7.05 200 250 300 350 400 450

12.62 12.00

11.39 10.77 10.15 9.53 8.91 8.87 8.42 7.96 7.50 9.33

6.69

Points Assigned

WHAT SHOULD BE DONE ABOUT UNDERPAID JOBS? (Green Circle Rates) RAISE PAY UP AS SOON AS POSSIBLE TO THE APPROPRIATE LEVEL
Point-Factor Method 40 Non-key Jobs
$12.00 $11.50 $11.00 $10.50 $10.00

12.62 12.00 11.39

10.77 10.15 9.53

Wages/hr

$9.50

8.91
$9.00

9.33 8.87

$8.50 $8.00 $7.50 $7.00 100

8.42 7.96 7.50

Green Circle
7.05 6.69 150
200 250 Points Assigned 300 350 400 450

WHAT SHOULD BE DONE WITH OVERPAID JOBS? (Gold Circle Rates) LEAVE RATE AS IS DO NOT ADJUST CONTINUE GIVING RAISES & COLAs
Point-Factor Method 40 Non-key Jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00

12.62 12.00 11.39

Gold Circle
10.15 9.53

10.77

$9.50

8.91
$9.00

9.33 8.87

$8.50 $8.00 $7.50 $7.00 100

8.42 7.96 7.50 7.05 6.69 150

200 250 300 350 400 450 Points Assigned

WHAT SHOULD BE DONE WITH OVERPAID JOBS? (Silver Circle Rates) LEAVE RATE AS IS DO NOT ADJUST, CONTINUE COLAs BUT NOT RAISES
Point-Factor Method 40 Non-key Jobs
$12.00 $11.50 $11.00 $10.50

12.62 12.00

Silver Circle
10.77 10.15

11.39

Wages/hr

$10.00

9.53
$9.50 $9.00 $8.50 $8.00 $7.50

8.91 8.87 8.42 7.96 7.50

9.33

$7.00 100 150 7.05 200 250 300 350 400 450

6.69

Points Assigned

WHAT SHOULD BE DONE WITH OVERPAID JOBS? MUST BRING RATES DOWN TO THE (Red Circle Rates) PROPER LEVEL
Point-Factor Method 40 Non-key Jobs
$12.00 $11.50 $11.00 $10.50 Wages/hr $10.00

12.62 12.00

Red Circle
10.77 10.15 9.53

11.39

$9.50 $9.00 $8.50 $8.00 $7.50 $7.00 100

8.91 8.87 8.42 7.96 7.50 7.05 6.69

150 200 250 300 350 400

9.33

450

Points Assigned

STRATEGIES FOR HANDLING DEVIATIONS ABOVE AND BELOW THE RECOMMENDED BASE PAY RATE

GREEN CIRCLE RATES

RAISE PAY UP AS SOON AS POSSIBLE TO THE APPROPRIATE LEVEL

GOLD CIRCLE RATES

LEAVE RATE AS IS DO NOT ADJUST CONTINUE GIVING RAISES & COLAs

SILVER CIRCLE RATES

LEAVE RATE AS IS DO NOT ADJUST, CONTINUE COLAs BUT NOT RAISES

RED CIRCLE RATES

MUST BRING RATES DOWN TO THE PROPER LEVEL

RED CIRCLE STRATEGIES MUST BRING RATES DOWN TO THE PROPER LEVEL
BRING RATES IMMEDIATELY DOWN INTO LINE Give proper notification first PAY A LUMP SUM SETTLEMENT Bring rates into line, but pay a one-time severance settlement PROVIDE AN ADDER SUPPLEMENT Bring rates into line, but issue a supplemental check each pay period that is gradually reduced over time FREEZE PAY RATE IMMEDIATELY No raises given for seniority or COLA Eventually, the entire organizational pay structure will rise (due to COLAs and wage surveys) which will bring the pay rate back into range, at which time the worker will again get raises and COLAs. TRANSFER THE WORKER TO A HIGHER-RATED JOB

COMPENSATION SURVEYS
Needed to attract and retain workers with scarce skills Develops a sense of external equity and fairness Helps the firm maintain an adequate pay structure DETERMINING THE SCOPE OF THE SURVEY Where are we having trouble retaining workers? Where are market rates likely to be different from internal rates? Which jobs are the most difficult to fill? Where are we adding new positions to our organization?

