Human resource management 8e by gomez mejia 2016 chapter 10

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Chapter

10

Managing Compensation

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3 Understand the difference between job

and individual pay options

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Chapter Challenges

4 Develop familiarity with compensation

tools

5 Become familiar with the legal

environment affecting compensation and pay system governance

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Managerial Perspective of

Designing Compensation

Programs

• Who should be responsible for making salary decisions?

• Should pay be dictated by what other employers are

paying?

• What types of activities should be rewarded with higher salaries?

• What criteria should be used to determine salaries?

• Which employee group should receive special

treatment when scarce pay resources are allocated?

• How does an employer balance ethical concerns for

employees’ welfare versus the need to save on labor

costs?

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What Is Compensation?

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• Enable firm to achieve its strategic

objective

• Mold to the firm’s unique

characteristics and environment

• Internal equity: perceived fairness

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Nine Criteria for

Developing a Compensation Plan

10-7

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Compensation Systems:

Equity

• Distributive Justice Model

• Labor Market Model

• Balancing Equity

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Compensation System

Design

Fixed vs Variable Pay

Performance vs Membership

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Compensation Entitlements Are Going Out the Window

• Shift to Variable Pay Plans Continues

• Race to the Bottom: Mexico Lowers Wages

to Snare International Auto Production

• Making Wage Concessions at Airlines

• Pensions Going Up in Smoke

• Medical Doctors Being Squeezed

• Documenting Pay Cuts Around the World

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Job-Based Pay Policies

Technology is stable Jobs do not change often

Employees do not need to cover for one another

frequently Much training is required to learn a given job

Turnover is relatively low

Employees are expected to move up through the ranks

over time Jobs are fairly standardized within the industry

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Individual-Based Pay

Policies

The firm has educated workforce with ability to learn

different jobs The company’s technology and organizational

structure change frequently Employee participation and teamwork are encouraged

Opportunities for upward mobility are limited

Opportunities to learn new skills are present

The costs of employee turnover and absenteeism are

high These plans are more common in manufacturing

environments

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Compensation System

Design

Elitism Pay System

Egalitarianism Pay System

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Compensation System

Design

Open vs Secret Pay

Centralized vs Decentralized Pay

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Compensation Tools

Job-Based-Approach Pay Systems

Skill-Based-Approach Pay Systems

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Key Steps in Creating

Job-Based Compensation

Plans

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Achieving Equity

Internal Equity

Step 1: Conduct Job Analysis

Step 2: Write Job Descriptions

Step 3: Determine Job Specifications

Step 4: Rate Worth of All Jobs Using Predetermined

System

Step 5: Create a Job Hierarchy

Step 6: Classify Jobs by Grade Levels

External Equity

Step 1: Identify Benchmark or Key Jobs

Step 2: Establish Pay Policies

10-18

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• Do not take into account the nature of the business

• This plan is more subjective and arbitrary

• These plans are less appropriate at higher levels within an

organization

• With job descriptions becoming more generalized, these

plans are more difficult to evaluate

• These plans tend to be more bureaucratic, mechanistic,

and inflexible

• The job-evaluation process tends to be biased against

women

• Wage and salary data are not definitive

• Employees’ perceptions of equity are what count

• High-tech skilled employees tend to not be loyal to one firm

Evaluating Job-Based

Compensation Plans

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The Legal Environment

• Fair Labor Standards Act

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Summary and Conclusions

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Pearson Education, Inc.

Copyright

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