Type:
Solution Manual
Strategic Compensation A Resource: Human Resource Management Approach Edition:
8th Edition
Author(s):
Joseph J. Martocchio
Instructor’s Manual to Accompany Strategic Compensation: A Human Resource Management Approach, 8e, Global Edition
Preface This Instructor’s Manual provides instructors with course outlines as well as suggested responses for the end-of-chapter Discussion Questions. In addition, answers to case questions and instructor’s notes for the end-of-chapter case and additional case found in MyManagementLab are included. Finally, two MyLab Questions and recommended answers are provided. Table of Contents Chapter 1: Strategic Compensation: A Component of Human Resource Systems I. Overview II. Exploring and Defining the Compensation Context A. What Is Compensation? B. Core Compensation C. Employee Benefits III. A Historical Perspective on Compensation A. Causes of Changes in Human Resources Practices B. Initial Emphasis on Personnel Administration C. From Personnel Administration to Human Resources D. Compensation Practices That Contribute to Competitive Advantage IV. Strategic versus Tactical Decisions A. Strategic Management Defined B. Competitive Strategy Choices C. Tactical Decisions That Support the Firm’s Competitive Strategy V. Compensation Professionals’ Goals A. How HR Professionals Fit into the Corporate Hierarchy B. How the Compensation Function Fits into the HR Department C. Compensation Department’s Main Goals VI. Stakeholders of the Compensation System A. Definition B. Stakeholders Include C. Employees Rely on Compensation Professionals to D. Line Managers Rely on Compensation Professionals to E. Executives Rely on Compensation Professionals to
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F. Unions Rely on Compensation Professionals to G. U.S. Government Requires Compensation Professionals to VII. Discussion Questions and Suggested Answers VIII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions IX. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 2: Contextual Influences on Compensation Practice I. Employment Laws That Influence Compensation Practices A. Legislative Actions B. Four Amendments to the U.S. Constitution C. Government Makeup D. Four Key Legislative Themes E. Income Continuity, Safety, and Work Hours Laws F. FLSA of 1938 G. Pay Discrimination Legislation H. Equal Pay Act of 1963 I. Title VII of Civil Rights Act of 1964 J. Bennett Amendment K. Executive Order 11246 L. ADEA of 1967 M. OWBPA N. Executive Order 11141 O. Civil Rights Act of 1991 P. Accommodating Disabilities and Family Needs Q. PDA of 1978 R. ADA of 1990 S. FMLA of 1993 T. Prevailing Wage Laws U. Davis–Bacon Act of 1931 V. Walsh–Healey Contracts Act of 1936 II. Laws That Guide Discretionary Employee Benefits A. Internal Revenue Code (IRC) B. Employee Retirement Income Security Act of 1974 (ERISA)
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C. Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) D. Health Insurance Portability and Accountability Act of 1996 (HIPAA) E. Pension Protection Act of 2006 F. Patient Protection and Affordable Care Act of 2010 III. Contextual Influences on the Federal Government as an Employer IV. Labor Unions as Contextual Influences A. Labor Unions Overview B. National Labor Relations Act of 1935 C. Compensation Issues in Collective Bargaining V. Market Influences A. Inter-Industry Wage/Compensation Differentials B. Companies in Product Markets with Little Competition C. Capital Intensity D. Outsourcing VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes and Questions and Suggested Student Responses MyLab Questions VIII. Additional Cases from the Student Companion Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 3: Traditional Bases for Pay: Seniority and Merit I. Seniority and Longevity Pay A. Overview B. Historical Overview C. Who Participates? D. Effectiveness of Seniority Pay Systems E. Design of Seniority Pay Plans F. Advantages of Seniority Pay G. Fitting Seniority Pay with Competitive Strategies II. Merit Pay A. Overview B. Who Participates? C. Exploring the Elements of Merit Pay iii
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III. Performance Appraisal A. Types B. Trait Systems C. Comparison Systems D. Behavioral Systems E. Goal-Oriented Systems F. Exploring the Performance Appraisal Process IV. Strengthening the Pay-for-Performance Link A. Activities B. Link Performance Appraisals to Business Goals C. Analyze Jobs D. Communicate E. Establish Effective Appraisals F. Empower Employees G. Differentiate Among Performers V. Possible Limitations of Merit Pay Programs A. Potential Problems B. Failure to Differentiate Among Performers C. Poor Performance Measures D. Supervisors’ Biased Ratings of Employee Job Performance E. Lack of Open Communication between Management and Employees F. Undesirable Social Structures G. Factors Other Than Merit H. Undesirable Competition I. Little Motivational Value VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 4: Incentive Pay I. Exploring Incentive Pay II. Contrasting Incentive Pay with Traditional Pay
