Western Kentucky University ?Compensation Project Paper 1- Using the information from Chapters 3, 4, and 5, develop your method(s) for rewarding individual

Western Kentucky University ?Compensation Project Paper 1- Using the information from Chapters 3, 4, and 5, develop your method(s) for rewarding individual performance for the jobs in your organization.Be sure to justify why you chose the methods that you did and how you think it will help your company to achieve its strategic goals and properly motivate employees.2- Using the information from Chapter 8 and part 3 of your project, develop a pay structure(s) for your organization.Be sure to explain why you grouped certain jobs together and why you picked the pay ranges/spreads that you did. Also explain your strategy for dealing with red circle and green circle employees. Building Pay Structures
that Recognize Employee
Contributions
Chapter 8 – Developing Pay Grades and Ranges
? Assign different pay rates for jobs of unequal worth
Pay Structures
? Provide a framework for recognizing differences in employee
contributions
? Should promote the retention of valued employees
1
Steps to
Construct a
Pay Structure
Decide on the
number of pay
structures
2
Determine pay
line
3
Define Pay Grades
4
Calculate Pay
Ranges for Each
Pay Grid
5
Evaluate the
Results/CompaRatios
? Usually have more than one
? Exempt vs. non-exempt
1. Deciding on
the number of
Pay Structures
? Pay structures based on job family
? Executive, managerial, professional, technical
? Pay structures based on geography
? Bowling Green, KY vs. Boston vs. San Francisco
? http://money.cnn.com/calculator/pf/cost-of-living/
2. Determining
the Pay Line
? Using regression to develop pay lines
? Match, Lead, or Lag/Follow
3. Determine Pay
Grades
? Horizontal dimension
? Group jobs of similar value
together
? Wider grades minimize hierarchy
and social distances. Reverse for
narrow grades
? Width varies as you move up the
point scale
4. Calculating Pay
Ranges for Each Pay
Grade
? Vertical Dimension
? Set minimum and maximum
values of pay for each pay
grade
? Midpoint – halfway between
minimum and maximum and
ON YOUR PAY LINE!
? Range Spread – Difference
between minimum and
maximum. Varies by job grade
10-50%: hourly workers
45-65%: salaried non-exec
45-85%: executive
4. Calculating
Pay Ranges for
Each Pay
Grade –
Different than
Your Book!
1
1. Identify the mid
point ($20,000)
2
3
4
2. Determine the
range spread (40%)
3. Calculate the
minimum: $20,000
x (1.00-.40/2) =
$16,000
4. Calculate the
maximum: $20,000
x (1.00+.40/2) =
$24,000
? Develop compa-ratios for each employee.
5. Evaluate
Results/Develop
Compa-Ratios
? Compa-ratios – index employee wages/salaries against the
midpoint of the range
? Employee’s Pay Rate / Pay Range Midpoint
? Ex. Salary of 21,000?
? 21,000/20,000 = 1.05
? Example #1
?
?
?
?
Pay Mid Point: $45,000
Range Spread = 50%
Minimum? Maximum?
Compa-ratios for:
? $35,675?
? $52,350?
You Try It!
? Example #2
?
?
?
?
Pay Mid Point: $57,000
Range Spread = 65%
Minimum? Maximum?
Compa-ratios for:
? $42,800?
? $63,500?
Issues in Pay
Structures
? Ranges will overlap!
? Green Circle Employees
? Red Circle Employees
Issues in Pay
Structures
? Pay Compression – A situation in which pay differences among
individuals with different levels of experience and performance in
the organization becomes small.
? Pay Inversion – A situation in which those at lower levels in an
organization or with less experience are paid more than those at
higher levels in an organization or with more experience.
Building Pay Structures
that Recognize Employee
Contributions
Chapter 8
Recognizing
Individual
Performance
? Merit Pay Plans
? Sales Incentives
? Skill/Knowledge Based Pay
? Pay for Performance – Based on past performance
Merit Pay
Systems
? Considerations
? Communicate link between pay and performance
? Use effective appraisal methods
? Establish increase amounts and types
? Settle on base pay level
83
? Reflects prior job performance levels
Merit
Increase
Amounts and
Timing
? Needs to motivate
? Needs to be meaningful
? Influenced by the cost of living
? Indexed as a percentage of budget
? Companies typically take one of two approaches in timing of pay
raises:
? Common review date or common review period
? Employee’s anniversary date
? Needs to be within limits of pay grade
? Consistent with new employees at similar jobs
Present Level
of Base Pay
? Needs to abide by mandates of:
? Title VII, 1964 Civil Rights Act
? Equal Pay Act of 1963
? ADEA of 1967
?Amounts are determined by two
factors
The Merit Pay
Grid
?Performance ratings
?Position of employees’ present
base pay rates within pay ranges
?BUDGET!
?Use Microsoft Excel Solver to
analyze amounts and stay within
budget
Copyright © 2017 Pearson Education, Inc.
8-6
Merit Increase
Grid – Based
on Base Salary
Merit Increase
Grid – Based
on CompaRatio
? Pay-for-Performance incentives
Sales
Incentives
? Objectives:
? Improve sales productivity
? Improve sales coverage of current customers
? Grow sales overall
? Salary only
? Salary plus bonus
Sales
Incentives –
Types of Plans
? Salary plus commission
? Commission plus draw
? Commission only
? Advantages and disadvantages?
Three main factors
Fixed Pay and
Compensation
Mix
? Salesperson’s influence on decision
? Competitive pay standards within industry
? Amount of non sales duties
? Develop skill-blocks
? Must know the job and what is required
? Based on job families or groups of similar jobs (clerical, technical,
accounting, manufacturing departments)
? Blocks should relate to specific job tasks and duties
Knowledge/
Skill-Based
Pay
? Fundamental question – Do investments in training provide
enough benefit to outweigh the ongoing costs?
?
?
?
?
?
?
How much $$$ do we add for each new skill/knowledge learned?
Budget considerations
How to track/verify?
How are we going to train (in-house or outsource)?
Ongoing verification of skills?
Equitable access to training????????
Pay Structure
Variations
Broadbanding
? Fewer, broader pay grades (wider
and taller)
? More flexibility in pay decisions
? Good for flatter organizations that
emphasize teamwork
? Mainly in unionized companies
? New employees paid less (significantly)
Two-Tiered
Wage Systems
? Temporary or permanent rewards
? May hinder recruiting
? Can lower employees’ morale
? Rewards
for partially or completely attaining
a predetermined work object
? One-time payments that do not roll into base
pay
? Based on 3 assumptions:
?
?
?
Individuals and work teams differ in how much
they contribute to the company
Company’s overall performance depends on
individual employee and group performance
Need to reward employees on how their
performance relative to others.
? Individual
Pay
? Group
? Organizational
? Directly
reward individual performance
? Can be used when:
?
?
?
Performance can be measured objectively
Employees have sufficient control over work
outcomes
They do not create unhealthy or unnecessary
competition between employees
? Be
sure to monitor BOTH quantity AND
quality
? Piecework
?
?
?
plans
Paid by the number of items produced
Can create a baseline/minimum target
Base hourly wage + incentive
?
?

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