Managing Employee Benefits
CHAPTER 13
14e
Human Resource
Management
Robert L. Mathis | John H. Jackson | Sean R. Valentine
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Learning Objectives
Define a benefit and identify four strategic benefits considerations
Analyze the differences between employee benefits in the U.S. compared to those in other countries
Distinguish between mandated and voluntary benefits and list three examples of each
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Learning Objectives
Discuss the trend in retirement plans and compare defined benefit and defined contribution plans
Explain the importance of managing the costs of health benefits and identify some methods of doing so
Describe the growth of financial, family-oriented, and time-off benefits and their importance to many employees
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Benefits
Indirect reward given to an employee or group of employees for organizational membership
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Benefits
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Employer Provided Benefits
Absorb social costs for health care and retirement
Average over 30% to 40% of total payroll costs
Figure 13.1 - Employer Compensation and Benefits Costs Per Hour
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Benefits and HR Strategy
Benefits approach adopted as part of total rewards depends on many factors
Size of the organization
Workforce competition
Organizational life cycle
Employee demographics
Corporate strategic approach
Employees’ life stages
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Benefits as a Competitive Advantage
Benefits are offered to:
Aid recruiting and retention
Improve organizational performance
Meet legal requirements
Reinforce the company philosophy of social and corporate citizenship
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8
Benefits as a Competitive Advantage
Benefits can influence employees’ decisions about:
Which employer to work for
Looking for another job
Retirement age
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Tax-Favored Status of Benefits
Most benefits are not taxed as income to employees
Except for paid time off
Gross-up: To increase the net amount of what the employee receives to include the taxes owed on the amount
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Global Benefits
Benefits differ across the globe
Total hourly compensation
Retirement and health insurance plans
Amount of paid leave and vacation time
Paid time off for childbirth and medical disability
Paid sick leave policies
In many countries, employers and employees are taxed heavily to pay into government funds
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Global Benefits
Multinational companies must determine how to compensate both host-country nationals and expatriates
So that all employees will feel that they are being treated fairly
Decisions about compensation impacts global attraction and retention of employees for international employers
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Public-Sector Benefits
Public sector workers
Enjoy more benefits than those in the private sector
Belong to labor unions at a much higher rate than nongovernment workers
Their union contracts include:
Free health care
Traditional defined benefit pension plans
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Benefits Management Components
Benefits design
Benefits administration
Technology administration
Benefits measurement
Cost control efforts
Communication to employees
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Figure 13.4 - Benefit Design Decisions
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Flexible Benefits Plan
Allows employees to select the benefits they prefer from groups of benefits established by the employer
Challenges faced when providing choices
Employees may choose an inappropriate benefits package
Younger employees may decide not to participate in the retirement plan
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Flexible Benefits Plan
Adverse selection: Only higher-risk employees select and use certain benefits
Higher administrative costs for the organization
Part time employees:
Are most likely to receive paid time off and retirement benefits
Are least likely to receive health and life insurance benefits
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Domestic Partner Benefits
In states where gay marriage is legal:
Companies must treat same-sex partners in the same manner as traditional married couples
Same-sex domestic partners are:
Entitled to coverage on company medical insurance plans
To be recognized under retirement plans as a surviving spouse
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Domestic Partner Benefits
Offering same-sex domestic partner benefits shows that organization:
Is compassionate, progressive, and respectful of all employees
Can be a competitive advantage in the search for talent
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Older Workers Benefit Needs
Benefits attractive to older workers
Modified work schedules
Part-time benefits
Simplified seasonal travel and wellness programs
Annual financial planning counseling
Phased retirement programs - Allow employees to:
Work part time
Withdraw some retirement funds at the same time
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Benefits Administration and Technology
Open enrollment: Time when employees can change their participation level in various benefit plans and switch between benefit options
Outsourcing benefits administration
Many organizations must make coordinated efforts to administer benefits programs
Third-party administrators (TPA): Vendor that provides administrative services to an organization
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Benefits Administration and Technology
