Human Resource Management

Compensation and Benefits

Human Resource Management

Compensation

Hot topicsCompensation ManagementBenefits

Hot or Warm Topics

Executive compensation - Are corporate executives overpaid or underpaid?Sex discrimination and comparable worthOpen vs. secret pay plansSkill-based compensation plansTeam vs. individual pay

Executive Compensation (2005)

Rank Name Company Pay ($mil) 5-Yr Pay ($mil)1 Richard D Fairbank Capital One 249.42 448.582 Terry S Semel Yahoo 230.55 258.293 Henry R Silverman Cendant 139.96 279.214 Bruce Karatz KB Home 135.53 227.375 Richard S Fuld Jr Lehman Bros 122.67 375.816 Ray R Irani Occidental Pet 80.73 198.447 Lawrence J Ellison Oracle 75.33 868.938 John W Thompson Symantec 71.84 131.659 Edwin M Crawford Caremark Rx 69.66 161.8510 Angelo R Mozilo Countrywide 68.95 160.1411 John T Chambers Cisco Systems 62.99 103.4412 R Chad Dreier Ryland Group 56.47 150.22

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html

Executive Compensation (2008)

Average compensation for 200 chief executives at America's largest public companies was $10.8 million

Sanjay Jha Motorola $104.4 million Larry Ellison Oracle $84.6 millionRobert Iger Walt Disney $51.1 millionKenneth ChenaultAmerican Express $42.8 millionVikram Pandit Citigroup $38.2 millionMark Hurd Hewlett-Packard $34.0 millionJack Fusco Calpine $32.7 millionRupert Murdoch News Corp. $30.1 millionDavid Cote Honeywell International $28.7 millionA.G. Lafley Procter & Gamble $25.6 million

CEO Compensation Compared to Average Production Worker

2007 344 to 12006 364 to 12005 465 to 12004 431 to 12003 301 to 12001 525 to 11990 107 to 11982 42 to 11970 28 to 1

Since 1990, if the minimum wage rate had risen at the same rate as CEO pay, minimum wage would now be $23.03 instead of $7.25.

http://money.cnn.com/2005/08/26/news/economy/ceo_pay/

Europe's 25 Highest-Paid CEOs(2005)

1. Lindsay Owen-Jones, L'Oreal (France), $28.3M2. John Browne, BP (Britain), $14.0M3. Arun Sarin, Vodaphone (Britain), $12.2M4. Henri De Castries, AXA (France), $9.1M5. Josef Ackermann, Deutsche Bank (Germany), $8.4M

http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases/20050627H_europe.html

% Change CEO Pay/Relative to1988-2005 Worker Pay (2005)*US CEO (2005)

Australia 292% 15.6 33% Belgium 157 18 46 Canada 152 23.1 49 France 197 22.8 56 Germany 187 20.1 55 Italy 232 25.9 53 Japan 8 10.8 25 Netherlands118 17.8 40 New Zealand -- 24.9 18 Spain 98 17.2 32 Sweden 304 19.2 44 Switzerland172 19.3 64 UK 161 31.8 55 US 169 39

* Ratio of CEO compensation to the compensation of manufacturing production workers.Source: Authors’ analysis of Towers Perrin (1988, 2003, and 2005).

2005    $31,858    $41,386    $9,528     77.0%

2004*   $32,285    $42,160    $9,875     76.6%

2003     $30,724      $40,668      $9,944       75.5%

2002      $30,203      $39,429     $9,226      76.6%

2001      $29,215      $38,275      $9,060      76.3%

2000      $27,355      $37,339      $9,984      73.3%  

1999      $27,208      $37,701      $10,493    72.2%  

1998      $27,290      $37,296      $10,006     73.2%  

1997      $26,720      $36,030      $9,310      74.2%  

1996      $25,919      $35,138      $9,219      73.8%  

1995      $25,260      $35,365      $10,105     71.4%  

1994      $25,558      $35,513      $9,955      72.0%  

1993      $25,579      $35,765      $10,186     71.5%  

1992      $25,791      $36,436      $10,645     70.8%  

The Wage Gap Over TimeYear     Women's      Men's       Dollar      Percent                Earnings      Earnings  Difference