SHOULD WE USE STANDARD WAGE SURVEYS?

PROS: Minimal time investment needed for the individual firm Data is based on large samples adequate representation Surveys conducted by experts people who know how to do it Data is summarized, categorized, easy to interpret CONS: There may be a fee (cost) for access to the data You can t select the specific companies surveyed Can t control the type of data reported (which jobs? benefits?) Data summaries may mask differences you want to examine

COLLECTING YOUR OWN WAGE SURVEY DATA

PHONE INTERVIEW -- (easiest)
+ Quick and relatively easy to do + Job content can be clarified to ensure the jobs are comparable + Can build rapport with respondent over time. Future contacts will be easier. - Puts a burden on the responder to reply immediately (to a possible stranger) - May yield incomplete answers because the respondent didn t anticipate your call - Long phone calls are not welcome. You can t get much data in five minutes.

MAILED QUESTIONNAIRE -- (most common)

+ Can collect data on many different job titles, benefits, etc + Responses aren t rushed allows time for careful thought before answering - Response rates may be very low - Misunderstanding or confusion about comparable jobs cannot be clarified - Only gathers responses to specific questions posed - if you forgot to ask too bad!

COLLECTING WAGE SURVEY DATA, CONTD

INTERVIEW (most reliable)
+ Can ask questions, clarify job titles, etc + Gathers data with minimum impact on respondent + Builds relationships which can make future data exchange easier - Very time consuming to make and set appointments, conduct interviews, etc - Costly method; the expense of travel, etc

CONFERENCE -- (least used, but promising)

+ Takes advantage of professional meetings and conferences of HR personnel + Agenda of jobs to be reviewed, etc. established ahead of time people come prepared + Face-to-face meetings allow clarification and detailed discussion of jobs, benefits, etc - Meetings can be time consuming and tiring, after a day of conference activities - Determining when and where to gather requires coordination with several other firms

THE WAGE SURVEY PACKAGE

Introductory letter or contact Explain purpose and solicit cooperation Assure confidentiality Offer to share a summary of results

INFORMATION PROVIDED
Job titles and summary of duties section

INFORMATION SOUGHT
Comparable job titles in the surveyed organization Base pay ranges (bottom, midpoint, top) Benefits (is the medical, pension, etc. contributory?) Incentives (how large and based on what?)

ADDITIONAL CONSIDERATIONS
Use of stratified samples? Will reminders be sent?

26

Present Pay-Grades
Established by point method job evaluation system

24

22

20

Thousands $

18

16

14

12

10

8 200 300 400 500 600 700 800 900

Points

26

Wyatt Wage Survey of six key jobs

24 22

20

Thousands $

18

16

14

12

10

8 200 300 400 500 600 700 800 900

Points

26

Self Wage Survey

24 22

of same six key jobs

20

Thousands $

18

16

14

12

10

8 200 300 400 500 600 700 800 900

Points

26

Self Wage Survey - of same six key jobs

24 22

20

Thousands $

18

16

14

12

10

8 200 300 400 500 600 700 800 900

Points

26

Shift pay grades up

to capture wage survey trends

24

22

20

Thousands $

18

16

14

12

10

8 200 300 400 500 600 700 800 900

Points

HOW TO ENCOURAGE EXCELLENCE?

