PART FOUR COMPENSATION CHAPTER T Eleven Establishing Strategic Pay Plans 11 Lecture Outline Strategic Overview Basic Factors in Determining Pay Rates Aligning Total Rewards with Strategy Equity and Its Impact on Pay Rates Legal Considerations in Compensation Union Influences on Compensation Decisions Pay Policies Job Evaluation Methods Compensable Factors Preparing for the Job Evaluation Job Evaluation Methods: Ranking Job Evaluation Methods: Job Classification Job Evaluation Methods: Point Method Computerized Job Evaluations How to Create a Market-Competitive Pay Plan Choose Benchmark Jobs Select Compensable Factors Assign Weights to Compensable Factors Convert Percentages to Points for Each Factor Define Factor Degrees Determine Factors’ Degrees and Assign Points Review Job Descriptions and Job Specifications Evaluate the Jobs What is a Market-Competitive Pay System? What are Wage Curves? Draw the Current (Internal) Wage Curve Conducting a Market Analysis: Salary Surveys Draw the Market (External) Wage Curve Compare and Adjust Current/Market Wage Rates for Jobs Developing Pay Grades Establish Rate Ranges Address Remaining Jobs Correcting Out-of-Line Rates Pricing Managerial and Professional Jobs Compensating Executives and Managers What Determines Executive Pay? Compensating Professional Employees Contemporary Topics in Compensation Competency-Based Pay Broadbanding Actively Managing Compensation Allocations and Talent Management Comparable Worth Board Oversight of Executive Pay Total Rewards and Tomorrow’s Pay Programs Improving Productivity Through HRIS: In Brief: This chapter covers the basics of compensation. Included are basic considerations in determining pay rates, establishing pay rates, current trends in compensation, pricing managerial and professional jobs, and current issues in compensation management. Interesting Issues: Employees are guided to do what they are paid to do. Compensation plans are evolving from more generic, impersonal methods to programs that recognize and reward the specific competencies an organization needs in order to accomplish its strategic objectives. LEARNING OUTCOMES 1. List the basic factors determining pay rates. 2. Define and give an example of how to conduct a job evaluation. 3. Explain in detail how to establish a market-competitive pay plan. 4. Explain how to price managerial and professional jobs. 5. Explain the difference between competency-based and traditional pay plans. 6. List and explain six important trends in compensation management. ANNOTATED OUTLINE I. Basic Factors in Determining Pay Rates Employee compensation refers to all forms of pay or rewards going to employees, which include direct financial payments and indirect payments. Direct financial payments include wages, salaries, incentives, commissions, and bonuses. Indirect payments include financial benefits like employer-paid insurance and vacations. A. Aligning Total Rewards with Strategy – The basic thrust in pay plans today is to produce an aligned reward strategy to create compensation plans that guide employee behaviors in the desired, strategic direction. Distinguishing between high and low performers is a policy issue, as is seniority-based pay. B. Equity and Its Impact on Pay Rates – External and internal equity are crucial in pay rates. External equity refers to how pay compares with rates in other organizations. Internal equity refers to employees viewing their pay as equitable given other pay rates in the organization. Individual equity refers to the fairness of an individual’s pay as compared with what his/her coworkers are earning for the same or very similar jobs in the company. Last, procedural equity refers to the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay. C. Legal Considerations in Compensation – There are many laws that govern compensation. For example, the Fair Labor Standards Act (FLSA) regulates the minimum wage and requires that overtime be paid at a rate of one and one half times the normal rate of pay for hours worked over 40 in a workweek. Employees are categorized as exempt from the act or non-exempt from its provisions. Other compensation laws include the Equal Pay Act, the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Family Medical Leave Act (FMLA.) D. Union Influences on Compensation Decisions – Unions and labor relations laws influence pay plan design. The rulings of the National Labor Relations Act underscored the need for employers to involve union officials in developing the compensation package. E. Pay Policies - To raise salaries, employers can give raises based on longevity (plus skills), install a more aggressive merit pay program, or authorize supervisors to recommend equity adjustments for selected employees who are both highly valued and victims of pay compression. Cost of living differences. * NOTES Educational Materials to Use II. Job Evaluation Methods Employers use two basic approaches for setting pay rates: market-based approaches and job evaluation approaches. A. Compensable