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Chapter 9 Compensation and Benefits Closing Case: Negotiating Salaries on the Web Case Summary Once upon a time, negotiations about wages and salaries were typically handled in a meeting between the employee and his or her manager. The same approach was used both for individuals who were being offered their first job with the company and for existing employees who felt they deserved a raise. But in both cases, the supervising manager and the organization itself usually had the upper hand. This situation stemmed from the fact that both prospective and current employees generally had relatively little knowledge about prevailing wage and salary levels. To make things worse (for the employee), locating this kind of information was difficult. But the Internet has rapidly changed all that. For instance, several free Web sites now provide salary information for anyone interested. Sometimes the Web provides even more insights, especially for crafty negotiators. For example, some people have used Internet bulletin boards to track down other individuals who have recently been offered employment with a particular firm, find out how much they were offered, and then use that information as leverage in their own negotiations. That is, they can confidently discuss with their prospective employer what the employer has been offering to other job candidates. Case Questions 1. How do you foresee using the Internet in your initial job search after you finish school? Using the Internet in your initial job search can be incredibly beneficial. Here's how you might approach it: 1. Researching Job Opportunities: Use job search engines like Indeed, Glassdoor, or LinkedIn to find job listings in your field. You can also explore company websites directly for openings. 2. Networking: Utilize professional networking sites like LinkedIn to connect with professionals in your field. Joining industry-specific groups can also be helpful. 3. Online Applications: Submitting your resume and cover letter through online portals or email is a common practice. Tailor your application to each job you apply for. 4. Building an Online Presence: Ensure your LinkedIn profile is complete and professional. Consider creating a personal website or online portfolio to showcase your work. 5. Researching Companies: Use the Internet to research potential employers. Learn about their values, culture, and recent news to tailor your application and prepare for interviews. 6. Professional Development: Take advantage of online courses and webinars to continue learning and enhancing your skills. 7. Preparing for Interviews: Use the Internet to research common interview questions, company-specific questions, and to learn about the interview process at the companies you're interested in. Remember to also use offline methods, such as attending career fairs, networking events, and reaching out to contacts in your industry. 2. Are there drawbacks to using the Internet to search for salary information? Yes, there can be drawbacks to using the Internet to search for salary information. Some potential drawbacks include: 1. Reliability of Information: Salary information found online may not always be accurate or up-to-date. It can be based on self-reported data, which may not be verified. 2. Variability in Data: Salary ranges can vary widely based on factors such as location, industry, company size, and individual experience. Online sources may not always provide enough context to accurately compare salaries. 3. Limited Scope: Online salary information may not cover all industries or professions, leading to incomplete or biased data. 4. Lack of Privacy: Some salary websites require users to provide personal information in exchange for access to salary data, which may raise privacy concerns. 5. Influence on Negotiation: Relying too heavily on online salary information can limit your ability to negotiate effectively, as it may set unrealistic expectations or overlook other aspects of a job offer. It's important to use multiple sources and consider the context of the salary data when researching. Additionally, consulting with professionals in your field or using resources like professional organizations can provide more reliable and personalized salary information. The following items appear on the in-text Instructor Prep Cards. These notes and suggested talking points should help instructors conduct these exercises with the students. Discussion Questions 1. What is compensation? What are the basic differences between wages and salaries? Compensation is the set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization. It includes various elements such as base salary, incentives, bonuses, benefits, and other rewards. Wages refer to hourly compensation paid to operating employees. The basis for wages is time: specific blocks of time such as hours. Individuals paid on an hourly basis usually receive their paychecks weekly or biweekly. Most jobs paid on an hourly basis are lower-level and/or operating-level jobs. Salary is income that is paid to an individual not on the basis of time but on the basis of performance. Salaries are usually quoted on a monthly or annual basis. Salaries are generally paid to professional and managerial employees such as plant managers, product managers, or functional managers. Salaried employees do not get docked for leaving early on any given day, and they are not paid overtime for working extra hours. 2. What are the basic strategic options an organization has for its compensation policies? One set of options is based on the decision relating to basis of pay. Most organizations base pay on functions performed. However, some organizations recently have chosen to base pay on skills or knowledge acquired by employees. Therefore, the decision is whether to base pay on what an employee does or to base pay on what an employee knows. A second set of options is based on the decision regarding differential pay within a specific job. Some organizations base this differential on seniority, while other organizations base it on differences in performance regardless of time on the job. A third set of options deals with the organization’s pay rates relative to going rates in the market. The basic strategies are to pay above-market compensation rates, market compensation rates, or below-market compensation rates. This decision is based on the type of employees that the organization wants to attract, the organization’s ability to pay, and the availability of nonmonetary benefits that may offset lower pay rates. 