ARE WE TAKING FULL ADVANTAGE OF THE REWARDS WE CONTROL? HAVE WE THOUGHT THROUGH THE FULL IMPACT THAT OUR REWARD SYSTEM HAS ON THE ORGANIZATION? DO EMPLOYEES HIGHLY VALUE THE REWARDS WE MAKE AVAILABLE TO THEM? DO EMPLOYEES KNOW WHAT THEY MUST DO TO OBTAIN THESE REWARDS? IN SHORT, DO WE REWARD EXCELLENCE OR MEDOCRITY?

USE INCENTIVE PAY TO REWARD:

PRODUCTIVITY ACHIEVEMENTS & ACCOMPLISHMENTS ACQUISITION OF NEW SKILLS LONGEVITY WITH THE FIRM

HOW TO ADMINISTER INCENTIVE PAY

A. ADD IT TO THE REGULAR PAYCHECK
ONCE ACQUIRED FOREVER PAID NEVER IS EARNED AGAIN INCENTIVE PAY MIXED WITH BASE PAY WORKERS LOSE MOTIVATION

B.

PAY IT ALL OUT AS A LUMP-SUM AT ONE TIME

LARGE CASH OUTFLOWS ARE DIFFICULT FOR THE FIRM TO MANAGE OPPOSED BY UNIONS BECAUSE ANNUAL WAGES DON T GROW

INCENTIVE PLANS AND PERFORMANCE-BASED REWARDS -- 1

1. SENIORITY & LONGEVITY SYSTEMS Rewards loyalty to the firm not productivity or performance Workforce more likely to possess obsolete skills Increments must be granted each year (no limit or cap ) 2. ACQUIRED SKILLS & KNOWLEDGE INCENTIVES The size of pay increments for each added skill Labor costs go up but does productivity improve? Once all skills are mastered what motivates the worker? There are no rewards for work performance

INCENTIVE PLANS AND PERFORMANCE-BASED REWARDS -- 2

3. PIECE RATES & COMMISSIONS Setting fair standards Changing standards and rates Who controls work outcomes? Are there rewards for all the essential duties of the job?

WHEN IS IT FEASIBLE TO USE PIECE RATES?

1. 2. 3. 4. 5. 6. 7. 8. UNITS OF WORK ARE EASY TO DISTINGUISH AND MEASURE QUALITY IS OF LESSER IMPORTANCE THAN QUANTITY WORKER INVOLVEMENT IS A MAJOR DETERMINANT OF PRODUCTIVITY THE WORKER CONTROLS WORK SPEED NOT MACHINE-PACED CLOSE SUPERVISION IS IMPRACTICAL CHANGES IN WORK PROCESSES ARE INFREQUENT YOU HAVE EXPERTS TO SET AND EVALUATE YOUR WORK STANDARDS COMPETITION REQUIRES THAT UNIT LABOR COSTS BE PREDICTABLE

INCENTIVE PLANS AND PERFORMANCE-BASED REWARDS -- 3

4. MERIT REVIEW PLANS
(HAMNER, 75)

WHY DO MERIT PLANS FAIL?

Appraisal ratings seem invalid or biased

APPROPRIATE MEASURES? OBJECTIVITY OR RATERS?

Pay adjustments not seen as being related to performance Supervisors more concerned about satisfaction than performance Incentives offered (type and size) aren t motivating
ARE THESE REWARDS HIGHLY DESIRED? SMALL INCREMENTS DO NOT MOTIVATE

Usually added to base pay as a percentage

EARNED ONCE KEPT FOREVER

Trust and openness about pay and merit increases is very low

INCENTIVE PLANS AND PERFORMANCE-BASED REWARDS -- 4

5. 6.