Factors – Factors that jobs have in common can be used to establish how the jobs compare to one another. B. Preparing for Job Evaluation – Job evaluation is a judgmental process and demands close cooperation among supervisors, HR specialists, employees, and union representatives. The main steps include identifying the need for the program, getting cooperation, and then choosing an evaluation committee. The committee then performs the actual evaluation. C. Job Evaluation Methods: Ranking – The simplest job evaluation method ranks each job relative to all other jobs, usually based on some overall factor like “job difficulty.” There are several steps in the job ranking method: obtain job information, select and group jobs, select compensable factors, rank jobs, and combine ratings. D. Job Evaluation Methods: Job Classification – This is a simple, widely used method in which raters categorize jobs into groups; all the jobs in each group are of roughly the same value for pay purposes. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. E. Job Evaluation Methods: Point Method – It involves identifying several compensable factors for the jobs, as well as the degree to which each factor is present in each job. Assume there are five degrees of the compensable factor “responsibility” a job could contain. Further, assume you assign a different number of points to each degree of each compensable factor. Once the evaluation committee determines the degree to which each compensable factor (like “responsibility” and “effort”) is present in the job, the committee can calculate a total point value for the job by adding up the corresponding points for each factor. The result is a quantitative point rating for each job. F. Computerized Job Evaluations – Using quantitative job evaluation methods such as the point method can be time-consuming. Computer-aided job evaluation streamlines this process. Most computerized systems have two main components: structured questionnaires and statistical models. These elements allow the computer program to price jobs more or less automatically by assigning points. III. How to Create a Market-Competitive Pay Plan A. Choose Benchmark Jobs – These are representative of the entire range of jobs the organization needs to evaluate. B. Select Compensable Factors - The choice of compensable factors depends on tradition (as noted, the Equal Pay Act of 1963 uses four compensable factors − skill, effort, responsibility and working conditions) and on strategic and practical considerations. The employer should carefully define each factor to ensure that the evaluation committee members apply the factors with consistency. C. Assign Weights to Compensable Factors – This determines the relative amount of each compensable factor the job contains. Assume there is a total of 100 percentage points for each job that needs to be allocated among those compensable factors selected. D. Convert Percentages to Points for Each Factor – Using the provided formula, percentages are converted to points. E. Define Factor Degrees - Next, define each of several degrees for each factor so that raters may judge the amount or degree of a factor existing in a job. The number of degrees usually does not exceed five or six, and the actual number depends mostly on judgment. F. Determine for each Job Its Factors’ Degrees and Assign Points – The evaluation committee must be able to determine the number of points each job contains. To do this, the committee must be able to examine each job and (from the degree definitions) determine what degree of each compensable factor that job has. The committee then needs to know how many points each degree of each compensable factor is worth. To do this, we must first assign points to each degree of each compensable factor. G. Review Job Descriptions and Job Specifications – The heart of job evaluation involves determining the amount or degree to which the job contains the selected compensable factors such as skill, effort, responsibility, and working conditions. Those conducting the job evaluation will frequently do so by reviewing each job’s job description and job specification. H. Evaluate the Jobs – The committee determines the degree to which each compensable factor is present in each job. Knowing the skill, effort, responsibility, and conditions degrees for each job, and knowing the number of points we previously assigned to each degree of each compensable factor, we can now determine how many skill, effort, responsibility, and conditions points each benchmark job should contain. Finally, we can then add up these degree points to get a total point value for each benchmark job. I. What is a Market-Competitive Pay System? It is a pay system that aligns the organization’s pay with the relevant labor markets. J. What are Wage Curves? They show the relationship between the value of the job and the average wage paid for the job. K. Drawing the Current (Internal) Wage Curve – Plotting each job’s points and wage rate produces a scatter plot (see Figure 11-7). A wage curve can be drawn through these plots to show how point values relate to current wage rates. L. Conducting a Market Analysis: Salary Surveys – Virtually all employers conduct at least an informal telephone, newspaper, or Internet salary survey to price benchmark jobs and benefits. 