THE MYSTICAL WORLD OF COMPENSATION Class 12 – Chapter 11.

THE MYSTICAL WORLD OF COMPENSATIONClass 12 – Chapter 11

Organizational Reward Systems - Financial and Nonfinancial Components

Financial e.g. Non-Financial e.g.Salary/wages Quality of lifeBenefits Work/life balanceBonuses Career opportunitiesStock options What motivates you???

If money/cash is your primary motivator at work, what are your secondary motivators???

Entry Level Accounting Position

Location: Albany, NY# employees 150Revenue $26 millionIndustry Computer SoftwareCollege degree required YesCPA required NoSalary Range $55,000 - $75,000Your salary $60,000

??? WHY ???

Legal Requirements for Pay:Equal Employment Opportunity

• Employers must not base differences in pay on an employee’s age, sex, race, or other protected status.

• Any differences in pay must be tied to such business-related considerations as job responsibilities or performance.

• The goal is for employers to provide equal pay for equal work.

Ideally, Compensation Is Based Upon

1. INTERNAL EQUITY

2. EXTERNAL COMPETITIVENESS

3. COMPANY’S ABILITY & WILLINGNESS TO PAY

Figure 11.3: Opinions About Fairness – Pay Equity

Decisions About Pay

Job Structure

• Relative pay for different jobs within the organization

Pay Level

• Average amount the organization pays for a particular job.

Pay Structure

• Pay policy resulting from job structure and pay-level decisions.

Figure 11.1: Issues in Developing a Pay Structure

EXTERNAL COMPETITIVENESSe.g. VP of Marketing

FACTORS• Industry• Size of company• Competition• Title• Geography – Domestic/International• Profit vs. Not For Profit• Present & future financial health of company

INTERNAL EQUITY FACTORSe.g. VP of Marketing

Representative Factors to Consider

• Salary of other VP’s in the company• Supervisory/managerial responsibility• Experience• Budget responsibility• Seniority• Public contact• Working conditions

• Pay Secrecy – how and why is pay determined

• The effects of inflation

• Continuity - Two identical jobs in two different states with two differing pay ranges

• Pay CompressionHigher starting salaries for new hiresNegotiated pay increases of union workers over/under non-

union workers

Policy Issues in Pay Planningand Administration

Legal Requirements for Pay

Equal employment opportunity

Minimum wages

Overtime pay

Prevailing wages for federal contractors

Selected Laws Affecting Compensation

1931 - Davis-Bacon Act (Hoover)

• Established the requirement for paying prevailing wages on public works projects.

1936 – Walsh-Healy Public Contracts Work (FDR)

• Applies to US Government contracts exceeding $10,000 for manufacture of goods

• Overtime = 8 hours per day or 40 hours per week• Minimum wage = prevailing wage

Fair Labor Standards Act of 1938 (FDR)The granddaddy of them all

• Established Minimum Wage (then $0.25)• Established overtime at 1.5 times hourly salary• Established work week at 40 hours • Prohibits children under 18 from doing certain

dangerous jobs• Children under 16 cannot work during school

hours

Additional Laws Affecting Compensation

• 1963 – Equal Pay Act – a.k.a. equal pay for equal work

Makes it illegal to pay workers lower wages based upon sex.

Legal Requirements for Pay:Child Labor

• Children aged 16 and 17 may not be employed in hazardous occupations defined by U.S. Department of Labor.

• Children aged 14 and 15 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods.

• A child under age 14 may not be employed in any work associated with interstate commerce.

• Exemptions include baby-sitting, acting, and delivering newspapers.

Additional Laws Affecting Compensation

Workers Compensation, ca. 1917 A form of insurance that provides wage replacement and medical benefits for employees who are injured in the course of employment, in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence.

• Required by federal law• Managed by state law• Covered more fully as a benefit

Legal Requirements for Pay:Equal Employment Opportunity

• Employers must not base differences in pay on an employee’s age, sex, race, or other protected status.

• Any differences in pay must be tied to such business-related considerations as job responsibilities or performance.

• The goal is for employers to provide equal pay for equal work.

MINIMUM WAGE

• A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers

• Equivalently, it is the lowest wage at which workers may sell their labor.

• Although minimum wage laws are in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage.

Minimum hourly wagesFederal = $7.25 – Proposed $10.10 by 2015NY State

12/31/14 = $8.75 12/31/15 = $9.00

VT = $8.73 CT = $9.15 RI = $9.00NH = $7.25 ME = $7.50

MA = $9.00 (1/1/15) = $10 (1/1/16) = $11.00 (1/1/17)

WA = $9.32 OR = $9.25 D.C. = $9.50

Municipal Minimum Wage

San Francisco = $10.74

SeaTac = $15.00

Teacher Stumper:

Hotels, restaurants, car rentals, gas stations – can theyafford the additional costs and still stay competitive and in business?

Minimum Wage Claims – Pro vs. Con

• Pro – Increases the standard of living of workersReduces povertyReduces inequalityBoosts morale and forces businesses to be more efficient

• Con – Increases povertyIncreases unemployment (particularly among low

productivity / unskilled workers)Damages to businessesIncents businesses and communities to do same or more

work with less people[3]

Minimum Wages – Empirical Studies

• Employment effects, the most frequently studied aspect

• Effects on the distribution of wages and earnings among low-paid and higher-paid workers

• Effects on the distribution of incomes among low-income and higher-income families

• Effects on the skills of workers through job training and the deferring of work to acquire education

• Effects on prices and profits• Effects on on-the-job training

Teacher Stumper:Minimum Wage Argument

• If you were a Human Resources Manager forMcDonalds, what do you think would happen to yourbusiness if the minimum wage were raised to $15.00?

Note: $15 x 2080 = $31,200/year$9 x 2080 = $18,720/year

Legal Requirements for Pay:Overtime Pay

Overtime rate under FLSA is 1½ times employee’s usual hourly rate, including any bonuses, and piece-rate payments.

• Exempt employees – managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay.

• Nonexempt employees – employees covered by FLSA requirements for overtime pay.

Figure 11.2: Computing Overtime Pay

Calculate Total Pay

Hours worked 47Hourly pay $12.50Bonus $45.00

AnswerHours worked 47Hourly pay $12.50Regular pay: 40 x $12.50 = $500.00Bonus $45.00 = $45.00Total regular pay = $545.00 Hourly rate ($545.00 / 40) = $13.625(13.625 x 1.5) = $20.44Overtime = (7 x $20.44) = $143.06Total: ($545.00 + $143.06) = $688.06

HRM Decisions:Pay Level - Deciding What to Pay

Pay at rate set by market (market rates)

Pay at a rate above market

Pay at a rate below market

Compa-RatioComparative Ratio

• The formula commonly used by compensation professionals to assess the competitiveness of an employee’s pay level.

• Calculation: employee’s current salary divided by the current market rate for this position.

• Three values represent industry averages for the position.

• A Compa-Ratio of 1.00 or 100% = industry average;• A Compa-ratio of 0.75 = pay is 25% below the industry average.• A Compa-ratio of 1.15 = pay is 15% above the industry average.

Compa-Ratio Calculation

Position: Entry-level accountant in your company= $55,000 / year

Local industry average for same job= $58,500 per year

Compa-ratio = 58500 / 55000 = 1.06

Gathering Information About Market Pay

• Benchmarking – a procedure in which an organization compares its own practices against those of successful competitors• Pay surveys• Trade and industry

groups• Professional groups

• Bureau of Labor Statistics (BLS)

• Society for Human Resource Management (SHRM)

• World at Work

END OF CLASS 12