Reward Systems

Intrinsic Rewards

Status Growth Responsibility

Extrinsic RewardsNon-financial (office, staff, title, etc.)

Financial (direct and indirect compensation)

Financial Rewards:Indirect Compensation

Protection Programs

Examples: pensions, health coverage, life insurance, social welfare programs

Public Private

Mandatory versus VoluntaryContributory 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 SystemObjectives

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 non- represented 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.

Compensation Laws & Regs

Wages Wage Controls

Payment Schedules Pay Increases

Overtime Incentive PayWage Adjustments (longevity, education, etc.)

Bonuses Contracts

Work Agreements Child Labor

Benefits

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 onCompensation

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 Rates2. 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

ClassificationJobs sorted by requirements, responsibilities

Point/FactorJobs evaluated and sorted by objectivefactors

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

Classification System

Grade Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

1 15,625 16,146 16,666 17,183 18,009 19,039 19,543

2 17,568 17,985 18,567 19,060 19,841 20,408 20,975

3 19,168 19,807 20,446 21,085 21,724 22,363 23,002

4 22,235 23,057 23,669 24,386 25,430 26,110 26,833

5 24,878 25,681 26,484 27,287 28,090 28,982 29,876

6 27,731 28,626 29,521 31,011 32,206 33,104 34,891

Point/Factor Systems

Job A = 100Job B = 110 points Job C = 160 pointsJob D = 180 pointsJob E = 200 pointsJob F = 220 points

Job P = 430 points

Pay Adjustments

Fixed Rate Increasesstep increases, flat dollar increases

Percentage Increases across the board, competitive percent

Incentives

Levels of Incentives

Individual

Group

Company-wide

Executive

Individual Incentive Plans

Piecework Payment

(Straight and Differential)

Standard Hour

Commissions

Bonuses

Skills-based Pay

Non-financial Awards

Group Incentive Plans

Piece-rate Systems

Standard Hour Plans

Group Bonuses

Profit Sharing

Company-wide Incentives

Profit Sharing(Cash Plan or Deferred Plan)

Gainsharing

Stock Ownership Plans (ESOP)

Executive Incentives

Salaries

Stock Options

Long-term Incentive Plan Payouts

Directors’ Fees

Perquisites

Executive Compensation

Organization

Salary

& Bonus

Long-term Comp

Company

Performance

Boeing 2,684,000 1,245,000 -128%

Tenet Healthcare 116,400,000 72,000,000 +63%

Dell Computer 82,300,000 37,500,000 -13.2%

Disney 14,500,000 48,000,000 -60%

Household Intl 5,000,000 41,300,000 -50%

GE 6,900,000 43,000,000 -39%

Directors’ Fees

Board Member Compensation

Fees

Insurance

Travel

Stocks

Retirement contributions

Board Fees

Bear Sterns Investments $150,000

PM Industries $ 85,000

Pepsico $ 78,000

American Express $ 67,500

Coca-cola $ 61,000

Georgia Pacific $ 53,000

Microsoft $ 42,000

Perquisites

Memberships Company car/limoCorporate Travel Corporate Jet/YachtClothing Allowance Free ParkingDining 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 ParachuteIn effect if acquisition or forced to leave

Typical severance package:2-3 x annual salary and bonusaccelerated vesting of options

Example: Mattel CorporationPackage=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

BankruptciesAcquisitions and MergersScandals with officers/managersPrivate & Corporate LawsuitsGovernment investigations and chargesArrests and convictionsTragedies 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 IncentivesAttention getter?Understandable?Establishes culture through values?Improves communication?Pays when it should? (achievements versus failures)

Improves individual performance?Improves organizational performance?