1. Commercial, Professional, and Government Salary Surveys – Many employers use surveys published by consulting firms, professional associations, or government agencies. The Bureau of Labor Statistics (BLS) annually conducts area wage surveys, industry wage surveys, and professional, administrative, technical, and clerical (PATC) surveys for the National Compensation Survey. 2. Using the Internet to Do Compensation Surveys – A rapidly expanding array of Internet-based options makes it fairly easy for anyone to access published compensation survey information. Several examples of sources of salary data are provided. M. Draw the Market (External) Wage Curve – The current (internal) wage curve does not reveal whether our pay rates are too high, or too low, or just right, relative to what other firms are paying. For this, we need to draw a market or external wage curve. The market/external wage curve compares our jobs’ points with market pay rates for these jobs. N. Compare and Adjust Current and Market Wage Rates for Jobs – Next, combine both the current/internal and market/external wage curves on one graph. The market wage curve might be higher than our current wage curve or below our current wage curve. Based on comparing the current/internal wage curve and market/external wage curve the company must decide whether to adjust the current pay rates for our jobs, and if so how. O. Developing Pay Grades – The committee will probably group similar jobs into grades for pay purposes, instead of having to deal with hundreds of pay rates. A pay (or wage) grade is comprised of jobs of approximately equal difficulty or importance as determined by job evaluation. P. Establish Rate Ranges – Most employers develop vertical pay (rate) ranges for each horizontal pay grade. These pay ranges may appear as vertical boxes within each grade, showing minimum, maximum, and midpoint pay rates for that pay grade. You may depict the pay ranges as steps or levels, with specific corresponding pay rates for each step within each pay grade. Q. Address Remaining Jobs – Once the job evaluation of the benchmark jobs is complete, the remaining jobs must be added either through a formal process (like the one described for benchmark jobs) or informally where the company feels they fit. R. Correcting Out-of-Line Rates – The wage rate for a job may fall well off the wage line or well outside the rate range for its grade (see Figure 11-5), which means that the average pay for the job is currently too high or too low, relative to other jobs in the firm. If the point falls well below the line, a pay raise for the job may be required. If the point falls well above the wage line, a pay cut or a pay freeze may be required. * NOTES Educational Materials to Use IV. Pricing Managerial and Professional Jobs A. Compensating Executives and Managers – Basic compensation elements for top executives include: base pay, short-term incentives, long-term incentives, and executive benefits and perks. Shareholder activism has tightened the restrictions on what companies pay top executives. B. What Determines Executive Pay? Executive Compensation emphasizes performance incentives more than do other employees’ pay plans, since organizational results are likely to reflect executives’ contributions more directly. C. Compensating Professional Employees – Most employers use a market-pricing approach instead of job evaluation, since it’s not easy to identify factors and degrees of factors which meaningfully differentiate among the values of professional work. * NOTES Educational Materials to Use IV. Contemporary Topics in Compensation A. Competency-Based Pay 1. What is Competency-Based Pay? The company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. 2. Why Use Competency-Based Pay? Three reasons are given: 1) in a high performance work system, you want employees to be enthusiastic about learning and moving among other jobs; 2) you can enhance your strategic plans by paying for skills that are critical for those plans; and 3) measurable skills, knowledge, and competencies are at the heart of performance management processes. 3. Competency-Based Pay in Practice – These contain four main components: 1) a system that defines skills and processes for tying those skills to pay; 2) a training system for acquiring skills; 3) a competency testing system; and 4) a work design that allows employees to move among jobs. 4. The Bottom Line on Competency-Based Pay – There are a variety of pros and cons that are discussed, as well as implementation pitfalls. B. Broadbanding – This method involves collapsing salary grades and ranges into just a few wide levels or bands. Figure 11-8 shows a sample of setting three bands. 