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III. Individual Incentive Plans A. Defining Individual Incentives B. Types of Individual Incentive Plans C. Piecework Plans D. Management Incentive Plans E. Behavioral Encouragement Plans F. Referral Plans G. Advantages of Individual Incentive Plans H. Disadvantages of Individual Incentive Plans IV. Group Incentives A. Defining Group Incentives B. Types of Group Incentive Plans C. Team-based or Small Group Incentive Plans D. Gain Sharing Plans E. Scanlon Plan F. Rucker Plan G. Improshare H. Comparison of Plans I. Advantages of Group-Incentive Plans J. Disadvantages of Group-Incentive Plans V. Companywide Incentives A. Defining Companywide Incentives B. Types of Companywide Incentive Plans C. Profit Sharing Plans D. Calculating Profit Sharing Awards E. Advantages of Profit Sharing Plans F. Disadvantages of Profit Sharing Plans G. Employee Stock Option Plans VI. Designing Incentive Pay Programs A. Five Key Considerations B. Group versus Individual Incentives C. Level of Risk D. Complementing or Replacing Base Pay E. Performance Criteria F. Time Horizon VII. Discussion Questions and Suggested Answers VIII. End of Chapter Case; Instructor Notes and Questions and Suggested Student Responses v
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MyLab Questions Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 5: Person-Focused Pay I. Defining Person-Focused Pay: Competency-Based Pay, Pay-for-Knowledge, and Skill-Based Pay A. Person-Focused Pay Plans B. Pay-for-Knowledge Plans C. Skill-Based Pay D. What Is a “Competency”? II. Usage of Person-Focused Pay Programs III. Reasons to Adopt Person-Focused Pay Programs A. Overarching Reasons B. Technological Innovation C. Increased Global Competition IV. Varieties of Person-Focused Pay Programs A. Four Main Types B. Stair-Step Model C. Skill-Blocks Model D. Job-Point Accrual Model E. Cross-Departmental Models V. Contrasting Person-Focused Pay with Job-Based Pay A. Person-Focused Pay B. Job-Based Pay VI. Advantages of Person-Focused Pay Programs A. To Employees B. To Employers VII. Disadvantages of Person-Focused Pay Programs VIII. Discussion Questions and Suggested Answers IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions X. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 6: Building Internally Consistent Compensation Systems I. Internal Consistency II. Job Analysis A. Definition B. Steps in Job Analysis Process C. Legal Considerations D. Job Analysis Techniques E. O*NET III. Job Evaluation A. Definition B. Compensable Factors C. The Job Evaluation Process IV. Job Evaluation Techniques A. Two General Types B. The Point Method C. Alternative Job-Content Evaluation Approaches D. Alternatives to Job Evaluation V. Internally Consistent Compensation Systems and Competitive Strategy VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VIII. Additional Cases from the MyManagementLab Website; Instructor Notes and Suggested Student Responses
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Chapter 7: Building Market-Competitive Compensation Systems I. Market-Competitive Pay Systems: The Basic Building Blocks A. Definition B. Market-Competitive Pay Systems II. Compensation Surveys A. Purposes B. Preliminary Considerations C. Using Published Compensation Survey Data D. Compensation Surveys: Strategic Considerations
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E. Compensation Survey Data III. Integrating Internal Job Structures with External Market Pay Rates IV. Compensation Policies and Strategy Mandates V. Discussion Questions and Suggested Answers VI. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 8: Building Pay Structures That Recognize Employee Contributions I. Constructing a Pay Structure A. Overview B. Step 1: Deciding on the Number of Pay Structures C. Step 2: Determining a Market Pay Line D. Step 3: Defining Pay Grades E. Step 4: Calculating Pay Ranges for Each Pay Grade F. Step 5: Evaluate the Results II. Designing Merit Pay Systems A. Considerations B. Merit Increase Amounts C. Timing D. Recurring versus Nonrecurring Merit Pay Increases E. Present Level of Base Pay F. Rewarding Performance: The Merit Pay Grid G. Merit Pay Increase Budgets III. Designing Sales Incentive Compensation Plans A. Purposes of Sales Incentive Compensation Plans B. Alternative Sales Compensation Plans C. Sales Compensation Plans and Competitive Strategy D. Determining Fixed Pay and the Compensation Mix IV. Designing Person-focused Programs A. Overview B. Establishing Skill Blocks C. Transition Matters viii
