COMPENSATION © Nancy Brown Johnson, 2000 Why do we have follies? We like objective measures Visible behaviors Hypocrisy Emphasize morality or equity.

COMPENSATION© Nancy Brown Johnson, 2000

Why do we have follies?

We like objective measures Visible behaviors Hypocrisy Emphasize morality or equity

rather than efficiency

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

OUTCOMEINPUTS

OUTCOMEINPUTS

?

the samemore or less

A person evaluates fairness by comparing their ratio with others.

Pay, benefits,opportunities, etc.

effort, ability,experience etc.

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Equity Theory

Equity Theory

Workers compare their compensation with others

If unequal workers attempt to restore equity

Workers Restore Equity by Reducing input Attempting to get raise Quitting Psychological Adjustment

Compensation Equity Model

Equity Compensation Tool

Objective

Individual (Pay for Perf.)

Seniority, Performance

Motivation

Internal (Pay Structure)

Job Evaluation Retention

External (Pay Level)

Market Surveys Attraction

Procedural Justice (Pay Administration)

Communication, Appeals

Commitment

Internal Equity

Comparison of Jobs Jobs worth to the Employer

Similarities and differences in work content

Relative contribution to organization objectives

Accomplished through job evaluation

Point Factor Method

Compensable factors - what the organization wants to pay for

Each factor is weighted Jobs are assessed on the value of

each factor Points are summed and used to

rank jobs

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

Job Title Experience Education Complexity PointsTotal

Compensable Factors

Computer operator

Computer programmer

Systems analyst

40

40

65

30

50

60

40

65

85

110

155

210

Three Factor Compensation System

External Equity

Value of the job to the labor market

Assessed through wage surveys

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

Market Pay Surveys - Benchmarking

Identify key jobs Identify labor market competition Identify product market

competition From this select firms to be

surveyed

Benchmark or Key Jobs

Contents are known and stable Supply & demand stable Represent entire job structure Represent large number of

employees

Identify Product & Labor Market Competition Product Market Labor Market

local regional national

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

Approaches to Developing a Pay Structure

•Market survey data

•Job evaluation data

•Pay policy line

•Combines Internal & external equity

•Pay grade

PAY

Job Evaluation Points

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

80 120 160 200 240 280 320

monthlysalary($000)

8

7

6

5

4

3

2

1

40

Line of Best Fit :using Market-Survey datain Table 15.5

Developing a pay policy line

PAY

Job Evaluation Points

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

80 120 160 200 240 280 320

monthlysalary($000)

8

7

6

5

4

3

2

1

40

Job Evaluation Points = 315

Predicted Salary = $6,486

Developing a Pay Policy Line

PAY

Job Evaluation Points

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

100 150 200 250 300 350

monthlysalary(000)

8

7

6

5

4

3

2

1

Pay Structure

Organizational Justice

Perceived fairness of the systemOutcomesProcess IssuesInteractions

Influences Commitment

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

Process Issues

•Participation in Compensation System design

•Communication

•Employees need to understand the system

•Employees need to keep managers aware of changes

•Managers need to explain system changes

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

Current Challenges

JOB BASED STRUCTURE

•Rigid

•Retards change

•Does not reward change

•Discourages lateral moves

©a Times Mirror Higher Education Group, Inc., company, 1997a Times Mirror Higher Education Group, Inc., company, 1997

IRWIN

New Approaches

•Delayer & Debanding

•Skill based pay

•Increased flexibility

•Increased workforce skill