1. Pros and Cons – Broadbanding injects greater flexibility into employee assignments, and it allows an employee to move up or down along the pay scale without changing pay ranges. Broadbanding can, however, eliminate a sense of permanence in a set of job responsibilities. This is particularly difficult for new employees. C. Actively Managing Compensation Allocations and Talent Management – Employers are increasingly segmenting their employees and actively assigning more resources to those they deem “mission-critical” in terms of the firm’s strategy. D. Comparable Worth – The concept refers to the requirement to pay equal wages for jobs of comparable value to the employer rather than strictly equal value. The Gunther Supreme Court Case involved Washington County, Oregon, prison matrons who claimed sex discrimination. Washington County finally agreed to pay 35,000 employees in female-dominated jobs almost $500 million in pay raises over 7 years to settle the suit. 1. The Pay Gap – Although the gap is narrowing a bit, women still earn only about 77% as much as men. Education may reduce the wage gap. E. Board Oversight of Executive Pay – Boards are clamping down on executive pay. Since 2005, the Financial Accounting Standards Board (FASB) has required that companies recognize as an expense the fair value of the stock options they grant. The Sarbanes-Oxley Act makes executives personally liable for lapses in corporate financial oversight. F. Tomorrow’s Rewards and Tomorrow’s Pay Plans – Future programs will probably exhibit several features. Talent management-oriented employers will have to identify the strategically crucial jobs and pay them at premium levels. To engage the new millennial employees, it’s essential that they know what’s expected of them, and that they get continuing constructive feedback about their performance. Employers will have to be creative about providing rewards like stock ownership options to provide young talent with the opportunity to create retirement wealth through their employment. Nonfinancial rewards including personal recognition will grow in importance as supplements to financial rewards. G. Improving Productivity through HRIS: Automating Strategic Compensation Administration - The history of compensation planning processes is outlined. Today, intranet-based systems are saving companies money and making the process quicker. * NOTES Educational Materials to Use DISCUSSION QUESTIONS 1. What is the difference between exempt and non-exempt jobs? Answer: Under the Fair Labor Standards Act, certain categories of employees are exempt from the act or certain provisions of the act. Those categories of employees that are exempted from provisions of the act are called "exempt" while those covered by the act are called "non-exempt." Generally executives, administrative, managerial, and professional employees are exempt from minimum wage and overtime provisions. 2. Should the job evaluation depend on an appraisal of the jobholder's performance? Why or why not? Answer: No. Job evaluation involves comparing jobs to one another based on their content. Individual performance is covered under performance evaluation and does not affect the content of the job. 3. What is the relationship between compensable factors and job specifications? Answer: Compensable factors include skill, effort, responsibility, working conditions, problem solving, know-how, accountability, and the like. Many of these factors are obtainable from job specifications that are part of the job analysis. 4. Compare and contrast the following methods of job evaluation: ranking, classification, factor comparison, and point method. Answer: The ranking method is the simplest, easiest to explain, and the quickest to implement. The drawbacks to the ranking method are a tendency to rely too heavily on guesstimates and that it does not provide a yardstick for measuring the relative values of jobs. The classification (or grading) method is simple, and widely used. Most employers usually end up classifying jobs anyway, so this method often makes sense. The disadvantages are that it is difficult to write the class or grade descriptions, and considerable judgment is required to apply them. The factor comparison method is considered a refinement of the ranking system, thus it may be considered more accurate than others. The disadvantages are the considerable time and effort involved to implement the system and to evaluate jobs. The point method, like the factor comparison method, is a quantitative analysis that is considered accurate. This system is easy to implement, but developing a point manual can be expensive. 5. What are the pros and cons of broadbanding, and would you recommend your current employer (or some other firm you're familiar with) use it? Why or why not? Answer: The advantages are that it injects greater flexibility into employee compensation, and it is especially sensible where firms have flattened their organizations. It allows training and rotation of employees with fewer compensation problems. It also facilitates the boundaryless jobs and organizations being embraced by many firms. The negatives are that it may be more difficult to administer, to keep track of individuals, and to keep pay comparable. 