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D. Training and Certification V. Pay Structure Variations A. Broadbanding B. Two-Tiered Pay Structures VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 9: Discretionary Benefits I. An Overview of Discretionary Benefits II. Components of Discretionary Benefit Components A. Protection Programs B. Paid Time Off C. Services III. The Benefits and Costs Discretionary Benefits IV. Discussion Questions and Suggested Answers V. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VI. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 10: Employer-Sponsored Retirement Plans and Health Insurance Programs I. Exploring Retirement Plans A. Overview B. Origins of Employer-Sponsored Retirement Plans C. Trends in Retirement Plan Coverage and Costs II. Qualified Plans A. Overview B. Minimum Standards for Qualified Plans III. Defined Benefit Plans A. Overview ix
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B. Minimum Funding Standards C. Benefit Limits and Tax Deductions IV. Defined Contribution Plans A. Overview B. Individual Accounts C. Investments of Contributions D. Employee Participation in Investments E. Accrual Rules F. Minimum Funding Standards G. Contribution Limits and Tax Deductions V. Types of Defined Contribution Plans A. Types B. Section 401(k) Plans C. Profit-Sharing Plans D. Stock Bonus Plans E. Employee Stock Ownership Plans (ESOPs) VI. Hybrid Plans: Cash Balance Plans A. Overview VII. Defining and Exploring Health Insurance Programs A. Overview B. Origins of Health Insurance Benefits C. Health Insurance Coverage and Costs VIII. Fee-for-Service Plans A. Overview B. Features of Fee-for-Service Plans IX. Managed Care Plans A. Overview B. Health Maintenance Organizations C. Features of Health Maintenance Organizations X. Preferred Provider Organizations A. Overview B. Features of Preferred Provider Organizations C. Deductibles D. Coinsurance XI. Point-of-Service Plans XII. Specialized Insurance Benefits A. Overview B. Prescription Drug Plans x
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C. Mental Health and Substance Abuse D. Features of Mental Health and Substance Abuse Plans XIII. Consumer-Driven Health Care Plans A. Overview B. Flexible Spending Accounts XIV. Discussion Questions and Suggested Answers XV. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions XVI. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 11: Legally Required Benefits I. An Overview of Legally Required Benefits II. Components of Legally Required Benefits A. SSA B. Unemployment Insurance C. OASDI D. Medicare E. State Compulsory Disability Laws (Workers’ Compensation) F. FMLA III. The Benefits and Costs of Legally Required Benefits IV. Designing and Planning the Benefits Program A. Overview B. Determining Who Received Coverage C. Financing D. Employee Choice E. Cost Containment F. Communication V. Discussion Questions and Suggested Answers VI. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VII. Additional Cases from the MyManagementLab Website; Instructor Notes and Suggested Student Responses
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Chapter 12: Compensating Executives I. Contrasting Executive Pay with Pay for Nonexecutive Employees II. Principles of Executive Compensation: Implications for Competitive Strategy III. Defining Executive Status A. Who Are Executives? IV. Executive Compensation Packages A. Overview B. Components of Current Core Compensation C. Short-Term Incentives D. Components of Deferred Core Compensation E. Employee Benefits: Enhanced Protection V. Principles and Processes for Setting Executive Compensation A. The Key Players in Setting Executive Compensation B. Theoretical Explanations for Setting Executive Compensation VI. Executive Compensation Disclosure Rules VII. Say on Pay VIII. Executive Compensation: Are U.S. Executives Paid Too Much? A. Comparison between Executive Compensation and Compensation for Other Worker Groups B. Strategic Questions: Is Pay for Performance? C. Ethical Considerations: Is Executive Compensation Fair? D. International Competitiveness IX. Discussion Questions and Suggested Answers X. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions XI. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 13: Compensating the Flexible Work Force: Contingent Employees and Flexible Work Schedules I. The Contingent Workforce A. Overview B. Groups of Contingent Workers C. Reasons for U.S. Employers’ Increased Reliance on Contingent Workers xii
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Pay and Employee Benefits for Contingent Workers A. Legalities B. Part-time Employees C. Temporary Employees D. Leased Workers E. Independent Contractors, Freelancers, and Consultants III. Flexible Work Schedules: Flextime, Compressed Work Weeks, and Telecommuting A. Main Types B. Flextime C. Compressed Work Weeks D. Telecommuting E. Balancing the Demands of Work Life and Home Life IV. Pay and Employee Benefits for Flexible Employees A. Pay B. Benefits V. Unions’ Reactions to Contingent Workers and Flexible Work Schedules VI. Strategic Issues and Choices in Using Contingent and Flexible Workers A. Cost Control Objectives B. Product and Service Innovation Objectives VII. Discussion Questions and Suggested Answers VIII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions IX. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 14: Compensating Expatriates I. Competitive Advantage and How International Activities Fit In A. Overview B. Lowest Cost Producers’ Relocations to Cheaper Production Areas C. Differentiation and the Search for New Global Markets D. How Globalization Is Affecting HR Departments E. Complexity of International Compensation Programs