SUGGESTION SYSTEMS Origin of the idea who should get the credit? Some workers can t write their ideas down Does management follow up on the ideas submitted? Supervisors criticized suggests they re incompetent COST-REDUCTION (GAINSHARING) PLANS
SCANLON, KAISER, RUCKER, IMPROSHARE

Sensitive cost data must be revealed to workers Middle management is left out Unions use the system to criticize management Usually a complex formula for distributing rewards Weakened link between rewards & individual performance

INCENTIVE PLANS AND PERFORMANCE-BASED REWARDS -- 5

7. 8. 9. PROFIT-SHARING PLANS Is there a real link to worker performance? Impact of economic decline what happens to motivation? Determining the formula for distribution STOCK OWNERSHIP PLANS Dilution of control over the company Impact of changes in the tax laws and economic cycles Any real link to worker performance? SPECIAL CONTESTS AND AWARDS
ABSENTEEISM, SALES PROMOTIONS, OUTSTANDING SERVICE AWARDS

Are the consequences of the spirit of competition anticipated?

JEALOUSY, UNCOOPERATIVENESS, COMPETITION WITHIN TEAMS AND GROUPS

Only the Best receives a reward what about # 2? Awards are often seen as rights (I earned it!), not as gifts

FOR INCENTIVE SYSTEMS TO BE SUCCESSFUL

1. 2. 3. PERFORMANCE INDICATORS MUST BE CLEARLY DEFINED STANDARDS MUST BE COMMUNICATED TO WORKERS WORKERS MUST BE ABLE TO INFLUENCE PERFORMANCE ACHIEVEMENT PERFORMANCE MUST BE ACCURATELY EVALUATED REWARDS MUST BE BASED ON WORKER PERFORMANCE REWARDS OFFERED MUST BE HIGHLY VALUED BY WORKERS WORKERS AND MANAGEMENT MUST TRUST EACH OTHER

4. 5. 6. 7.

BENEFITS LEGISLATION REVIEW

WORKER S COMPENSATION
BENEFITS FOR ON-THE-JOB INJURIES

Job Security
UNEMPLOYMENT COMPENSATION
NO-FAULT LOSS OF JOB BENEFITS; 6.2% of first $7000, w/ 5.4% to State

SOCIAL SECURITY
EMPLOYEE RETIREMENT
EMPLOYERS MUST SET ASIDE PENSION OBLIGATIONS ANNUALLY

Health Security
>50+ Employees; Unpaid leave for up to 12 weeks for family/medical emergencies

LEGALLY REQUIRED BENEFITS

SOCIAL SECURITY -- 40 Quarters
RETIREMENT DISABILITY SURVIVOR HEALTH INSURANCE
Earn $500+ per qtr

UNEMPLOYMENT COMPENSATION
NO-FAULT JOB LOSS

26 wks + 13

WORKER S COMPENSATION
JOB-RELATED INJURIES

EXPECTED BENEFITS
PAYMENT FOR TIME NOT WORKED HOLIDAYS VACATIONS SICK PAY FUNERAL LEAVE, ETC. INSURANCE PLANS HEALTH DENTAL VISION LIFE RETIREMENT PLANS PENSION

RETIREMENT PLANS
SOCIAL SECURITY mandated by the government PRIVATE PENSION PLANS
DEFINED BENEFIT vs DEFINED CONTRIBUTION PLANS CONTRIBUTORY vs NONCONTRIBUTORY PLANS INIDIVIDUAL RETIREMENT ACCOUNTS (IRAs) PROFIT SHARING PLANS EMPLOYEE STOCK PLANS Stock Grants Stock Options ESOPs EMPLOYEE RETIREMENT INCOME SECURITY GRATUITY Act, Superannuation

ADEQUATE FUNDING OF PRIVATE PENSION PLANS VESTING REQUIREMENTS REPORTING & DISCLOSURE

FAMILY & MEDICAL LEAVE ACT - 1993

ORGANIZATIONS WITH 50 OR MORE EMPLOYEES EMPLOYED FOR ONE YEAR PRIOR TO LEAVE REQUEST UP TO 12 WEEKS OF UNPAID LEAVE FOR: CHILDBIRTH ADOPTION SERIOUSLY ILL FAMILY MEMBER (Child, Spouse, Parent) EMPLOYEE S OWN ILLNESS EMPLOYERS MUST CONTINUE HEALTH COVERAGE MUST ALLOW RETURN TO SAME/COMPARABLE POSITION KEY EMPLOYEES EXEMPTED (Highest paid 10%)