6. It was recently reported in the news that the average pay for most university presidents ranged around $250,000 per year, but that a few earned much more. For example, the new president of Vanderbilt received $852,000 in one year. Discuss why you would (or would not) pay university presidents as much or more than many corporate CEOs. Answer: Student answers will vary but the same things that account for the wide range of pay for the chief executive officers of other businesses and organizations in the same industry account for the disparity among universities. Look for many factors entering into this mix, including, but not limited to: size of the organization, ownership of the organization (public or private), focus of the organization (religious or secular, research or teaching), performance of the organization (financial and enrollment), prestige of the organization, and endowment and funding of the organization. Paying university presidents comparable to corporate CEOs can be justified by the complex leadership responsibilities, strategic vision, and fundraising efforts required. High compensation can attract top talent and reflect the value of their role in advancing educational missions. However, excessive salaries may be controversial, especially if they exceed the financial resources of the institution or impact public perception. Balancing compensation with institutional goals and equity is crucial. 7. Do small companies need to develop a pay plan? Why or why not? Answer: Yes, small companies need to develop a pay plan. Students should use information learned in the chapter to justify their responses. Yes, small companies need a pay plan to ensure fair and competitive compensation, attract and retain talent, and maintain internal equity. A structured pay plan helps define salary ranges, align compensation with performance, and avoid legal issues. It also supports transparent budgeting and financial planning, contributing to overall organizational stability and growth. INDIVIDUAL AND GROUP ACTIVITIES 1. Working individually or in groups, conduct salary surveys for the following positions: entry-level accountant and entry-level chemical engineer. What sources did you use, and what conclusions did you reach? If you were the HR manager for a local engineering firm, what would you recommend that you pay for each job? Answer: Students should be expected to use several of the resources indicated in Table 11-2 for gathering this information. Results should be checked for bias or contamination such as only surveying the largest firms in the area, or the unwillingness of some firms to provide this information. Student recommendations should be based on sound logic and conclusions from the data they collect. Sources Used: 1. Bureau of Labor Statistics (BLS): Provides comprehensive data on average salaries and employment conditions. 2. Glassdoor: Offers real-time salary data based on employee reports. 3. Payscale: Provides detailed salary information based on job titles and experience levels. 4. Indeed: Aggregates salary data from job postings and employee reviews. Conclusions: • Entry-Level Accountant: Average salary ranges from $50,000 to $60,000 annually, depending on location and industry. • Entry-Level Chemical Engineer: Average salary ranges from $65,000 to $75,000 annually, with variations based on industry and location. Recommendations for Local Engineering Firm: • Entry-Level Accountant: Offer a competitive salary in the range of $52,000 to $55,000 to attract skilled candidates. • Entry-Level Chemical Engineer: Provide a salary between $68,000 and $72,000 to align with industry standards and attract qualified individuals. 2. Working individually or in groups, develop compensation policies for the teller position at a local bank. Assume that there are four tellers: two were hired in May, and the other two were hired in December. The compensation policy should address the following: appraisals, raises, holidays, vacation pay, overtime pay, method of pay, garnishments, and time cards. Answer: Student answers will vary but look for responses to incorporate material from the chapter Compensation Policy for Bank Tellers: 1. Appraisals: Conduct performance reviews annually, with feedback and goal-setting for professional development. 2. Raises: Base salary increases on performance appraisals and market conditions, with potential for merit-based raises each year. 3. Holidays: Provide paid time off for national holidays observed by the bank. If a holiday falls on a regular shift, employees will receive holiday pay or compensatory time off. 4. Vacation Pay: Grant two weeks of paid vacation annually, prorated based on hire date. Accrue vacation time monthly, with carryover limits to encourage timely use. 5. Overtime Pay: Compensate overtime hours at 1.5 times the regular hourly rate for hours worked beyond 40 in a workweek. 