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Preliminary Considerations A. Overview B. Host Country Nationals, Third Country Nationals, and Expatriates: Definitions and Relevance for Compensation Issues III. Components of International Compensation Programs IV. Setting Base Pay for U.S. Expatriates A. Methods for Setting Base Pay B. Purchasing Power V. Incentive Compensation for U.S. Expatriates A. Overview B. Foreign Source Premiums C. Hardship Allowances D. Mobility Premiums VI. Establishing Employee Benefits for U.S. Expatriates A. Overview B. Standard Benefits C. Enhanced Benefits VII. Balance Sheet Approach for U.S. Expatriates’ Compensation Packages A. Overview B. Housing and Utilities C. Goods and Services D. Discretionary Income E. Tax Considerations VIII. Repatriation Pay Issues IX. Discussion Questions and Suggested Answers X. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions XI. Additional Cases from the MyManagemetLab Website; Instructor Notes, and Questions and Suggested Student Responses
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Chapter 15: Pay and Benefits Outside the United States I. Introduction II. North America A. Overview B. Canada
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C. Mexico III. South America A. Overview B. Brazil IV. Europe A. Overview B. Germany V. Asia A. Overview B. India C. People’s Republic of China VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses MyLab Questions VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses
Chapter 16: Challenges Facing Compensation Professionals I. Overview II. Fallout from the “Great Recession” A. The U.S. Economy Experienced an Economic Recession B. What Is an Economic Recession? III. Underemployment: Implications for Compensation A. Underemployment: Implications for Compensation B. The Compensation-Productivity Gap IV. Executive Compensation V. Rising Wages in China VI. Challenges in Healthcare Reform A. Overview B. Key Considerations for Employers VII. Workforce Demographics Shifts A. Labor Force Diversity B. Relevance for Employee Benefits C. Considerations for Employee Motivation VIII. Marriage Between Same-Sex Individuals and the U.S. Supreme Court Ruling on the Defense of Marriage Act xv
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Discussion Questions and Suggested Answers
MyLab Questions
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Sample Syllabus Martocchio, Strategic Compensation: A Human Resource Management Approach 8e, Global Edition, with MyManagementLab Suggested Grade Distribution First team written report (based on Strategic Analysis in Building Strategic Compensation Systems (BSCS):
15% of course grade
Second team written report (based on Internal Consistency part of casebook):
15% of course grade
Third team written report (based on Market Competitiveness part of the BSCS casebook):
15% of course grade
Team oral report (based on Employee Contributions part of casebook):
15% of course grade
Compensation mid-term exam:
15% of course grade
Compensation final exam:
20% of course grade
Individual class participation:
5% of course grade
Compensation Team Project: Building Strategic Compensation Systems This experiential project is designed to provide you an opportunity to integrate and apply knowledge that you will learn in this course. Teams of 5 class members will be established to complete this project that consists of four separate reports (one report for team for each part of the project. The four reports and due dates are listed below: Written Report 1: Written Report 2: Written Report 3: Team Oral Report:
Strategic Analysis (Week 3) Internal Consistency (Week 7) Market Competitiveness (Week 12) Employee Contributions (Week 15)
Each team will serve as compensation experts who have been hired by the firm to develop an integrated compensation plan. An instructor’s grade will be assigned to each report for each team. All team members will receive the same grade based on the instructor’s evaluation. Each part of the case builds uniquely on your answers to prior parts of the case. Each report should be written as recommendations to top management. A good approach to developing the report is to identify and discuss decisions that must be made to meet the objectives. Each decision should be supported with rationale that is logical and based on the content presented within your texts. Identify plausible alternatives to your decisions, and discuss possible problems that may be encountered.