1991      $25,457      $36,440      $10,983     69.9%  

1990      $25,451      $35,538      $10,087     71.6%  

1989      $25,310      $36,855      $11,545     66.0%  

1988      $24,774      $37,509      $12,735     66.0%  

1987      $24,663      $37,389      $12,726     65.2%  

1986      $24,479      $38,088      $13,609     64.3%  

1985      $23,978      $37,131      $13,153     64.6%  

1984      $23,453      $36,842      $13,389     63.7%  

1983      $22,961      $36,106      $13,055     63.6%  

1982      $22,367      $36,224      $13,857     61.7%  

1981      $21,830      $36,854      $15,024     59.2%  

1980      $22,279      $37,033      $14,754     60.2%  

1979      $22,446      $37,622      $15,176     59.7%  

The Wage Gap Over TimeYear     Women's      Men's       Dollar      Percent                Earnings      Earnings  Difference

1978      $22,617      $38,051      $15,005     59.4%  

1977      $21,743      $36,901      $15,158     58.9%  

1976      $21,738      $36,114      $14,376    60.2%  

1975      $21,297      $36,207      $14,910    58.8%  

1974      $21,419      $36,456      $15,037    58.8%  

1973      $21,397      $37,381      $15,984    56.6%  

1972      $21,185      $36,614      $15,429    57.9%  

1971      $20,691      $34,771      $14,080    59.5%  

1970      $20,567      $34,642      $14,075    59.4%  

1969      $20,156      $34,241      $14,085    58.9%  

1968      $18,836      $32,389      $13,553    58.2%  

1967      $18,241      $31,568      $13,327    57.8%  

1966      $17,874      $31,055      $13,181    57.6%  

1965      $17,852      $29,791      $11,939    59.9%  

The Wage Gap Over TimeYear     Women's      Men's       Dollar      Percent                Earnings      Earnings  Difference

http://www.pay-equity.org/info-time.html

Median Annual Earnings of Full-time Workers (Bureau of Labor Statistics, 2000 census)

Physicians, surgeons $140,000 88,000Lawyers 90,000 66,000Judges, magistrates 88,000 50,000Actuaries 80,000 56,000Pharmacists 70,000 63,000Teacher assistants 20,000 15,000Cooks 17.000 15,000

Male Female

http://gblakely.com/BADM553/censr-15.pdf

Compensation Goals

Attracting good employeesRetaining good employeesMotivating employeesComplying with the lawHaving a cost effective compensation system

Compensation and theThree Equities

External EquityAttracting good employees

Internal EquityRetaining good employees

Individual or Employee EquityMotivating employees

External Equity

Attracting good employeesLabor Market ModelMarket Surveys

http://salarysource.com/http://swz.salary.com/

Pay strategy/policies

Internal EquityRetaining good employeesJob Evaluation Techniques

RankingJobs are compared to each other based on their overall worth to the company. The ‘worth’ of a job is usually measured by judgments of skill, effort, responsibility, and working conditions.The advantage of the ranking method is that it is simple.The disadvantages, similar to the ranking method of performance appraisal, are that the intervals between the ranks are assumed to be equal, the judgments are global, and as the number of jobs for evaluation increases it becomes increasingly difficult. Also, the evaluators must have knowledge of all jobs.

Classification methodJobs are classified into a grade/category structure. Each tier of the structure has a description and associated job titles. For example, the Westinghouse system had:

– Grade 1 Unskilled ex. File clerk– Grade 2 Skilled ex. Typist, lathe operator– Grade 3 Interpretive ex. Chief clerk– Grade 4 Creative ex. Engineers, sales reps– Grade 5 Executive ex. Department heads– Grade 6 Administrative ex. Chief engineer, Director of R&D– Grade 7 Policy ex. Vice-president of Marketing

Each job is assigned to the grade/category providing the closest match to the job. Standards are developed mainly along occupational lines. The standards help identify and describe key characteristics of occupations that are important for distinguishing different levels of work.Pay ranges are then assigned to grades.The advantages of this method are that it is simple and has been in use for many years.Its disadvantages include the fact that classification judgments are subjective, and the standard used for comparison may have built-in biases. Also, some jobs may fit into more than one grade/category or their descriptions are so broad that they do not relate to specific jobs.

Factor ComparisonSelect benchmark jobs.Sets of compensable factors are identified as determining the worth of jobs. The number of factors is usually four or five and typically relate to skill, responsibility, effort and working conditions. Jobs are then ranked on each factor.Wages are then allocated to the factors. The organization’s other jobs are then compared to the benchmark jobs and rates of pay for each of the other jobs. Factor comparison has the advantage that the value of the job is expressed in monetary terms, and the method is applicable to a wide range of jobs.The method’s disadvantages are that the pay points for each factor is based on subjective judgments.