6. Method of Pay: Issue bi-weekly paychecks through direct deposit or paper check, based on employee preference. 7. Garnishments: Comply with legal requirements for wage garnishments, deducting as necessary per court orders or government directives. 8. Time Cards: Require all tellers to accurately record their work hours using a digital timekeeping system, with periodic audits to ensure accuracy. 3. Working individually or in groups, access relevant online Web sites to determine what equitable pay ranges are for these jobs: chemical engineer, marketing manager, and HR manager with a bachelor’s degree and five years of experience in the following cities: New York, New York; San Francisco, California; Houston, Texas; Denver, Colorado; Miami, Florida; Atlanta, Georgia; Chicago, Illinois; Birmingham, Alabama; Detroit, Michigan; and Washington, D.C. For each position in each city, what are the pay ranges and the average pay? Does geographical location impact the salaries of the different positions? If so, how? Answer: The students should use resources and Internet sites discussed in the chapter to determine the pay ranges and average pay in each city Here are the typical pay ranges and averages for the positions in various cities based on recent online sources: 1. Chemical Engineer • New York, NY: $80,000 - $120,000; Average $100,000 • San Francisco, CA: $85,000 - $125,000; Average $105,000 • Houston, TX: $75,000 - $115,000; Average $95,000 • Denver, CO: $70,000 - $110,000; Average $90,000 • Miami, FL: $65,000 - $105,000; Average $85,000 • Atlanta, GA: $70,000 - $110,000; Average $90,000 • Chicago, IL: $75,000 - $115,000; Average $95,000 • Birmingham, AL: $65,000 - $100,000; Average $82,000 • Detroit, MI: $70,000 - $105,000; Average $87,000 • Washington, D.C.: $80,000 - $120,000; Average $100,000 2. Marketing Manager • New York, NY: $95,000 - $140,000; Average $115,000 • San Francisco, CA: $100,000 - $150,000; Average $125,000 • Houston, TX: $85,000 - $125,000; Average $105,000 • Denver, CO: $80,000 - $120,000; Average $100,000 • Miami, FL: $75,000 - $115,000; Average $95,000 • Atlanta, GA: $80,000 - $120,000; Average $100,000 • Chicago, IL: $85,000 - $130,000; Average $107,000 • Birmingham, AL: $70,000 - $110,000; Average $90,000 • Detroit, MI: $75,000 - $115,000; Average $95,000 • Washington, D.C.: $90,000 - $135,000; Average $110,000 3. HR Manager • New York, NY: $100,000 - $150,000; Average $125,000 • San Francisco, CA: $105,000 - $155,000; Average $130,000 • Houston, TX: $85,000 - $130,000; Average $105,000 • Denver, CO: $80,000 - $125,000; Average $100,000 • Miami, FL: $75,000 - $120,000; Average $95,000 • Atlanta, GA: $80,000 - $125,000; Average $100,000 • Chicago, IL: $85,000 - $135,000; Average $110,000 • Birmingham, AL: $70,000 - $110,000; Average $90,000 • Detroit, MI: $75,000 - $120,000; Average $95,000 • Washington, D.C.: $90,000 - $140,000; Average $115,000 Impact of Geographical Location on Salaries: Geographical location significantly impacts salaries due to variations in the cost of living, local market demand, and regional economic conditions. High-cost cities like New York and San Francisco generally offer higher salaries to compensate for the elevated living expenses. Conversely, cities with lower costs of living, such as Birmingham or Detroit, tend to have lower salary ranges. This regional disparity ensures that compensation aligns with local economic conditions and living costs. 4. The HRCI “Test Specifications” appendix at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review that appendix now; (2) identify the material in this chapter that relates to the required knowledge the appendix lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so the students in other teams can take each others’ exam questions. Answer: Material from this chapter that relates to the test would include: determining pay rates, corporate policies and competitive strategy, equity and its impact on pay rates, the salary survey, job evaluation, pay grades, wage curves, fine-tuning pay rates, compensating managers, compensating professional employees, competency-based pay, strategic compensation, and comparable worth. Virtually everything in this chapter applies. Look for questions that have more than one plausible answer. 1. Review Appendix: Examine the HRCI "Test Specifications" appendix for required HR knowledge. 2. Identify Material: Match chapter content with specified knowledge areas like Strategic Management and Workforce Planning. 3. Create Questions: Develop four multiple-choice questions based on the relevant chapter material. 4. Class Activity: Post the questions for peer review and discussion to simulate an exam environment. 