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Each written report should be summarized in a one- to three-page executive summary at the front. This executive summary should contain the major objectives of the report and the corresponding major findings. Also, the body of the report should follow the outline included at the beginning of each part of the BSCS casebook. Suggested Course Schedule1
Week
Reading Assignment Chapter 1: Strategic Compensation (corresponds to the topic of the Strategic Analysis in the BSCS casebook)
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Chapter 2: Contextual Influences on Compensation Practice
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Team Written Report (Strategic Analysis) is due.
Chapter 3: Traditional Bases for Pay & Chapter 4: Incentive Pay Chapter 4: Incentive Pay (continued) & Chapter 5: Person-Focused Pay
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Team Written Report (Internal Consistency) is due. Mid-Term Exam (Chapters 1-6; 9-10)
Chapter 11: Legally Required Benefits
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Chapter 12: Compensating Executives
11 Team Written Report (Market Competitiveness) is due.
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Chapter 9: Discretionary Benefits Chapter 10:Employer-Sponsored Retirement Plans and Health Insurance Programs
Chapter7: Building Market Competitive Compensation Systems (corresponds to the topic of Market Competitiveness in the BSCS casebook)
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Chapter 6: Building Internally Consistent Compensation Systems (corresponds to the topic of Section 1 in the BSCS casebook)
Team Written Report (Employee Contributions) is due. Final Exam (Chapters 7-8 and 11-16)
Chapter 8: : Building Structures that Recognize Employee Contributions (corresponds to the topic of Employee Contributions in the BSCS casebook) Chapter 13: Compensating the Flexible Workforce & Chapter 14: Compensating Expatriates Chapter 15: Pay and Benefits Outside the United States Chapter 16: Challenges Facing Compensation Professionals
This course schedule is based on the use of the BSCS case. For course schedules that do not include the BSCS case, the material can be presented in the order in which it appears in the book. 1
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CHAPTER 1 Strategic Compensation: A Component of Human Resource Systems Learning Objectives 1. Describe what compensation is and give at least three examples of core compensation practices and at least three examples of employee benefits practices. 2. Summarize at least two historical events in the evolution of compensation practice leading to the current strategic compensation era. 3. Discuss at least two differences between strategic and tactical compensation. 4. Name and summarize the goals of compensation professionals. 5. Identify the stakeholders of the compensation and summarize their stake in the work compensation professionals perform. Outline I. II.
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Overview Exploring and Defining the Compensation Context A. What Is Compensation? B. Core Compensation C. Employee Benefits A Historical Perspective on Compensation A. Causes of Changes in Human Resources Practices B. Initial Emphasis on Personnel Administration C. From Personnel Administration to Human Resources D. Compensation Practices That Contribute to Competitive Advantage Strategic versus Tactical Decisions A. Strategic Management Defined B. Competitive Strategy Choices C. Tactical Decisions That Support the Firm’s Competitive Strategy Compensation Professionals’ Goals A. How HR Professionals Fit into the Corporate Hierarchy B. How the Compensation Function Fits into the HR Department C. Compensation Department’s Main Goals Stakeholders of the Compensation System A. Employees B. Line Managers C. Executives
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D. Unions E. U.S. Government VII. Discussion Questions and Suggested Answers VIII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses IX. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses.