Technology and employee self-service
Internet and computer-based systems are being used to:
Communicate benefits information
Conduct employee benefits surveys
Facilitate benefits administration
Decrease expenses
Increase positive communication
Effectively connect people across many HR functions
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Benefits Administration and Technology
Self-service: Technology that allows employees to:
Change their benefits choices
Track their benefits balances
Submit questions to HR staff members and external benefits providers
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Figure 13.6 - Frequently Used Benefits Metrics
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Benefits Cost Control
Reducing or dropping benefits
Cost sharing with employees
Sponsoring wellness programs
Fostering employee health education
Changing prescription drug programs
Consolidating of benefits packages
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Benefits Communication
Employers create a clear communication strategy using:
Benefits website
Social media
Information to be communicated:
Value of the plans offered
Reasons changes have to be made
Fundamental costs of the plan
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Benefits Communication
Benefits statement - Personal statement of benefits that translates benefits into dollar amounts
Give the employee a snapshot of the total compensation they receive
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Types of Benefits
Cafeteria benefit plan: Employees are given a budget and can purchase the bundle of benefits most important to them:
From the menu of options offered by the employer
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Figure 13.7 - Types of Benefits
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Figure 13.8 - How the Typical Benefits Dollar is Spent
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Legally Required Benefits
Social Security Act of 1935
Provides old age, survivor’s, disability, and retirement benefits
Federal payroll tax (6.2%) on both the employer and the employee
Medicare taxes are 2.9%
Benefit payments are based on an employee’s lifetime earnings
Administered by the social security administration
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Workers’ Compensation
Security benefits provided to persons who are injured on the job
Concepts that balance the rights of employers and employees under workers’ compensation:
No-fault insurance: Injured workers receive benefits even if the accident was their fault
Exclusive remedy: Workers’ compensation benefits are the only benefits injured workers may receive to compensate for a work-related injury
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Figure 13.10 - The Three Legged Stool of Retirement Income
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Retirement Plan Concepts
Vesting: Right of employees to receive certain benefits from their pension plans
No pension rights accrue if they have not been employed long enough to be vested
Portability: A pension plan feature that allows employees to move their pension benefits from one employer to another
Once workers are vested they can transfer their fund balances to other retirement plans
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Retirement Plan
Retirement program established and funded by the employer and employees
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Types of Retirement Plans
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Figure 13.11 - Comparison of Defined Benefit and Defined Contribution Retirement Plans
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Common Defined Contribution Plans
Profit-sharing plans
Employee stock ownership plans (ESOPs)
401(k) plans: Agreement in which a percentage of an employee’s pay is withheld and invested in a tax-deferred account
Auto-enrollment: Employee contributions to a 401(k) plan are started automatically when an employee is eligible to join the plan
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Legal Requirements of Retirement Benefits
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Figure 13.12 - Key Provisions of the Affordable Care Act
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Controlling Health Care Benefit Costs
Increasing deductibles and copayments
Instituting high-deductible plans
Increasing employee contributions
Using managed care
Limiting family coverage; excluding spouses
Switching to consumer-driven health plans
Increasing wellness efforts
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Increasing Employee Contributions
Types of programs that attempt to reduce health care costs paid by employers
Managed care: Approaches that monitor and reduce medical costs through restrictions and market system alternatives
Spousal exclusions - Limit access to a company’s health plan when employee’s spouse works for another company that offers health insurance
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Consumer-Driven Health Plans
Provides employer financial contributions to employees to help cover their health-related expenses
Gives employees ownership of their health care dollars
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Overview of COBRA Provisions
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Figure 13.13 - Timeline of COBRA Notification Requirements
Source: Adapted from https://www.goigoe.com/Employers/COBRATimelines.aspx
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Health Insurance Portability and Accountability Act (HIPAA) of 1996
Allows employees to switch their health insurance when they change employers
Regardless of pre-existing health conditions
Requires employers to:
Provide privacy notices to employees
Not disclose of health information without authorization
