Reward Systems Intrinsic Rewards Status Growth Responsibility Extrinsic Rewards Non-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 Voluntary Contributory 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 System Objectives 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 Pay Wage 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 on Compensation 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 Rates 2. 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 Classification Jobs sorted by requirements, responsibilities Point/Factor Jobs evaluated and sorted by objective factors 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 Step Step Step Step Step Step 1 2 3 4 5 6 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 = 100 Job B = 110 points Job C = 160 points Job D = 180 points Job E = 200 points Job F = 220 points Job P = 430 points Pay Adjustments Fixed Rate Increases step 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 Salary Long-term Company Organization & Bonus Comp 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/limo Corporate Travel Corporate Jet/Yacht Clothing Allowance Free Parking Dining 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 Parachute In effect if acquisition or forced to leave Typical severance package: 2-3 x annual salary and bonus accelerated vesting of options Example: Mattel Corporation Package=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 Bankruptcies Acquisitions and Mergers Scandals with officers/managers Private & Corporate Lawsuits Government investigations and charges Arrests and convictions Tragedies 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 Incentives Attention getter? Understandable? Establishes culture through values? Improves communication? Pays when it should? (achievements versus failures) Improves individual performance? Improves organizational performance?