Lecture Outline I.
Overview A. Manpower Planning 1. Focus was on effective deployment of employees 2. Goal was to achieve maximum productivity per employee B. Personnel Management 1. Evolved due to government regulations concerning: a. Payroll taxes b. Minimum wage laws c. Antidiscrimination laws 2. New responsibilities include: a. Administration b. Support c. Consultation d. Quality human resources system design C. HR Professionals 1. Their role has evolved from compliance to consultation and system design 2. They help companies use compensation to attract and retain quality employees 3. They switch the role of compensation practices from controlling managers to facilitating their success 4. They use skills and creativity to apply fundamentals to build management tools that fit within the context of their business 5. They teach managers how to use those tools to maximize their employees’ potential 6. They become facilitators 7. Their transformation from compensation consultant to master compensation carpenter requires that: a. A solid foundation in a company’s business environment, strategy, and organizational structure, processes, and culture should exist 2 © Pearson Education Limited 2015
b. A manager’s toolbox should contain the tools required to run the business c. Managers should be taught how to use each tool II.
Exploring and Defining the Compensation Context A. What Is Compensation? 1. Intrinsic and extrinsic rewards employees receive for performing their jobs a. Intrinsic compensation: reflects employees’ psychological mindsets that result from performing their jobs b. Extrinsic compensation: includes both monetary and nonmonetary rewards for: i. Obtaining certain job performance levels ii. Acquiring new skills and knowledge 2. Monetary compensation represents core compensation 3. Nonmonetary rewards (also known as employee benefits) include: a. Protection programs (e.g., medical insurance) b. Paid time off (e.g., vacations) c. Services (e.g., daycare assistance) B. Core Compensation 1. Six types: a. Base pay b. Cost-of-living adjustments c. Seniority pay d. Merit pay e. Incentive pay f. Pay-for-knowledge and/or skill-based pay 2. Base pay (more in Chapter 7) a. Includes: i. Hourly pay wage ii. Salary c. Is recurring d. Is governed by Fair Labor Standards Act of 1938 (more in Chapter 2) e. In 2012, the average weekly rate for workers was $818.1 On an annual basis, this figure translates to $42,537 (based on a 40-hour work week over 52 calendar weeks) f. Is influenced by four compensable factors: i. An employee’s skill level ii. An employee’s effort iii. An employee’s level of responsibility 3 © Pearson Education Limited 2015
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iv. The severity of the working conditions (more in Chapters 2 and 6) g. Because of the Equal Pay Act of 1963, compensable factors are used to: i. Determine internal consistency (more in chapter 6) ii. Determine market competitiveness (more in chapter 7) iii. Recognize individual contributions (more in chapter 8) h. Is adjusted periodically for: i. Cost-of-living increases ii. Differences in an employee’s job performance iii. Increases in an employee’s skill level or job knowledge Includes cost-of-living adjustments (COLAs) which are: a. Base pay adjustments tied to the consumer price index (CPI) and inflation, which is used to set new hires’ pay b. The typical COLA has been 2-3% annually in recent years b. Designed to enable employees to maintain their purchasing power and standard of living c. Most common where unions represent workers Seniority pay is: a. Based on an employee’s length of service and increased value to the employer (more in Chapter 3) b. Designed according to the human capital theory: employees will become more productive as they refine existing skills and acquire new skills and knowledge through length of service Merit pay is: a. Permanent base pay increases granted because of job performance b. Designed to reward exemplary performance, to motivate future performance, and to retain valued employees Incentive pay is: a. Also known as variable pay b. Used for attaining predetermined work objectives c. Fluctuated according to: i. A pre-established formula ii. Individual or group goals iii. Company earnings Pay-for-knowledge and skill-based pay a. Pay-for-knowledge plans reward managerial, service, or professional workers for successfully learning specific curricula (more in Chapter 5) b. Skill-based pay is used mostly for employees who perform physical work and increases as workers master new skills (more in Chapter 5) 4 © Pearson Education Limited 2015