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Figure 13.14 - Common Types of Financial Benefits
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Insurance Benefits
Common Types of Insurance Benefits
Life insurance
Typical level of coverage is one and one-half or two times an employee’s annual salary
Disability insurance
Provide continuing income protection for employees who become disabled and are unable to work
Long-term care insurance
Allow employees to purchase insurance to cover costs for long-term health care in a nursing home, an assisted-living facility, or at home
Legal insurance
Employees (or employers) pay a flat fee for a fixed number of hours of legal assistance each month
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Family Medical Leave Act (FMLA)
Coverage
Employers with 50 or more employees who live within 75 miles of the workplace
Employees who have worked at least 12 months and 1,250 hours in the previous year
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Family Medical Leave Act (FMLA)
FMLA leave provisions
Maximum of 12 weeks of unpaid, job-protected leave during any 12-month period for the following situations:
Childbirth and new born care within one year of birth
Adoption or foster care placement of a child
Caring for a spouse, child, or parent with a serious health condition
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Family Medical Leave Act (FMLA)
Serious health condition of the employee: Health condition requiring in-patient, hospital, hospice, or residential medical care or continuing physician care
Military family members who must handle the affairs for military members called to active duty
26 weeks leave to care for a military service member injured while on active duty
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Family Medical Leave Act (FMLA)
Impact of the FMLA
Significant percentage of employees have taken family and medical leave
Employers have to cover the workload for employees on family leave
Placed significant demands on HR professionals to ensure compliance with FMLA provisions
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Figure 13.15 - Guidelines Regarding FMLA Administration
Source: http://www.dol.gov/whd/fmla
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Family-Care Benefits
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Paid Time-Off and Other Benefits
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Running head: MARKETING PLAN 1
MARKETING PLAN 5
Marketing Plan
Kelly Moore
Strayer University
BUS 599 Strategic Management
Dr. Etta Steed
May 5, 2016
Marketing Plan
Jay's Beverage Company deals with a couple different types of organic soda. It is imperative for the originators to craft a name that potential clients can easily identify themselves with and keeping a part of their family origin intact. The company is focused on continuously operate in the competitive industry and stay in line with best corporate practices while using the best quality and taste for favorable customer satisfaction. Jay's, in line with its mission, will strive to facilitate an organic environment in manufacturing or products safe for human consumption.
Target Market
Jay's Beverage Company would like their soda to appeal to everyone. Specifically though, Jay's will target those who are health conscious, but still enjoy something sweet and refreshing. Ideally Jay's will target families with young and children. Parents today are no so inclined to give their children soda anymore. Jay's would like to appeal that the beverages they offer are organic and natural and safer for consumption compared to those of major soda corporations.
In the non-alcoholic beverage industry there are many consumers. Analysis will be necessary to determine who would be more likely to consume the product. The company will target all ages and races.
As far as demographic goes, Jay's will target those of middle to upper-class. Jay's products will be priced higher than Coke or Pepsi because of the natural and organic ingredients that will be used to make the soda. This of course does not mean that the beverages cannot or will not be consumed by those of the lower-class.
Market Competition
The non-alcoholic beverage industry is already widely competitive. Not only will Jay's be up against the already well established major soda brands such as Coca Cola and Pepsi, they will be competing against other natural and organic beverages. This makes the beverage market very competitive and new business find it difficult to craft strategies that can deal with these two companies. Market competition is stiffer when there are already strongly established businesses. Jay's will to push for shelf space in retail markets.
Coming up with an organic soda is among the most effective marketing strategies. With Coke and Pepsi leading the industry, it makes it difficult for new product to find space therefore Jay's will need use creative strategies. Compared to the alcoholic beverage industry, the non-alcoholic beverage industry has a larger consumer base. Differentiating the product by introducing it as an organic and natural beverage will create an impression in the market that this is a completely new product that is also much healthier for consumption. Developing a satisfying product will enable the company to attract and retain customers which in turn will steadily increase the market share of the company in the new and competitive market.
Company's Message
Jay's message to let the consumers know they are new to the market and plans to use the strategies they have put in place. By analyzing the market, Jay's has recognized the needs and wants of the consumers. Jay's will ensure their consumers of the benefits of drinking their beverage's compared to those already in the market. Jay's focus is on their consumers wants and needs and delivering the best available product their able to produce.
