Reward Systems.ppt

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					         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


     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


Cost-of-Living Adjustments (COLAs)

            Merit Pay
Compensation System
 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
Basic Compensation
   Blue Collar – “Labor”


Supervisory and Managerial

 Entertainers and Athletes
    External Influences on

Supply of Labor Demand for Labor
Org Location     Economic State
Competition      Union Influence
       Product/Service Demand
    Internal Influences on
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
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

 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

        Wage Structures
Each job in relation to other from most
important to least important

Jobs sorted by requirements, responsibilities

Jobs evaluated and sorted by objective
        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

    Levels of Incentives



Individual Incentive Plans
       Piecework Payment
      (Straight and Differential)
          Standard Hour
         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)


Stock Ownership Plans (ESOP)
  Executive Incentives

          Stock Options

Long-term Incentive Plan Payouts

        Directors’ Fees

       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
 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
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
Acquisitions and Mergers
Scandals with officers/managers
Private & Corporate Lawsuits
Government investigations and charges
Arrests and convictions
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?
Establishes culture through values?
Improves communication?
Pays when it should?
 (achievements versus failures)
Improves individual performance?
Improves organizational performance?

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