Chapter One Compensation: A Component of Human Resource Systems.

Chapter One

Compensation: A Component of Human Resource Systems

Evolution and Types of Pay

Past trend Present trend

Fixed Variable

Job-Based Person-based

Transactional (cash) + Relational (benefits)

Pay-for-seniority Pay-for-performance

Cost-of-living (COLA) raises Merit raises

Salary Equity

Internal equity: is your salary fair as compared to others in the organization?» Job evaluation» Merit-based pay

External equity: is your salary fair as compared to the typical salary in your profession?» Market wage surveys» Benchmark job comparisons

Table 1-1

Elements of Core Compensation

Base Pay» Hourly pay» Annual salary

How Base Pay is Adjusted Over Time» Cost-of-living adjustments» Seniority pay» Merit pay» Incentive pay» Pay-for-knowledge and skill-based pay

Table 1-2

Elements of Fringe Compensation (1 of 3)

Social Security Act of 1935» Unemployment insurance» Retirement insurance» Benefits for dependents» Disability benefits» Medicare

State compulsory disability laws (Workers’ Compensation)

Family and Medical Leave Act of 1993 (12 weeks of annual unpaid leave)

Table 1-2

Elements of Fringe Compensation (2 of 3)

Discretionary Benefits» Protection Programs

– Income protection programs– Health protection programs

» Pay for time-not-worked– Holidays– Vacation– Sick leave– Personal leave– Jury duty– Funeral leave– Military leave– Cleanup, preparation, travel time

Table 1-2

Elements of Fringe Compensation (3 of 3)

Discretionary Benefits (cont.)» Services

– Employee assistance programs (EAPs)– Family assistance programs– Tuition reimbursement– Transportation services– Outplacement assistance– Wellness programs

Figure 1-2

Relationship Between Strategic and Tactical Decisions

• Competitive strategy• Human resource strategy• Compensation strategy

StrategicStrategicDecisionsDecisions

• Recruitment• Selection• Performance appraisal

• Compensation• Training

• Seniority pay• Merit pay• Incentive pay• Pay-for-knowledge• Discretionary benefits options

• Skill-based pay• Broadbanding• Two-tier pay

structures

GeneralGeneralTacticalTacticalHRHRDecisionsDecisions

SpecificSpecificTacticalTacticalHRHRDecisionsDecisions(Comp.(Comp.Examples)Examples)

General

Specific

Table 1-4

Laws That Influence Compensation (1 of 3)

Income Continuity, Safety, and Work Hours» Minimum wage laws—Fair Labor Standards Act of 1938

– Minimum wage– Overtime provisions

Portal-to-Portal Act of 1947 Equal Pay Act of 1963

– Child labor provisions

» Work Hours and Safety Standards Act of 1962» McNamara-O’Hara Service Contract Act of 1965

Table 1-4

Laws That Influence Compensation (2 of 3)

Pay Discrimination» Equal Pay Act of 1963» Civil Rights Act of 1964, Title VII» Bennett Amendment (1694)» Executive Order 11246 (1965)» Age Discrimination in Employment Act of 1967

(amended in 1978, 1986 1990)» Executive Order 11141 (1964)» Civil Rights Act of 1991

Table 1-4

Laws That Influence Compensation (3 of 3)

Accommodating Disabilities and Family Needs» Pregnancy Discrimination Act of 1978» Americans with Disabilities Act of 1990» Family and Medical Leave Act of 1993

Prevailing Wage Laws» Davis-Bacon Act of 1931» Walsh-Healey Public Contracts Act of 1936

Motivation Theories

What is Motivation?

Motivation has to do with “WILL DO” rather than “CAN DO” performance; “CAN DO” performance is ensured through other HR systems, such as SELECTION and TRAINING. Motivation involves three elements (Steers & Porters, 1975):

direction or the choice of a particular course of action effort or intensity through which the action is pursued persistence or the extent to which one maintains and

perseveres on the course of action chosen.

Intrinsic vs. Extrinsic Compensation (or relational

vs. transactional returns)

“People work for love or for money. Few of us ever seem to get enough of either.”Jack Falvey, Wall Street Journal, 12/6/82

Intrinsic vs. Extrinsic Motivation

Intrinsic: psychological states that result from performing the job

Extrinsic: monetary and nonmonetary rewards that result from performing the job.

Job Intrinsic ExtrinsicPre-k teacher

Poet

Systems analyst

Quality Inspector

» Extrinsic theories argue that external factors (e.g., salary, social status) keep individuals motivated.

» Intrinsic theories maintain that the manner in which individuals perceive and process their world, rather than the objective world per se, provides a better explanation of people’s motivation.

Management implications?