Marketing Vehicles
One marketing vehicle that Jay's will use is social media. It is so easy to spread advertisements through social media. Consumers are able to share their thoughts with their friends and contacts through social media as well. The company is able to share their message, promotions, and encourage others to share it as well. Social media is an inexpensive and powerful marketing tool that helps build trust and authority that can ultimately grow the business (Clark, n.d.)
Variable Pay and Executive Compensation
Chapter 12
14e
Human Resource
Management
Robert L. Mathis | John H. Jackson | Sean R. Valentine
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
© 2014 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Learning Objectives
Define variable pay and identify three elements of successful pay-for-performance plans
Discuss three types of individual incentives
Identify key concerns that must be addressed when designing group/team variable pay plans
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Learning Objectives
Specify why profit sharing and employee stock ownership are common organizational incentive plans
Explain three ways that sales employees are typically compensated
Indicate the components of executive compensation and discuss criticisms of executive compensation levels
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Variable: Incentives for Performance
Variable pay - Compensation tied to performance
Individual
Group/ team
Organizational
Beneficial for both employees and employer
Employers - More output per employee
Employee - More pay
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4
Why Use Variable Pay?
Variable Pay Assumptions
Some people perform better and are more productive than others
Better performing employees should receive more compensation
Some jobs contribute more to organizational success than others
Total compensation should be tied directly to performance and results
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Figure12.1 - A Variety of Possible Incentives
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Developing Successful Pay-for-Performance Plans
Reasons for Pay-for-Performance Plans
Enhance results and reward employees financially
Link strategic goals and employee performance
Reward and recognize employee performance
Promote achievement of HR objectives
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7
Combating Variable Pay Complexity
Develop clear, understandable plans that are continually communicated
Use realistic performance measures
Keep plans current and linked to organizational objectives
Link results to payouts that recognize differences
Identify variable pay incentives separately from base pay
Successful Incentive Plans
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8
Figure12.2 - Factors for Successful Variable Pay Plans
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Combating Variable Pay Complexity
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Figure12.3 - Categories of Variable Pay
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Individual Incentives
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Individual Incentives
Piece-rate systems
Straight piece-rate system
Wages are determined by multiplying the number of units produced by the piece rate for one unit
Differential piece-rate system
Pays employees one piece-rate wage for units produced up to a standard output and a higher piece-rate wage for units produced over the standard
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Individual Incentives
Bonus
One-time payment that does not become part of the employee’s base pay
Massive kinked bonuses
Very large all or nothing bonus
Spot bonuses
Can be awarded at any time
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Individual Incentives
Nonmonetary incentives
Performance awards
Incentive rewards for performance
Recognition awards
Recognizes individual employees for their work
Service awards
Recognize service
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Individual Incentives
Commissions
Percentage of the money taken in on sales
Usually given in addition to a salary to an agent or sales person
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Figure12.4 - Purposes of Nonmonetary Incentives
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Figure12.5 - Possible Reasons for Using Group/Team Variable Pay
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Design of Group/Team Incentive Plans
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Group/Team Incentives
Distributing rewards
Same-size reward for each member
Different-size reward for each member
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Group/Team Incentives
Challenges with group/team incentives
Rewards distributed in equal amounts to all members may be perceived as unfair
Free riders - Member of the group who contributes little
Team size - Individual efforts of employees have little effect on the total performance of the group in large groups
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Figure12.6 - Conditions for Successful Group/Team Incentives
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Types of Group/Team Incentives
Group/team results
Group production
Cost savings
Quality improvement
Gainsharing: Sharing with employees of greater-than-expected gains in productivity through increased discretionary efforts
Improshare
Scanlon plan
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Organizational Incentives
Primary Objectives
Increase productivity and organizational performance
Attract or retain employees
Improve product/service quality
Enhance employee morale
Drawbacks