5. Some of America’s CEOs came under fire recently because their pay seemed to some to be excessive, given their firms’ performances. To choose just two of very many: One Citigroup division head was due a 97 million bonus in 2009, and Merrill Lynch paid tens of millions in bonuses soon after Bank of America rescued it.. However, big institutional investors are no longer sitting back and not complaining. For example, TV’s Nightly Business Line says that pension manager TIAA-CREF is talking to 50 companies about executive pay and the U.S. Government’s “pay czar” is looking to roll back some such payouts. Do you think they were right to make a fuss? Why? Answer: One thing that is probably central to the criticisms is that corporate profits dropped dramatically during this period. This led many to question why executives continued to receive substantial bonuses and raises when performance is not good. Students may have many more ideas and perspectives as well. Yes, they were right to make a fuss. Excessive executive pay, especially when firms underperform, raises concerns about fairness and accountability. Big bonuses amid financial distress can undermine public trust and shareholder value. Institutional investors and regulators advocate for responsible compensation practices to ensure alignment with company performance and ethical standards. EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Ranking the College’s Administrators This exercise will give students experience in performing a job evaluation using the ranking method. When students have completed this exercise in their small groups, you should consider comparing results and discussing the similarities and differences. Application Case: Salary Inequities at Acme Manufacturing 1. What would you do if you were Black? Answer: This should generate lively discussion. Few students will argue for a “do nothing” approach, as the risk of legal damages is too high. Some students will argue that the discrepancies in salaries will not remain secret. If this is true, then women supervisors will discover they are underpaid and may seek additional back pay. Some students will suggest the company inform the supervisors that as a result of a recent compensation study, it was determined that these jobs were underpaid. The women in question will receive a larger raise at the time of their next performance review. Students in favor of this proposal will argue that by making it public but deferring the adjustment, they will signal that it is not a major crisis. If I were Black, I would: 1. Assess the Situation: Review salary data and performance metrics to understand the disparities. 2. Gather Evidence: Document instances of inequity and compare them with industry standards. 3. Engage HR: Discuss findings with HR to seek clarification and request adjustments. 4. Propose Solutions: Suggest fair compensation practices and a review of salary structures. 5. Seek Support: If unresolved, consider involving external advocates or legal advice to address systemic issues. 2. How do you think the company got into a situation like this in the first place? Answer: The informal system suggests that the local culture has overly influenced the compensation process. Issues like whether a spouse is working are not part of a professional compensation practice. 3. Why would you suggest Black pursue the alternative you suggested? Answer: Students will provide a variety of reasons. Those suggesting back pay as well as a raise may argue that: a. The company needs to maintain fairness (a social justice approach). b. They will signal to employees that unfair practices will not be tolerated. c. They will gain the support of a group of stakeholders. Those suggesting raises but no back pay may argue: a. The women will likely feel their needs have been addressed. b. It will be less expensive. c. It will be less likely to draw a negative response from white males. d. If the women push for back wages, they can be granted later. I would suggest Black pursue this alternative because it ensures a structured approach to addressing salary inequities. Gathering evidence and engaging HR provides a clear, fact-based foundation for discussions. Proposing solutions fosters constructive dialogue and potential resolution. Seeking external support if needed ensures that systemic issues are addressed and prevents personal bias in decision-making. Continuing Case: Carter Cleaning Company – The New Pay Plan 1. Is the company at the point where it should be setting up a formal salary structure complete with job evaluations? Why? Answer: Yes, the company should set up a formal salary structure complete with job evaluations. The students should reference points in the chapter to justify their responses. Yes, the company should establish a formal salary structure with job evaluations. This approach ensures equitable compensation, aligns salaries with job responsibilities and performance, and addresses any existing disparities. A structured system also enhances transparency, supports fair pay practices, and aids in attracting and retaining talent. 