-
A Human Resource Management Approach
STRATEGIC COMPENSATION
Prepared by David OakesChapter 9 Building Pay Structures That
Recognize Individual Contributions
-
Constructing A Pay Structure 5 Steps Decide how many Determine
market pay line Define pay grades Calculate pay ranges Evaluate
results
-
Common Pay Structures Exempt & nonexempt
Based on job families
Based on geography
-
Exempt & Nonexempt Pay Structures Exempt Not subject to
overtime provisions Salaried supervisors, managers, professionals,
& executives Nonexempt Subject to overtime provisions Hourly,
non-supervisory
-
Market Pay Lines Market pay rates relative to companys job
structure Pay levels corresponding with pay line are
market-competitive Rates promote internal consistency
-
Pay Grades Based on compensable factors, values, management
philosophy Widths Narrow or wide Affects hierarchy & social
distance Absolute or percentage-based job evaluation points
-
Pay Compression When pay spread is small Threatens competitive
advantages Caused by Failure to raise pay range limits Scarcity of
qualified applicants
-
Compa-Ratios Evaluates pay structures Index competitiveness of
internal pay rates based on midpoints Divide pay rates by midpoint
Compa-ratio meanings 1 = Market match rate < 1 = Market lag rate
> 1 = Market lead rate
-
Merit Pay Systems Considerations Communicate link between pay
and performance Use effective appraisal methods Establish increase
amounts & types Settle on base pay level
-
Merit Increase Amounts Reflects prior job performance levels
Needs to motivate Needs to be meaningful Influenced by the
cost-of-living Indexed as a % of budget
-
Present Level of Base Pay Needs to be within limits of pay grade
Consistent with new employees at similar jobs Needs to abide by
mandates of Title VII, 1964 Civil Rights Act Equal Pay Act of 1963
ADEA of 1967
-
Increases Within Budget Determine performance categories and %
of employees in each Place % in quartiles Put % and quartiles into
cells Estimate performance distribution Distribute Increase to Each
Cell Ensure total is within budget
-
Sales Objectives Sales volume Sales within a time period New
business Sales to new customers Retaining sales Higher sales to
existing customers Product mix rewards sales Sales of various
products/services
-
Sales Compensation Plans Sales-only Salary-plus-bonus
Salary-plus-commission Commission-plus-draw Commission-only
-
Salary-Plus-Commission Plans Commissions based on % of price
Spreads risks Designed to attract quality sellers Allows employees
to do other tasks
-
Commission-Plus Draw Plans Draw Advance pay for living expenses
Charged against future commissions Recoverable or non-recoverable
Provides strong incentive to excel
-
Commission-Only Straight Based on fixed % of sales price
Graduated Increased percentage rates for higher sales volume
Multi-tiered Increased percentage rates for meeting & exceeding
sales goal
-
Fixed Pay & Compensation Mix 3 Main Factors Salespersons
influence on decision Competitive pay standards within industry
Amount of non-sales duties
-
Skill Blocks Include job descriptions Skills needed Training
required Accurate evaluation process Organize jobs into
family/group List similar skills & tasks per job Group skills
into blocks
-
Transition Matters Job-based pay to pay-for-knowledge Assessment
of skills Who assesses On what How often Align pay with knowledge
structure Access to training Equal access to all
-
In-House vs. Outsourced Training Expertise Needed &
available Timeliness How soon & how often? Number of trainees
Proprietary nature of topic Too sensitive to share?
-
Broadbanding Consolidates pay grades & ranges Flattens
corporate hierarchies Emphasizes teamwork Broadens job duties &
responsibilities Promotes quicker decision making More latitude in
pay rate decisions
-
Two-Tiered Pay New employees paid less Temporary or permanent
rewards Mainly in unionized companies May hinder recruiting Can
lower employees morale
-
Pay Ranges Build upon pay grades Represent vertical dimension
Include midpoint, minimum & maximum pay rates Midpoints (market
median rates) Set by competitive pay policy Market lead - midpoint
higher Market lag - midpoint lower Green & red circle pay
rates