Disclosure of financial information
Variability of profits from year to year
Profit results not strongly tied to employee efforts
Profit Sharing
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24
Figure12.7 - Framework Choices for a Profit-Sharing Plan
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Employee Stock Plans
Stock option plan
Employees can buy fixed number of shares of company stock
At a specified price for a limited period of time
Employee stock ownership plan (ESOP)
Gives employees significant stock ownership in the organization they work
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Advantages and Disadvantages of ESOP
Advantages
Favorable tax treatment for ESOP earnings
Employees motivated by their ownership stake in the firm
Disadvantages
Retirement benefit tied to the firm’s future performance
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Figure12.8 - Metric Options for Variable Pay Plans
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Types of Sales Compensation Plans
Salary-only
All compensation is paid as a base wage with no incentives
Straight commission
Compensation is computed as a percentage of sales in units or dollars
Draw system makes advance payments against future commissions to the salesperson
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29
Types of Sales Compensation Plans
Salary-plus-commission or bonuses
Compensation is part salary for income stability and part commission for incentive
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30
Types of Commission
Straight commission system - Percentage of the value of the sales is given to the sales person
Advantage - Requires the sales representative to sell in order to earn
Disadvantage - Offers no security for the sales staff
Draw: Amount advanced against, and repaid from, future commissions earned
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Types of Commission
Salary-plus-commission or bonuses
Compensation is part salary for income stability and part commission for incentive
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Figure12.9 - Sales Metric Possibilities
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Executive Compensation
Handled differently than other employees’ pay
Usually more than business unit heads with similar responsibilities
Is a measure of the power that a CEO brings to the organizational relationship
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Executive Compensation
Controversy
Should include an element of risk for the executive
Based more on peer group practices than on a rational executive compensation strategy
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Figure 12–10 Difficult CEO Responsibilities
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Changes in the Context of Executive Compensation
Say on Pay
Publically listed companies must allow share holders to vote on executive compensation
Clawbacks
Allows a company to recover any incentive based pay that was paid out during the prior 3 years if it would not have been paid under restated financial statements
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Figure12.11 - Components of Executive Compensation Packages
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Executive Compensation Considerations and Concerns
Would another company hire this person as an executive?
How does the executive’s compensation compare with that for executives in similar companies?
What would an investor pay for the level of performance of the executive?
Is the executive’s pay consistent with pay for other employees within the company?
Reasonableness of Executive Compensation
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Figure12.12 - Common Executive Compensation Criticisms
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Executive Compensation and Boards of Directors
In most organizations the board of directors is the major policy-setting entity
Must approve executive compensation packages
Compensation committee : Subgroup of the board of directors that is composed of directors who are not officers of the firm
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Total Rewards and Compensation
CHAPTER 11
14e
Human Resource
Management
Robert L. Mathis | John H. Jackson | Sean R. Valentine
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Learning Objectives
Identify the three general components of total rewards and give examples of each
Explain the major laws governing employee compensation
Outline strategic compensation decisions
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Learning Objectives
Describe the challenges of managing global compensation systems
Illustrate the steps in developing a base pay system
Describe how individual pay rates are set
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Nature Of Total Rewards and Compensation
Total rewards: Monetary and non-monetary rewards provided to attract, motivate, and retain employees
Strategic decisions that guide the design of compensation practices:
Legal compliance with all applicable laws and regulations
Cost-effectiveness for the organization
Internal and external equity for employees
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Nature Of Total Rewards and Compensation
Optimal mix of compensation components
Performance enhancement for the organization
Performance recognition and talent management for employees
Enhanced recruitment, involvement, and retention of employees
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Figure 11.1 - Total Rewards Components
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Figure 11.2 - Elements of Total Rewards
Source: Adapted from WorldatWork (http://www.worldatwork.org).