c. Reward employees for the range, depth, and types of knowledge and skills they are capable of applying productively to their jobs d. Reward employees for their potential for making meaningful contributions on the job C. Employee Benefits 1. Represent nonmonetary rewards a. Pay for time-not-worked b. Employee services c. Protection programs 2. Categorized a. Legally required benefits (more in Chapter 11) b. Discretionary benefits (more in Chapters 9 and 10) 3. Discretionary benefits a. Three broad categories i. Protection program ii. Pay for time-not-worked iii. Services (more in Chapter 10) b. Protection programs i. Provide family benefits ii. Promote health iii. Guard against income loss caused by unemployment, disability, and serious illness c. Pay for time-not-worked: provide employees time off with pay like i. Vacation ii. Medical leave d. Services: provide enhancements to employees and their families like: i. Tuition reimbursement ii. Daycare assistance 4. As of September 2012, employers spent an average of $30.84 per employee per hour worked, with only $21.35 of that going to actual wages 5. Legally-required benefits a. Are protection programs that attempt to: i. Promote worker safety and health ii. Maintain family income streams b. Assist families in crisis c. Provide assistance when employee is: i. Disabled ii. Unemployed d. Main, relevant laws include (more in Chapter 11): 5 © Pearson Education Limited 2015
i. Social Security Act of 1935 ii. Family and Medical Leave Act of 1993 III.
A Historical Perspective on Compensation: The Road toward Strategic Compensation A. Causes of Changes in Human Resources Practices 1. Industrial Revolution in the early 1900s 2. Positions in agrarian and small craft businesses giving way to large-scale manufacturing jobs a. Each employee is now just one of many for one business b. Less self-employed and family-owned work opportunities 3. Gave rise to divisions in labor 4. Necessitated activities referred to as personnel administration: a. Hiring/terminating b. Training c. Setting compensation benefits d. Handling grievances B. Initial Emphasis on Personnel Administration 1. Responsibilities a. Controlling labor costs b. Management control over labor 2. Base management control over labor on scientific management practices that: a. Gave rise to individual incentive pay b. Promoted labor cost control by replacing inefficient production methods with more efficient methods, using: i. Time-and-motion studies ii. Job analysis c. Use time and motion studies to analyze the time it takes employees to complete their assigned work d. Use job analysis for gathering, documenting, and analyzing information to describe jobs e. Gave rise to factory-related piecework plans where: i. Employee compensation is determined by units produced per time span ii. An individual’s hourly production is compared to an objective output standard iii. Incentives for exceeding standards is rewarded 3. Welfare practices were originated to: 6 © Pearson Education Limited 2015
b. Total compensation strategies describe the use of compensation and benefits practices that support both HR strategies and competitive strategies
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Example: Competitive Strategy • Eli Lilly • Leading, innovation-driven corporation is developing a growing portfolio of pharmaceutical products by applying the latest research • Creates value for all stakeholders by accelerating the flow of innovative medicines • Provides answers through medicines and information for the world’s most urgent medical needs • Total compensation strategies describe the use of compensation and benefits practices that support both human resources strategies and competitive strategies
Example: Strategic Decisions • Mercedes-Benz—has established a reputation as being a high-end luxury car maker • Prices generally $50,000 or more per automobile • Target market are those 40 years and older • Mercedes-Benz introduced a new car, outside their established reputation • $25,000 to $30,000 price range • Target market is 20 to 30 year old age range • Seeking opportunity to establish brand loyalty • Mercedes-Benz was unsuccessful in attracting this younger market segment, and ultimately decided to discontinue this new model after only a few short years. B. Competitive Strategy Choices 1. Kinds a. Lowest cost strategy b. Differentiation strategy 2. Lowest cost (cost leadership) strategy a. Focuses on gaining competitive advantage by: i. Being the lowest cost producer within the marketplace ii. Selling goods or services at a price advantage relative to the industry average b. Requires aggressive construction of efficient-scale facilities, and vigorous pursuit of cost minimization in areas like: i. Operations ii. Marketing iii. HR
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