Point MethodThe point method is an extension of the factor comparison method. Usually between eight and fourteen compensable factors (typically related to skill, effort, responsibility, and working conditions) are identified as determining the worth of jobs.Factors are divided into degreesPoints are assigned the degreesBenchmark jobs are compared to market rates

Individual or Employee Equity

Motivating performance

JOB ATTRIBUTE RANKINGPlease rank, from 1 to 10 in order of importance, with 1 being the most important, the following job attributes. In the first column indicate the rank in terms of your own preferences and in the second column indicate how you think others will rank these same job attributes.

Your Ranking Others' Ranking

Advancement _____ _____

Benefits _____ _____

Company _____ _____

Co-workers _____ _____

Hours _____ _____

Pay _____ _____

Job Security _____ _____

Supervisor _____ _____

Type of Work _____ _____

Working Conditions _____ _____

JOB ATTRIBUTE RANKINGThe following median rankings are based on the responses of 39,788 job applicants (Minneapolis Gas Company).

MEN WOMEN

Self Others Self Others Advancement 3.3 3.8 5.3 4.3 Benefits 6.8 5.2 8.0 5.9 Company 4.5 6.8 4.6 7.1 Co-workers 6.0 7.7 5.2 7.3 Hours 7.6 5.4 6.9 5.0 Pay 5.6 2.1 6.0 2.1 Job Security 2.5 3.6 4.9 5.4 Supervisor 6.3 7.4 5.3 7.0 Type of Work 3.3 4.9 1.5 3.5 Working Conditions 7.9 6.9 6.5 6.8

What Do Workers Want From Their Jobs?

Supervisors Workers

Good working conditions 4 9Feeling "in" on things 10 2Tactful disciplining 7 10Full appreciation for work done 8 1Management loyalty to workers 6 8Good wages 1 5Promotion and growth with company 3 7Sympathetic understanding of personal problems 9 3Job security 2 4Interesting work 5 6

1 = most important in job10 = least important in job

(From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)

What do new graduates value in jobs?

Company culture 6.2 Advancement opportunities 6.0 Nature of work (e.g., challenging) 5.9 Training provided 5.7 Work/non-work balance 5.5 Monetary compensation 5.3 Benefits 5.2 Location 5.0 Vacation time 4.6 Level of job security 3.9 Size of company 3.7 International assignments 3.3

Rated on seven point scale (1 = not important to 7 = very important).Source: Human Resource Management (2003), 42, p. 23-37.

What do applicants with college degrees want in jobs?

1993 1978Type of work 2.2 1.5 Advancement 4.6 3.6Co-workers 5.1 5.2 Company 5.7 4.4 Security 5.8 5.5 Location 6.2Supervisor 6.3 5.5Pay 6.3 5.2 Working conditions 7.2 7.2 Benefits 7.4 7.9Hours 9.3 8.0

1993 sample = 623, 1978 sample = 4,535Source: Journal of Occupational & Organizational Psychology (2003) , 66, p. 71-81

Individual or Employee Equity

Motivating performanceAt the individual level

Pluses and minusesMethods/techniques

At the organization levelPluses and minusesMethods/techniques

Compensation and the Legal Environment

The Fair Labor Standards Act of 1938Minimum WageExempt vs. Non-exempt and overtime

http://www.ewin.com/articles/exneot.htmhttp://www.dol.gov/elaws/esa/flsa/screen75.asp

The Equal Pay Act of 1963

Benefits

The Cost of BenefitsMandatory

Workers’ Compensation https://www.brickstreet.com/default.aspxUnemployment InsuranceFamily Medical LeaveSocial Security http://www.ssa.gov/

Retirement incomeDisability incomeMedicareSurvivor benefits2011 rates

– Social security 6.2% on first $106,800 (4.2 in 2011)– Medicare 1.45% unlimited

Benefits

Non-mandatoryInsurance

Health– Cost escalation– COBRA– HIPAA– Types of health insurance

» Traditional indemnity plans» HMO» PPO

Retirement ERISA (1974)

– Vesting» Full vesting after 5 years» 20% per year after 3 years

– Fiduciary standards– Pension Benefit Guarantee Corporation

Defined benefitDefined contribution

– 401(k), 403(b)» http://invest-faq.com/articles/ret-plan-401k.html

– IRA– SEP– Keogh

http://www.dallasfed.org/ca/wealth/3.htmlhttp://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

Benefits continued

Paid time offEmployee services