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Components of Compensation
| Components | Description |
| Tangible rewards | Elements of compensation that can be quantitatively measured and compared between organizations |
| Intangible rewards | Elements of compensation that cannot be as easily measured or calculated |
| Base pay | Basic compensation that an employee receives, usually as a wage or salary |
| Wages | Payments calculated directly from the amount of time worked by employees |
| Salary | Consistent payments made each period regardless of the number of hours worked |
| Variable pay | Compensation linked directly to individual, team, or organizational performance |
| Benefit | Indirect reward given to an employee or group of employees as part of membership in the organization |
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Legal Constraints On Pay Systems
Fair Labor Standards Act (FLSA) - Primary federal law affecting compensation which is enforced by the Wage and Hour Division of the U.S. Department of Labor
Provisions focus on the areas covering:
Minimum wage
Limits on the use of child labor
Overtime provisions (exempt and nonexempt statuses)
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Areas Under FSLA
Minimum wage - Set by FLSA to be paid to a broad spectrum of covered employees
Congressional action is the only way to change it
Child labor provisions - FLSA set the minimum age for employment with unlimited hours at 16 years
For hazardous occupations, the minimum is 18 years of age
Individuals 14 to 15 years old may work outside school hours with certain limitations
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10
Areas Under FSLA
Exempt and nonexempt statuses
Exempt employees: Employees who are not paid overtime
Nonexempt employees: Employees who must be paid overtime
Overtime - FLSA established overtime pay requirements at one and one-half times the regular pay rate for all hours worked over 40 in a week
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Figure 11.3 - Determining Exempt Status under the FLSA
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Common Overtime Issues
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Acts and Legislation Affecting Compensation
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14
Additional Laws Affecting Compensation
Prevailing wage: An hourly wage determined by a formula that considers the rate paid for a job by majority of the employers in the appropriate geographic area
Garnishment: A court order that directs an employer to set aside a portion of an employee’s wages to pay a debt owed to a creditor
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Independent Contractor Regulations
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Figure 11.5 - Continuum of Compensation Philosophies
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Strategic Compensation Decisions
Communicating pay philosophy - Helps employees recognize:
Value of the total reward package
How their job performance might affect their compensation
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Strategic Compensation Decisions
Compensation responsibilities
HR specialists develop and administer the organizational compensation system
They ensure pay practices comply with all legal requirements
Line managers evaluate employee performance and participate in pay decisions
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Payroll Administration
Assure compliance with compensation laws
To maintain positive employee relations
Payroll staff report to:
HR function
Accounting function
Liability for legal compliance remains with the company
Even if the payroll process is outsourced
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Figure 11.6 - HR Metrics for Compensation
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Motivation Theories and Compensation
Expectancy theory: Employees’ motivation is based on the probability that:
Their efforts will lead to an expected level of performance that is linked to a valued reward
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Figure 11.7 - Expectancy Theory
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Motivation Theories and Compensation
Equity theory: Individuals judge fairness in compensation by comparing their inputs and outcomes against the inputs and outcomes of referent others
Referent others - Workers that the individual uses as a reference point to make these comparisons
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Figure11.8 - Equity Theory
Source: Adams, 1965.*
*Adapted from John Stacey Adams, J. S. (1965). “Inequity in social exchange.” Advances in Experimental Social Psychology. Volume 62, 1965, 335–343.
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Compensation Fairness and Equity
Compensation Fairness and Equity
External equity
Internal equity Procedural Justice Distributive Justice
Pay secrecy vs. openness
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Figure 11.9 - Compensation Quartile Strategies
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Market Competitive Compensation
Used when the employer is experiencing financial difficulties and when an abundance of workers is available
Lag-the-Market Strategy
Aggressive approach that enables a company to attract and retain sufficient workers with the required capabilities and be more selective when hiring
Lead-the-Market Strategy
Attempts to balance employer cost pressures and the need to attract and retain employees by providing compensation levels that meet the market for the employer’s jobs
Match-the-Market Strategy
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Selecting a Quartile
Deciding which quartile position to target for pay structures is a function of many considerations:
Financial resources available
Competitiveness pressures
Market availability of employees with different capabilities
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Selecting a Quartile
Decisions about compensation mix and competitive position are related
Should be addressed as part of a comprehensive total rewards strategy
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Competency-Based Pay
Rewards individuals for the capabilities they demonstrate and acquire
In knowledge-based pay (KBP) or skill-based pay (SBP) systems employees:
Start at a base level of pay
Receive increases as they learn to do other jobs
Gain additional skills and knowledge
Become more valuable to the employer
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Compensation System Design Issues
Team
How to develop compensation programs that support the team concept
Individual
How to compensate individuals whose performance may be a result of team efforts and achievements
Individual versus Team Rewards
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Figure 11.11- Staffing Categories for International Assignees at Multinational Enterprise (MNE)
Source: Adapted from McPhail, Fisher, Harvey, & Moeller, 2012 and Isidor, Schwens, & Kabst, 2011.