NON-FINANCIAL COMPENSATION
THE JOB ITSELF
CHALLENGING MEANINGFUL RESPONSIBLE POTENTIAL FOR ADVANCEMENT INTRINSICALLY REWARDING

THE WORK ENVIRONMENT

COMPETENT SUPERVISION CONGENIAL COWORKERS APPROPRIATE STATUS SYMBOLS ENLIGHTENED MANAGERIAL PHILOSOPHY & PROGRAMS

ENLIGHTENED PROGRAMS
WORK SCHEDULES
COMPRESSED WORKWEEK FLEXTIME JOB SHARING/PART-TIME WORK TELECOMMUTING/WORK-AT-HOME

INNOVATIVE COMPANY POLICIES

ALL-SALARY WORKFORCE OVERTIME FOR EXEMPT EMPLOYEES DAYCARE & ELDERCARE BENEFITS COMMUTER ALLOWANCES FLEXIBLE (CAFETERIA) BENEFIT PLANS MEDICAL TRAVEL OPTIONS

FLEXIBLE BENEFIT PLANS

(CAFETERIA BENEFIT PLANS)

TYPES OF FLEXIBLE PLANS

CORE MODULAR ( BASE + PACKAGES) FLEXIBLE SPENDING ACCOUNTS HEALTH SAVINGS ACCOUNTS

ADVANTAGES
CAPS OR CONTAINS BENEFIT COSTS RAISES CONSCIOUSNESS RE: BENEFIT COSTS PROVIDES WORKERS ONLY THE BENEFITS THEY DESIRE

LIMITATIONS
COST OF BENEFITS FLUCTUATES (ADVERSE SELECTION) PEOPLE MAKE IRRESPONSIBLE DECISIONS IRS RULINGS & TAX LIABILITY ISSUES BOOKKEEPING & ADMINISTRATIVE ISSUES

MEDICAL TRAVEL OPTIONS

(INTERNATIONAL OPTIONS & MEDICAL TOURISM)

GIVE EMPLOYEES THE OPTION TO TRAVEL ABROAD FOR ELECTIVE MEDICAL PROCEDURES knee replacements, dental work, cosmetic surgery, etc.

ADVANTAGES
TREATED AT JCI-ACCREDITED HOSPITALS BY PHYSICIANS TRAINED IN US OR EUROPE COST OF PROCEDURES IS MUCH LESS SAVES THOUSANDS ON INSURANCE TRAVEL TO EXOTIC LOCATIONS CAN TAKE VACATION BEFORE OR AFTER TREATMENT MANY PLANS NOT ONLY PAY ALL TRANSPORTATION, BUT ALSO OFFER $$ INCENTIVES

LIMITATIONS
HAVING A SERIOUS HEALTH MATTER TREATED IN A FOREIGN ENVIRONMENT DON T KNOW THE PHYSICIAN BEFOREHAND STAFF MAY NOT SPEAK ENGLISH VERY WELL MAY NEED A LONG RECOUPERATION TIME BEFORE FLYING BACK HOME COUNTRY MAY NOT ALLOW LAWSUITS IF NEGLIGENT TREATMENT OCCURS GETTING GOOD AFTERCARE & REHABILITATION ONCE YOU RETURN HOME

MEDICAL COST COMPARISONS: US & COSTA RICA

PROCEDURES Angioplasty Heart Bypass Surgery Heart Valve Replacement Hip Replacement Hysterectomy Knee Replacement Spinal Fusion Breast Augmentation Dental Reconstruction Facelift Gastric Bypass Rhinoplasty Tummy Tuck
(Tico Times Directory 2009)

