Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 1 Managing

1

Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance

by De Cieri & Kramar

Managing compensation

Chapter 12



12-2

Managing compensation Objectives

List the major decision areas and concepts in employee compensation management.

Describe the major administrative tools used to manage employee compensation.

Explain the importance of competitive labour-market and product-market forces in compensation decisions.

Discuss the significance of process issues, such as communication, in compensation management.



12-3

Managing compensation

ObjectivesDescribe new developments in the design

of pay structures.Explain the reasons for the controversy

over executive pay.Describe the regulatory framework for pay

in Australia.



12-4

Compensation: key terms

Pay structureThe relative pay of different jobs (job

structure) How much they are paid (pay level)



12-5

Equity theory

People evaluate the fairness of their situations by comparing them with those of other people.

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12-6



12-7

Job evaluation

An administrative procedure used to measure job worth.

Job evaluation is used to design job structures.



12-8

Job evaluation

Key concepts:Distributive justice (also distributive

fairness). The perception that rewards are distributed in relation to contribution.

Procedural justice (also procedural fairness). A concept of justice focusing on the methods used to determine the outcomes received.



12-9

Market pressures

Product-market competition Labour-market competition



12-10

Market pay surveys

Key questions to address:Which employers should be included in

the survey?Which jobs are included in the survey?If multiple surveys are used, how are all

the rates of pay weighted and combined?



12-11

Issues in market pay surveys

Award restructuring (structural efficiency principle)

Key jobs and non-key jobs



12-12

Developing a job structure



12-13

Developing a pay structure

Pay-policy lineA mathematical expression that describes

the relationship between a job’s pay and its job evaluation points.

Pay gradeJobs of similar worth or content grouped

together for pay administration purposes.Range spread

the distance between the minimum and maximum amounts in a pay grade.



12-14

Pay grade

12345

Minimum Maximum Minimum MaximumMidpoint

Job evaluation points range Fortnightly pay rate range

100150200250300

150200250300350

$1740$2648$3555$4463$5370

$2175$3310$4444$5579$6713

$2610$3971$5333$6694$8056

Table 12.7 Sample pay grade structure



12-15

Monitoring compensation costs

Compa-ratio An index of the correlation between actual

and intended pay.

Grade compa-ratio = Actual average pay for grade

Pay midpoint for grade



12-16

Important processes in compensation

Participation Communication



12-17

Current challenges in compensation

Problems with job-based pay structures

Responses to these problems:Delayering and bandingPaying the person: skill-based pay



12-18

Comparing the competitiveness of the Australian labour force

Average hourly labour costs (cash and benefits)

Instability of country differences in labour costs

Skill levels Productivity Non-labour factors



12-19

Executive pay in Australia

Accountability and relationship to organisational performance

Governance Design and structure



12-20

Source: P.J. Holland, P.J. Dowling & P.A. Innes, CEO compensation in Australia: Is there a relationship between principles, policies and practices?, Asia Pacific Journal of Human Resources, 39(3), 2001, p. 50.

Figure 12.5 A comparison of CEO pay and stock-market-based indicators



12-21

Government regulation of compensation

Minimum wage Wage laws Wage determination Restructuring and efficiency principle Award restructuring Enterprise bargaining principle



12-22

Summary

Equity theory suggests that social comparisons are an important influence on how employees evaluate their pay.

Pay benchmarking surveys and job evaluation are two administrative tools widely used in managing the pay-level and job-structure components of the pay structure, which influence employee social comparisons.



12-23

Summary (continued)

The nature of pay structures is undergoing a fundamental change in many organisations.

How a new program is designed, decided on, implemented and communicated is perhaps just as important as its core characteristics.

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Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Human Resource Management in Australia: Strategy-People-Performance by De Cieri & Kramar 1 Managing