Financial Rewards: Indirect Compensation
Protection Programs
Examples: pensions, health coverage, life insurance, social welfare programs
Public Private
Mandatory versus Voluntary Contributory versus Non-contributory
Financial Rewards: Indirect Compensation
Pay for Time Not Worked (at work and off work)
Examples: breaks, meal time, transit time, medical leave, military leave, education leave, vacation
Services and Perquisites
General
(Examples: financial services, counseling, dining discounts) Limited (Examples: automobile, cellular phone, clothing allowance, gym membership)
Financial Rewards: Direct Compensation
Base Pay Incentives Cost-of-Living Adjustments (COLAs) Merit Pay
Compensation System Objectives
External Competitiveness Internal Equity Legal Compliance Motivational Soundness Linkages to Performance Cost Effectiveness Culture Creating
Total Comp Policy Planning: Key Issues
1. Degree of income protection and replacement to be provided for employees, for dependents and for retirees. 2. Provisions (if any) to be made for income supplementation benefits. 3. Relation of benefits to job level. 4. Recognition for seniority. 5. Recognition for performance or productivity. 6. –Er’s responsibility for costs of –ee benefits, dependent benefits, and retiree benefits.
7. Basis and use of external comparisons. 8. Effect of union settlements on benefits for nonrepresented employees. 9. Application of plans to –ees of acquired orgs. 10. Coverage for part-time employees. 11. Employee choice and plan flexibility. 12. Responsibility for planning and managing the plans/programs.
Basic Compensation Markets
Blue Collar – “Labor” Professional Supervisory and Managerial Entertainers and Athletes
External Influences on Compensation
Supply of Labor Demand for Labor Org Location Economic State Competition Union Influence Product/Service Demand
Internal Influences on Compensation
Organization Size Willingness to Pay Ability to Pay Tradition Unionization Job Itself Employer Prestige Work Force Character Desired Employee Quality Ratio of Labor Costs to Total Costs
Organizational Compensation System Requirements
Maximize ability to attract and retain qualified employees Be within ability to pay Allow organization to remain competitive
Compensation Terminology
Wage versus Salary
Exempt versus Nonexempt
Assigning Pay to Jobs
Job Pricing = placing a monetary value on the worth of a job to the organization RULE: Each job is worth only so much to the organization OPTIONS: 1. Flat Rates 2. Pay Ranges
Pay Considerations
Prevailing wages and salaries Collective bargaining Economic realities Worth of position/job Worth of employee Difficulty in filling job Priority of work in organization
Basic Compensation Decisions
Wage level decisions compared to other organizations Wage structure decisions comparing job to job Individual wage decisions comparing individuals in same jobs
Wage Level Decisions
Lead Competition Match Competition Lag Competition
Wage Structure Decisions
System for assigning value to jobs within an organization Ranking Classification Point/Factor
Wage Structures
Rankings Each job in relation to other from most important to least important Classification Jobs sorted by requirements, responsibilities Point/Factor Jobs evaluated and sorted by objective factors
Ranking System
Job A - President Job B – Vice President Job C1 – Treasurer/CFO Job C2 – Manager of Operations/COO Job D – Sales Manager Job E – Salesperson Job F – Order Entry Clerk Job G – Cleaning Crew Member
Perquisites
Memberships Company car/limo Corporate Travel Corporate Jet/Yacht Clothing Allowance Free Parking Dining Privileges No/low Cost Loans Memberships: Gym, Golf & Social Clubs Entertainment Expenses Season Tickets to Sporting Events Financial and Legal Counseling Education/seminar Funding Funding for Family Education
Perquisites (Perks) continued
Kidnapping & Ransom Insurance & Services Housing Allowance or Accommodations Living Accommodations Away from Home Company Credit Cards Special Relocation Allowances Spouse/family Travel Golden Parachute/Severance Package
Golden Parachute
In effect if acquisition or forced to leave Typical severance package: 2-3 x annual salary and bonus accelerated vesting of options Example: Mattel Corporation Package=5 years salary and bonuses = $26.4 mil Purchase office furniture & equipment for $1.00 Forgiveness of $4.2mil personal loan Forgiveness of $3mil home loan Cash of $3.31mil to cover taxes on loans Received $47mil, plus options
Executive Pay Decisions
Daily Dilbert, 29 October, 2005
HRM Crises of Finances: HRM Implications
Bankruptcies Acquisitions and Mergers Scandals with officers/managers Private & Corporate Lawsuits Government investigations and charges Arrests and convictions Tragedies
workplace accidents & illnesses travel accidents work-related accidents EXAMPLE: Air France – Concorde/SST crash Union Carbide – Bophol, India, chemical spill Merrill Lynch – 9/11 Twin Towers crashes
Evaluation of Incentives
Attention getter? Understandable? Establishes culture through values? Improves communication? Pays when it should?
(achievements versus failures)