US Price $57,000 $130,000 $160,000 $43,000 $20,000 $40,000 $62,000 $5-8,000 $8,500-$10,000 $7-9,000 $30,000 $8-12,000 $6-8,500

Costa Rica $9,000 $24,000 $15,000 $12,000 $4,000 $11,000 $25,000 $2,700-$2,900 $2,500-$3,000 $4,600-$5,000 $10,500 $3,500-$3,900 $3,900-$4,200

MEDICAL COST COMPARISONS U.S. & ASIA

(as of January 1, 2009)

PROCEDURES Angioplasty Heart Bypass Surgery Heart Valve Replacement Hip Replacement Hysterectomy Knee Replacement Spinal Fusion
(Medical Tourism: Thailand 2009)

US Price $55,000 $120,000 $165,000 $80,000 $21,000 $65,000 $65,000

India $11,000 $10,000 $9,000 $9,000 $3,000 $8,500 $5,500

Thailand Singapore $12,000 $10,000 $9,000 $10,000 $4,000 $9,000 $7,000 $13,000 $18,500 $12,500 $11,000 $6,000 $13,000 $9,000

IS YOUR MEDICAL INSURER OR EMPLOYER WILLING TO SHARE SOME OF THE COST SAVINGS WITH YOU ( as an incentive) IF YOU OPT TO GO OVERSEAS FOR SURGERY?

INTERNATIONAL HOSPITAL DESTINATIONS AND AFFILIATIONS

COSTA RICA Hospital Clinica Biblica Affiliated with Ochster Medical Institute - New Orleans INDIA Apollo Hospitals Designated as a Center of Excellence in Global Healthcare Wockhardt Hospitals Affiliated with Harvard Medical School MALAYSIA Panang Adventist Hospital Affiliated with Loma Linda University & Hospital MEXICO CIMA Hospitals Affiliated with CIMA hospitals in US Grupo Christus Muguerza Affiliated with Christus Muguerza system in US SINGAPORE Gleneagles Hospital Affiliated with Johns Hopkins University & Hospital THAILAND Bumrungrad Hospital Designated a Center for Excellence in Global Healthcare. Has an American management team & 200+ US or UK doctors

AMERICAN MEDICAL ASSOCIATION GUIDELINES

The AMA advocates that employers and insurance companies that facilitate or incentivize medical care outside the U.S. adhere to the following principles:
(a) Medical care outside of the U.S. must be voluntary. (b) Financial incentives to travel outside the U.S. for medical care should not inappropriately limit the diagnostic and therapeutic alternatives that are offered to patients, or restrict treatment or referral options. (c) Patients should only be referred to institutions that have been accredited by recognized international accrediting bodies [e.g., the Joint Commission International (JCI) or the International Society for Quality in Health Care (ISQHC)]. (d) Prior to travel, local follow-up care should be coordinated and financing should be arranged to ensure continuity of care when patients return from medical care outside the US. (e) Coverage for travel outside the U.S. for medical care must include the costs of necessary follow-up care upon return to the U.S. (f) Patients should be informed of their rights and legal recourse prior to agreeing to travel outside the U.S. for medical care. (g) Access to physician licensing and outcome data, as well as facility accreditation and outcomes data, should be arranged for patients seeking medical care outside the U.S. (h) The transfer of patient medical records to and from facilities outside the U.S. should be consistent with HIPAA guidelines. (i) Patients choosing to travel outside the U.S. for medical care should be provided with information about the potential risks of combining surgical procedures with long flights and vacation activities.

TYPICAL MEDICAL TRAVEL PROCEDURE FOR A SELF-FUNDED HEALTH PLAN

SELF-FUNDED GLOBAL HEALTHCARE OPTION
INITIAL DIAGNOSIS PROVIDED BY AN IN-NETWORK PROVIDER PATIENT MUST BE A GOOD CANDIDATE FOR TRAVEL FOLLOW-UP CARE TO BE PROVIDED BY AN IN-NETWORK PROVIDER COVERAGE COORDINATED THROUGH AN APPROVED MEDICAL TRAVEL AGENCY DESTINATION MUST BE A JCI-ACCREDITED FACILITY SERVICES MUST MEET THE COST-EFFECTIVE THRESHOLD (HOW MUCH WILL IT SAVE?)