3. Identify and summarize the basic methods of job evaluation. The classification system attempts to group sets of jobs together into clusters, often called grades. Steps include grouping sets of jobs into grades, ranking the grades in level of importance, and determining the number of job categories or classifications. Once grades have been determined, the job evaluator writes definitions and descriptions of each, so that other jobs can be compared with the definitions and classified in the future. Advantages of job classification are that it can be constructed relatively simply and quickly and that it is easy to understand and to explain to employees. A disadvantage is that it is more complicated than simple ranking. The most commonly used job evaluation method is the point system, which requires managers to quantify in objective terms the value of the various elements of specific jobs. Using job descriptions, managers assign points to various compensable factors. Point systems typically evaluate eight to ten compensable factors for each job, and these factors may be weighted according to relative importance. Most organizations also develop a point manual, which carefully and specifically defines the degrees of points from first to fifth. The factor comparison method assesses jobs on a factor-by-factor basis, using a standard factor comparison scale as a benchmark. To compare jobs, commonly used systems include five job factors: responsibilities, skills, physical effort, mental effort, and working conditions. Managers are typically advised to follow six steps: (1) select and define comparison factors; (2) identify benchmark or key jobs; (3) rank benchmark jobs on each compensation factor; (4) allocate a part of each benchmark job’s wage rate to each job factor; (5) prepare two sets of ratings, based on the ranking and the assigned wages, to determine the consistency demonstrated by the evaluators; and (6) develop a job comparison chart to display the benchmark jobs and the monetary values that each job receives for each factor. An advantage is that it is a detailed and meticulous method for evaluating jobs. The method is extremely complex and difficult to use, and it involves a fair amount of subjectivity. 4. Why are job classes needed? How are they developed? Job classes represent gradations of responsibility and competence that exist regarding the performance of a specific job. The organization will want to differentiate between people with different competencies, for example, by creating a series of job grades within a job class. Employees within these job grades will earn differential compensation based on their competencies, experience, expertise, and so on. Job classes are needed as building blocks in the development of an organization’s pay structure. Within the pay structure, an organization will order job classes from the most to least valuable and will compensate accordingly. Organizations that use the job classification or grading system of job evaluation will develop job classes using these systems. Organizations that use job rankings, the point system, or the factor comparison system will need to take the additional step of creating job classes. Job classes are developed by examining particular jobs and differentiating the levels of competence within those jobs. For example, a mechanic job may be broken down into an entry-level mechanic I grade, a high-level mechanic V grade (where a great deal of experience and expertise is required), and grades II, III, and IV in between. 5. How does pay compression develop? Why is it a problem? Pay compression is a circumstance in which individuals with substantially different levels of experience and/or performance abilities are being paid wages or salaries that are relatively close together. It is most likely to develop when the market rate for starting salaries increases at a rate faster than an organization’s internal ability to raise pay for individuals who are already on the payroll. In some cases, it is possible for a newcomer to be paid a higher salary than an individual who has been working for the organization for a year or two. Organizations have to respond to market shifts to continue hiring at a competitive level, but may not have the internal resources to maintain pay increases for existing employees. To the extent that pay compression exists and is recognized by employees, the possibility for resentment and disappointment will increase. Disgruntled employees may leave because they feel that they are being underpaid relative to newcomers in the organization. The organization may need to provide other types of rewards such as intangible benefits to retain existing employees. 6. What are the purposes of employee benefits programs? One basic purpose is based on efficiency wage theory, which suggests that firms can actually save money and become more productive if they pay more because they attract employees who are better or who are willing to work harder. Organizations that spend more money on compensation and benefits are therefore better able to attract better applicants. Another basic purpose is to impact job satisfaction and subsequent turnover. Employees may be more likely to stay with a firm that provides better benefits and will be more satisfied with that firm. Various social, cultural, and political forces may also require organizations to offer new and broader benefit programs to attract employees and to remain competitive with other firms in an industry. Related to this, employee expectations are a driving force in determining what benefits a firm must offer. 7. What benefits are mandated by law? Unemployment insurance is intended to provide a basic subsistence payment to employees who are between jobs. Employers pay premiums to the unemployment insurance fund for their state. The premium is increased if more than an average or designated number of employees from the organization is drawing from the fund at any given time. To be covered, an individual must have worked a minimum number of weeks, must now be without a job, and must be willing to accept a suitable position if one is found through the State Unemployment Compensation Commission. An individual is qualified if he or she is out of work through no personal fault. However, if the employee quits of his or her own free will or is fired for poor performance or other legitimate reason, there may be a delay before the individual becomes qualified for benefits. The payment is intended to represent around half of what individuals had been earning. The program is funded through employer contributions. Social security, also called the Old Age Survivors and Disability Insurance Program, was designed to provide limited income to retired individuals to supplement their own personal savings, private pensions, part-time work, and so forth. The program is funded through employee and employer taxes, currently 7.65 percent of earnings on the first $72,600 of income. Individuals are eligible for partial benefits at age 62 or full benefits at age 65. The minimum age for full benefits will increase to 67 in 2027. If an employee dies before retirement age, a family with children under 18 receives survival benefits. If an employee becomes totally disabled before age 65, he or she is eligible to receive benefits. The amount paid to an individual is a function of the average monthly wage that he or she has earned, weighted toward later years of the individual’s career. Workers’ compensation is insurance that covers individuals who suffer a job-related illness or accident. Employers pay the cost of this insurance. The premium is a function of the employer’s past experience with job-related accidents and illnesses. 