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Human Resource Management: Functions, Applications, Skill
Development by Robert N. Lussier and John R. HendonChapter 11
Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Compensation
�Is the total of an employee’s pay and benefits.
�Costs are frequently 65 to 70 percent of total
production costs in today’s firms.
�Affects the process of both attracting and of
retaining employees.
� Therefore, firms should design the system
to meet the various needs of employees.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
The Compensation System
Includes anything that an employee may value and
desire and that the employer is willing and able to
offer in exchange.
Compensation components – all rewards that can be
classified as monetary and in-kind payments.
Non compensation components – all rewards other
than monetary and in-kind payments (e.g. company
cafeterias and gyms).
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Types of Compensation
Base pay – Wages are paid on an hourly basis; salary is based on a longer time period.Wage and salary add-ons – includes overtime pay, shift differential, premium pay for working weekends and holidays, etc.
Incentive pay – (a.k.a. “variable pay”) is “pay for performance”, and commonly includes piece work in production and commission sales.
Benefits – indirect compensation that provides something of value to the employee.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Motivation and Compensation Planning
Goal of compensation – to motivate employees to do
the things the firm needs, consistently, over time.
Expectancy Theory – employees believe the rewards
for accomplishing a task are worth the effort.
� Clearly define goals and how to achieve them.
� Tie performance to rewards.
� Be sure rewards have value to employees.
� Make sure management does what it says it will.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Motivation and Compensation PlanningEquity theory – employees are motivated when the ratio of their perceived outcomes to inputs is at least roughly equal to other referent individuals.
� Employees perceive being under-rewarded �decrease inputs, increase outcomes.
� Employees perceive being over-rewarded – thisdoes not usually disturb employees.
� Employees perceive being equitably rewarded –will continue to perform if still content that their incomes and outputs are in balance.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Learning Theories
Positive reinforcement – if employees get something they want in return for doing what the firm needs, they are more likely to continue doing the same.
Negative reinforcement – firms take away something employees don’t want, motivation increases.
Avoidance reinforcement – work standards dictate work/compensation levels.
Punishment – used when employee do not meet work standards.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Organizational Philosophy ���� Decisions
Ability to pay.
What types of compensation?
Pay for performance or for longevity?
Skill-based or competency-based?
At, above or below the Market?
Wage compression.
Pay secrecy.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Legal and Fairness Issues in Compensation
Firms must offer equal pay for equal work,
unless there is a difference in productivity,
seniority, merit, or other factors “other than
sex”.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Fair Labor Standards Act of 1938 (Amended)
Covers minimum wage, overtime issues, and child labor rules for most U.S.-based businesses.
Minimum wage is the lowest hourly rate of pay generally permissible by federal law.
�Employees with specific duties are exempt from minimum wage, overtime, and child labor rules.
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Compensation
Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Overtime
A federally mandated, higher-than-
minimum wage, required for nonexempt
employees if they work more than 40
hours/week.
�Is currently set by the FLSA as “time and
a half”, or 150% of the employee’s
normal wages.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
FLSA and Child Labor
� 14 and 15 year olds may work outside school hours
no more than ”three hours on a school day, 18 hours
in a school week, eight hours on a non-school day,
and 40 hours in a non-school week.” Permissible
work hours are also restricted.
� 16 and 17 year olds cannot be employed in
hazardous jobs, but their work hours are
unrestricted.
� Individuals 18 or older can be hired for all work.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Pay Equity and Comparable Worth
Comparable worth – when jobs are distinctly different but entail similar levels of ability, responsibility, skills, and working conditions, they are of equal value and should have the same pay scale.
�The comparable work concept is broader than “equal pay for equal work” because the work need only be similar, not the same.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Job Evaluation
Is the process of determining the worth of each position relative to the other positions within the organization.
Job ranking – subjectively ordering jobs from lowest to highest or vice versa, in terms of value to the company.
Point-factor – objectively breaking down a job into “compensable factors” and applying points to each factor based on the job’s level of difficulty.
Factor comparison – analyzing and ranking “compensable factors” of benchmark jobs in pay surveys and ranking all of the firm’s jobs against the benchmark.
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Compensation
Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Job Structure and Pay Levels
Pay structure creates a hierarchy of jobs and their
rates of pay within the organization; made up of job
structures and pay levels.
� Job structure is the stacking up of the jobs in the
organization from the lowest to the highest levels.
� Pay levels provide minimum to maximum pay for
a group or subset of jobs in the organization
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Creation of Pay Levels
A single pay level (a.k.a. “pay grade”) is made up of several to many different jobs.
�Each pay level has a maximum and minimum pay rate.
�Pay rates are determined by comparisons with Labor Market Competition (minimum pay level), Product Market Competition (top pay level), and supply and demand, to insure equity.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation
Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
Delayering and Broadbanding
Delayering – the process of changing the
company structure to get rid of some of the
vertical hierarchy (reporting levels).
Broadbanding – the combining of multiple pay
levels into one.
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Compensation Management
Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.
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