BENEFITS TO THE PATIENT

UP TO A $10,000 EMPLOYEE INCENTIVE (TREATED AS TAXABLE INCOME) TRAVEL PROVIDED FOR PATIENT AND COMPANION (PHYSICIAN, NURSE, OR FAMILY MEMBER) ALL APPOINTMENTS, LODGING AND TRAVEL ARRANGED BY MEDICAL TRAVEL AGENT TRAVEL FIRST-CLASS AND STAY IN NEAR-LUXURY FACILITIES CAN VACATION IN AN EXOTIC LOCATION EITHER BEFORE OR AFTER PROCEDURE

WHAT A SELF-FUNDED EMPLOYER CAN DO

MAKE THE TRAVEL BENEFIT A VOLUNTARY OPTION IF EMPLOYEES WANT IT CAREFULLY SELECT THE MEDICAL TRAVEL AGENCY THAT WILL ARRANGE ALL APPROVED MEDICAL TRAVEL PLANS IDENTIFY INTERNATIONAL PROVIDERS (Doctors and Hospitals) YOU TRUST AND LIST THEM AS IN-NETWORK PROVIDERS PROVIDE A SIGNIFICANT INCENTIVE PAYMENT (Taxable) FOR ANY EMPLOYEE WHO TAKES ADVANTAGE OF THE MEDICAL TRAVEL OPTION HAVE EMPLOYEES SIGN A LIABILITY WAIVER THAT PROTECTS THE COMPANY, INSURER, AND MEDICAL TRAVEL AGENCY ARRANGE AND COORDINATE FOLLOW-UP CARE WITH IN-SYSTEM PROVIDERS WHEN PATIENT RETURNS HOME JUST A FEW PARTICIPATING EMPLOYEES SHOULD SAVE THE EMPLOYER THOUSANDS OF $$$

OTHER COMPENSATION CONCERNS 1

MEAL & REST BREAKS
LUNCH BREAKS REST BREAKS EXPRESS MILK BREAKS

MLH Chap 2

Relieved of all work duties? Scheduled to work 4+ hours? Less than 20 minutes?

TRAVEL TIME
DAY ONLY OVERNIGHT Subtract normal commute time? Paid only for travel time during normal working hours

ON-CALL TIME
ON-PREMISES OFF-PREMISES How frequently called? Where can employee go? How much time to respond? What can employee do?

OTHER COMPENSATION CONCERNS 2

PAY DOCKING & SUSPENSIONS
WHAT S WRONG WITH DOCKING PAY?

MLH Ch 2

EXEMPT v. NON-EXEMPT? Treating an exempt worker like a non-exempt worker jeopardizes the exempt status of the job A salary is a fixed amount not dependent on time As long as some work is done during the week they re entitled to the full salary

GARNISHMENTS
LEGAL OBLIGATION TO DEDUCT $$$ FROM PAYCHECK Child support, tax debts, alimony COLLECT DEBTS THE WORKER OWES THE COMPANY Rent, salary advances, cafeteria Can t deduct so much money that a worker s pay falls below the required minimum wage Only garnish the amount the court orders

RECORD-KEEPING REQUIREMENTS
PERSONAL INFO, HOURS WORKED EACH DAY AND WEEK, TOTAL WEEKLY EARNINGS REGULAR PAY RATE, OVERTIME PAY EACH WEEK, TOTAL PAID EACH PAY PERIOD Need records to prove to the Department of Labor that you ve complied with the law KEEP ALL RECORDS FOR AT LEAST THREE YEARS ( after termination)