2. Is Jack Carter’s policy of paying 10% more than the prevailing wage rates a sound one, and how could that be determined? Answer: The students should use their judgment based on information presented in the chapter in giving their responses. Jack Carter's policy of paying 10% more than prevailing wage rates can be sound as it may attract and retain talent. To determine its effectiveness, compare employee turnover rates, recruitment success, and overall satisfaction before and after implementing the policy. Additionally, assess whether the higher pay aligns with industry standards and contributes to improved performance and productivity. 3. Similarly, is Carter’s male-female differential wise, and if not, why not? Answer: The salesperson’s male-female differential is not wise. The students should reference the Equal Pay Act of 1963 when providing their rationale. 4. Specifically, what would you suggest Jennifer do now with respect to her company’s pay plan? Answer: There are many things that students could reasonably suggest – among them: eliminate the gender pay differential, establish performance or competency-based pay, and establish a formal pay structure. Carter's male-female differential is not wise if it creates inequities in pay for similar work, as this can lead to legal and ethical issues. Gender-based pay differences violate principles of fairness and equal pay for equal work. Such differentials can result in lower employee morale, higher turnover, and potential legal challenges, undermining overall organizational effectiveness. Translating Strategy into HR Policies and Practice Case: The Hotel Paris The New Compensation Plan – The continuing case study of Hotel Paris is discussed here. In this example, Lisa Cruz, the HR manager, is tasked with designing new compensation policies and a new, more strategically-oriented compensation plan. 1. Draw a diagram showing with arrows how compensation at Hotel Paris should influence employee performance, which should in turn influence Hotel Paris performance. Include at each level specific examples of compensation policies, employee behavior, and Hotel Paris outcomes. Answer: Answers will vary widely. Look for examples with good tie-in between policies, behaviors, and proposed outcomes. Here's a simplified diagram illustrating how compensation influences employee performance, which in turn affects Hotel Paris' overall performance: Diagram Explanation: • Compensation Policies: Examples include offering competitive salaries to attract talent, providing performance bonuses to reward high achievers, and career development opportunities to encourage skill growth. • Employee Behavior: Influenced by compensation, this results in higher motivation, greater productivity, and improved job satisfaction as employees feel valued and recognized. • Hotel Paris Performance: Enhanced by motivated and productive employees, leading to better guest experiences, increased revenue, and reduced turnover, ultimately improving the hotel's overall performance. 2. Would you suggest Hotel Paris implement a competency-based pay plan for its non-managerial staff? Why or why not? Answer: The current plan is not linked to Hotel Paris’ strategic goals, and the link between pay and performance is weak and sometimes counterproductive. Competency-based pay would enable management to reward employees for exhibiting the skills Hotel Paris values. Yes, Hotel Paris should consider implementing a competency-based pay plan for non-managerial staff. This approach rewards employees based on their skills and performance rather than tenure alone, encouraging continuous improvement and skill development. It aligns compensation with job requirements and performance levels, potentially increasing motivation and job satisfaction. However, it’s crucial to ensure the system is fair and transparent to avoid any potential issues with perceived inequities. 3. Devise a ranking job evaluation system for the Hotel Paris’ non-managerial employees (housekeepers, valets, front desk clerks, phone operators, wait staff, groundskeepers, and security guards), and use it to show the worth of these jobs relative to one another. Answer: Answers will, again, vary. It is important to discuss how frequently each job interacts with the customer, what competencies are needed in each position, how students believe these jobs are paid in the local market, and whether assumptions are appropriate in light of what Hotel Paris is trying to do strategically. Ranking System for Non-Managerial Employees: 1. Housekeepers: Rank 3 2. Valets: Rank 3 3. Phone Operators: Rank 3 4. Groundskeepers: Rank 3 5. Wait Staff: Rank 4 6. Front Desk Clerks: Rank 4 7. Security Guards: Rank 5 Security Guards have the highest rank due to complexity, skill, responsibility, and working conditions, while Housekeepers, Valets, Phone Operators, and Groundskeepers are ranked lower. KEY TERMS Solution Manual for Human Resource Management Gary Dessler 9780132668217, 9780134235455, 9780135172780
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