Pay attention to people’s perceptions and attributions (e.g., perceptions of procedural vs. distributive justice)

6-6

Maslow’s Hierarchy of Needs

Physiological Safety and Security Affiliation Esteem Self-Actualization

6-7

Herzberg’s Two-Factor Motivation-Hygiene Theory

Dis

satis

fact

ion

Hi

Lo

Lo

Hi

Hygiene Factors»Company policy and administration»Supervision»Relationship with supervisor»Work conditions»Salary»Relationships with peers»Security

Motivation Factors» Achievement» Recognition» Interesting work» Responsibility» Advancement» Growth

Sa t

i sf a

ctio

n

Motivation Theories

Needs-Satisfaction Theory

David McClelland’s Learned Needs (trainable): Need for Achievement (nAch) Need for Power Need for Affiliation

Idea of Person-Job-Organization “FIT”

McClelland’s Needs-Satisfaction Theory

1. It is important for me to accomplish many things in life. 1 2 3 4 5

2. It is important for me to have many friends. 1 2 3 4 5

3. I like to be better than others. 1 2 3 4 5

4. I like to have the upper hand in a relationship. 1 2 3 4 5

5. I feel hurt when people don’t like me. 1 2 3 4 5

6. I always try to get an A in every class. 1 2 3 4 5

7. Failure greatly upsets me. 1 2 3 4 5

8. Family is very important to me. 1 2 3 4 5

9. I enjoy being in charge of other people. 1 2 3 4 5

10. I hate to be alone. 1 2 3 4 5

11. I resent being told what to do. 1 2 3 4 5

12. Awards are important to me. 1 2 3 4 5

Not true True

nAch nAff nPow

Motivation Theories

Vroom’s Expectancy Theory

Expectancy: belief that effort will result in the target behavior» Can be increased through skill-based pay.

Instrumentality: belief that behavior will result in valued outcomes.» Can be increased by linking pay to controllable

aspects of behavior. Valence: anticipated value from such outcomes..

» Can be increased by identifying valued outcomes.

6-10

Reinforcement TheoryPrinciples:

Giving a reward/reinforcer increases the likelihood a behavior will be repeated

Ignoring behavior increases the likelihood that it will not be repeated

Punishment usually puts an immediate end to a behavior but does not guarantee it will stop in the long run

Behavioral Reinforcement Process

identify and measure the target behavior: sales, absenteeism, tardiness.

choose a reinforcement principle: +/- reinforcement, punishment. What will be the reinforcer?

decide how often the effect will be administered: ratio or interval.

choose a fixed or a variable schedule of reinforcement

Behavioral ReinforcementTarget problem behavior (e.g.,

sales, “blue Monday” absenteeism, tardiness)

Describe type of reinforcement

Describe how will they earn the reinforcement (what do they need to do)

Describe when and how will the reinforcement be administered (timing, frequency, etc.)

Job Satisfaction vs. Motivation

Job satisfaction is an ATTITUDE

cognitive component: what the individual thinks about the “object” of the attitude (e.g., desirability).emotional component: feelings and emotions towards the object.

Consequences of Job Dissatisfaction

Job dissatisfactionIntent to quit Turnover

Organizational Citizenship behavior

Absenteeism

Tardiness

Task performance

Figure 1-1

The Influence of Core Job Characteristics on Intrinsic Compensation and Subsequent

Benefits to Employers

Skill varietyTask identityTask significance

Core JobCore JobCharacteristicsCharacteristics

Autonomy

Feedback

Experienced meaningfulness of the work

Critical PsychologicalCritical PsychologicalStateState

Lower turnover

Lower absenteeism

Enhanced job performance

Greater job satisfaction

Benefit to Benefit to EmployersEmployers

Experienced responsibility for work outcomes

Gained knowledge of results from work activities

The Job Satisfaction Wheel

Job satisfaction

personality

social support

wo

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g

con

diti

ons

control & autonomy

rolejob characteristics

pay

The Job Satisfaction Wheel

Personality: extent to which one’s personality (conscientiousness, extraversion, emotional stability, openness to experience, agreeableness) fit the job.

Control: amount of perceived control over the job. Role: ambiguity and conflict inherent in one’s job

responsibilities. Job characteristics: complexity, demands of the job. Working conditions: convenience, physical comfort,

travel, schedule. Support: from family, coworkers, supervisor,

subordinates. Pay: compensation & benefits.

The Job Satisfaction WheelIdentify an individual who is (or used to be) either very dissatisfied or very satisfied with his/her job. Assign a percentage to each factor in the job satisfaction wheel according to its importance in explaining this individual’s dissatisfaction (or satisfaction) with his/her job.

Factor %Personality

Pay

Control

Role

Job characteristics

Working conditions

Social Support

TOTAL 100%

Katz and Khan’s model of traditional skill progression into management jobs

technical

administrative

peopleCor

pora

te la

dder

Business trend

Skill changes

Flat Structures

E-commerce

Globalization

Discussion Question 1-1

Think about how the emerging business trends listed below will change Katz & Khan’s model of skill requirements. Identify other on-going business trends and their possible impact on skill changes.