8. What are the most common benefits not mandated by law? Insurance coverage is probably the most common optional protection plan provided by organizations to their full-time employees. This may include health insurance, life insurance, and long-term disability insurance. Health-care coverage has been expanded in recent years to include special programs such as prescription drug programs, vision-care products, mental health services, and dental care. Many organizations use health maintenance organizations, or HMOs, to provide their health-care services. 9. Describe the basic components of the Social Security Act of 1935. The Social Security Act of 1935 has several basic components. For instance, the act mandates unemployment insurance that specifies a basic subsistence payment to employees who are between jobs. Social security is another component of the act and is designed to provide limited income to retired individuals to supplement their own personal savings, private pensions, part-time work, and so forth. 10. What are your feelings about the executive compensation controversy? Executive compensation has been criticized because of the monetary amounts involved, the lack of performance-based criteria, and the differences between top manager pay and employee pay. This controversy could be mitigated by developing performance-based criteria for executive compensation, establishing policies that align executive more closely to employee pay, and reducing executive pay to more acceptable levels based on professional and community standards. While opinions on executive pay with vary greatly, these strategies should bridge the gap between individuals who believe executives are paid excessively and others who are more accepting of high executive compensation. Ethical Dilemmas in HR Management Scenario Summary Students are to assume that they are a human resource manager for a service organization. The boss would like the human resource manager to communicate to employees the value of the benefits offered to them, but the boss wants the information manipulated so that it looks better than it really is. The boss figures that these are the potential costs that could be incurred for everyone and that the company should get credit for being generous, although many employees do not take full advantage of all benefits. Questions 1. What are the ethical issues in this situation? The major ethical issue surrounds the use of misleading information to communicate to employees that the employer is paying more for their benefits than it really is. 2. What are the basic arguments for and against what your boss is instructing you to do? For manipulating the information: The costs that could potentially be incurred really do reflect the benefits that employees could take advantage of, so the inflated numbers are possibly justifiable. The inflated information (i.e., potential benefits) could positively impact employee satisfaction with benefits and loyalty to the company. Against manipulating the information: Inflating the value of the benefits amounts to lying to the employees. If employees find out about the manipulations, this could severely damage the organization’s reputation and relationships with its employees and with others outside the organization (i.e., potential employees, stakeholders). 3. What do you think most managers would do? What would you do? Most managers would likely use a combination of online resources, such as salary comparison websites, industry reports, and professional networks, to gather salary information. They may also consult with HR professionals or use internal data to ensure the accuracy and relevance of the information. As for what I would do, I would follow a similar approach. I would start by researching online to get a general idea of salary ranges for similar positions in my industry and location. I would then validate this information by consulting with HR professionals, industry contacts, and potentially using internal data if available. This comprehensive approach would help me make informed decisions about salary offers and negotiations. Assignment The purpose of this exercise is to familiarize students with the issues surrounding cafeteria-style benefit programs. Students are asked to consider an organization’s current benefits plan and devise various plans for converting to a cafeteria-style benefit plan. In class, the exercise should take 25 to 45 minutes, depending on time available. This exercise is probably best conducted in small groups if conducted as an in-class exercise. Alternatively, individual students or groups of students may be assigned this activity outside of class. Step 1 (10 to 15 minutes): Assuming the role of the human resource manager of a medium-size manufacturing company, students are given information about the company’s current benefits plan. Costs that are borne by the employer and employee for each type of benefit are included. If students have difficulty analyzing this information, instructors may suggest that they tally up the employer’s costs and employee’s costs associated with the overall benefits package. This may then serve as a basis for formulating cafeteria-plan options. Steps 2 and 3 (15 to 30 minutes): Students are then to devise a plan for converting the benefits package to a cafeteria-style plan. Students are to outline as many options as they can think of, based on the original set of benefits as a starting point. Instructors may guide students having difficulty by encouraging them to think of various combinations of benefits that employees may find more or less attractive, and methods of pricing the various benefits so that the total cost to the employer does not change. As a simple example, the total employer contribution to the original benefits plan totaled $320. Employees who have no dependents may find benefits such as additional vacation time to be more attractive than life insurance or dental insurance. The employer cost of these two benefits ($70/month) could be applied by the employee toward additional vacation days. Employees with no dependents may also have access to health coverage through a spouse (i.e., the employees are the dependents of others), so another option the organization can offer them is a cash benefit in lieu of health benefits. Solution Manual for Human Resources Angelo Denisi, Ricky Griffin 9781285867571