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Compensating Expatriates
Maintain an expatriate’s standard of living in the home country
Home-Country-Based Approach
Compensate the expatriate at the same level as workers from the host country
Host-Country-Based Approach
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Figure 11.12 - Compensation Administration Process
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Valuing Jobs with Job Evaluation Methods
Job evaluation: Formal, systematic means used to identify the relative worth of jobs within an organization
Compensable factor: Job value commonly present throughout a group of jobs within an organization
Derived from job analysis
Reflect the nature of different types of work performed in the organization
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Job Evaluation Methods
Job Evaluation Methods
Point factor Method
Ranking method
Classification method
Factor-comparison method
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Market Pricing
Use of market pay data to identify the relative value of jobs based on what other employers pay for similar jobs
Identifying relevant market pay data for jobs that are good matches with the employer’s:
Jobs
Geographic considerations
Company strategies and philosophies about desired market competitiveness levels
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Job Evaluation Methods
Advantages
Disadvantages
Ties organizational pay levels to the external job market, without internal job evaluation distortion
Communicates to employees that the compensation system is market linked
Relies on market survey data
Specific job may differ from a matching job in the survey
Market data’s scope is a concern
Tying pay levels to market data can lead to wide fluctuations
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Pay Surveys
Collection of data on compensation rates for workers performing similar jobs in other organizations
Benchmark jobs: Jobs found in many organizations that can be used for the purposes of comparison
Internet-based pay surveys
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Using Pay Surveys
Survey Data Relevance and Validity
Participants
Broad-based
Timeliness
Job matches
Details provided
Methodology
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Pay Surveys and Legal Issues
Conditions to be met by organizations to participate in surveys:
Must be administered by a third party
Data must be more than three months old
Minimum of five employers must participate in the survey
No single employer’s data may be worth more than 25 percent of the total
All data must be aggregated and stripped of any identifying information
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Pay Grades
Groupings of individual jobs having approximately the same job worth
Market line: Graph line that shows the relationship between job value as determined by:
Job evaluation points
Pay survey rates
Market banding: Grouping jobs into pay grades based on similar market survey amounts
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Pay Ranges
Each pay grade pay level can be determined by making the market line the midpoint line of the new pay structure
Broadbanding: Practice of using fewer pay grades with much broader pay ranges than in traditional compensation systems
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Figure 11.13 - Market Pay Line and Job Evaluation Points
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Individual Pay
Red-circled employees: Current jobholder who is paid above the range set for the job
Green-circled employees: Incumbent who is paid below the range set for the job
Pay compression: Situation in which pay differences among individuals with different levels of experience and performance in the organization becomes small
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Approaches to Provide Employees With Performance-based Increases
Targeting high performers - Focuses on providing the top-performing employees with higher pay raises
Pay adjustment matrix - Reflects an employee’s upward movement in a firm
Factors considered:
Employee’s level of performance as rated in an appraisal
Employee’s position in the pay range
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Standardized Pay Adjustments
Standardized Pay Increases
Seniority
Cost-of-Living Adjustments (COLA)
Across-the-Board Increases
Lump-Sum Increases (LSI)
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Figure 11.16 - Pay Adjustment Matrix
Source: Adapted from Payscale’s 2012 Compensation Best Practices report.
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Compensation Challenges
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Running head: Chapter 13 Summary 2
Chapter 13 Summary
· Define a benefit and identify four strategic benefits considerations.
· Analyze the differences between employee benefits in the United States compared to those in other countries.
· Distinguish between mandated and voluntary benefits and list three examples of each.
· Discuss the trend in retirement plans and compare defined benefit and defined contribution plans.
· Explain the importance of managing the costs of health benefits and identify some methods of doing so.
· Describe the growth of financial, family-oriented and time-off benefits and their importance to many employees.
References
Mathis, R. L., Jackson, J. H. and Valentine, S. R. (2014). Human Resource Management, Fourteenth Edition. Stamford, CT: Cengage Learning.
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