Compensating Human Resources

Compensating Human Resources

1. Establishing a Pay Structure

   • pay is a powerful tool for meeting the organization’s goals.
     • Besides the level of pay, employees care about the fairness of pay com-pared with what others earn.
       • Job structure consists of the relative pay for different jobs within the organization.
       • It establishes relative pay among different functions and different levels of responsibility.
       • Pay level is the average amount (including wages, salaries, and bonuses) the organization pays for a particular job.
         • Together, job structure and pay levels establish a pay structure that helps the organization achieve goals related to employee motivation, cost control, and the ability to attract and retain talented human resources.
           • Establishing a pay struc-ture simplifies the process of making decisions about individual employees’ pay by grouping together employees with similar jobs.
             • Legal Requirements for Pay
               • Equal Employment Opportunity The goal is for employers to provide equal pay for equal work.
                 • Minimum Wage The lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour.
                   • Overtime
                     • Child Labor
           • human resource professionals develop this pay structure based on legal requirements, market forces, and the organization’s goals, such as attracting a high-quality workforce and meeting principles of fairness.
             • An organization cannot make spending decisions independent of the economy
               • Product markets
                 • Besides competing to sell their products, organizations must compete to obtain human resources in labor markets.
             • Usually the human resource department is responsible for establishing the organization’s pay structure.
               • The structure represents the organization’s policy, but what the organization actually does may be different.
         • with a job evaluation, an administrative procedure for measuring the relative worth of the organization’s jobs.
           • Pay structure
             • -Pay Rates
               • -Pay policy line
             • Pay Grades
               • Pay Ranges
                 • Pay Differentials
       • organizations use benchmarking, a procedure in which an organi-zation compares its own practices against those of successful competitors.

2. Recognizing Employee Contributions with Pay

   • Along with wages and salaries, many organizations offer incentive pay—that is, pay specifically designed to energize, direct, or maintain employees’ behavior
     • Because incentive pay is linked to particular outcomes or behaviors, the organization is encouraging employees to dem-onstrate those chosen outcomes and behaviors.
       • Organizations may reward individual performance with a variety of incentives: • Piecework rates • Standard hour plans • Merit pay • Individual bonuses • Sales commissions
         • piece-work rate, a wage based on the amount they produce.
           • standard hour plan, an incentive plan that pays workers extra for work done in less than a preset “standard time.”
             • merit pay—a system of linking pay increases to ratings on performance appraisals.
               • Performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period.
                 • A variation on piece rates and bonuses is the payment of commissions, or pay calculated as a percentage of sales.
   • To win group incentives, employees must cooperate and share knowledge so that the entire group can meet its performance targets.
     • Common group incentives include gainsharing, bonuses, and team awards.
       • Gainsharing Group incentive program that measures improve-ments in productivity and effectiveness objec-tives and distributes a portion of each gain to employees
         • These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output.
           • Team awards are similar to group bonuses, but they are more likely to use a broad range of performance measures, such as cost savings, successful completion of a project, or even meeting deadlines.
             • To encourage executives to develop a commitment to the organization’s long-term suc-cess, executive compensation often combines short-term and long-term incentives. Short-term incentives include bonuses based on the year’s profits, return on investment, or other measures related to the organization’s goals.
               • Long-term incentives include stock options and stock purchase plans. The rationale for these long-term incentives is that executives will want to do what is best for the organization because that will cause the value of their stock to grow
   • Two important ways organizations measure their performance are in terms of their profits and their stock price.
     • Under profit sharing, payments are a percentage of the organization’s profits and do not become part of the employees’ base salary
       • a stock ownership plan actually makes employees part owners of the organization.
         • a stock ownership plan actually makes employees part owners of the organization.
           • Employee Stock Ownership Plan (ESOP) An arrangement in which the organization distrib-utes shares of stock to all its employees by plac-ing it in a trust

3. Providing Employee Benefits

   • Benefits contribute to attracting, retaining, and motivating employees.
     • The federal and state governments require various forms of social insurance to protect work-ers from the financial hardships of being out of work.
       • Social Security provides support for retired workers, unemployment insurance assists laid-off workers, and work-ers’ compensation insurance provides benefits and services to workers injured on the job.
         • Unemployment Insurance A federally mandated program to minimize the hardships of unemploy-ment through payments to unemployed workers, help in finding new jobs, and incentives to stabi-lize employment.
           • Workers’ Compensation State programs that pro-vide benefits to workers who suffer work-related injuries or illnesses, or to their survivors.
             • Patient Protection and Affordable Care Act Health care reform law passed in 2010 that includes incentives and penalties for employers providing health insur-ance as a benefit.
               • Other types of benefits are optional. These include various kinds of insurance, retirement plans, and paid leave.
                 • paid leave are vacations, holidays, and sick leave. Employers also should establish policies for other situations that may require time off.
                   • The most common types of insurance offered as employee benefits are medical, life, and disability insurance
                     • “family-friendly” benefits
                       • +Family leave, child care, college savings, elder care
                 • Contributory Plan Retirement plan funded by contributions from the employer and employee
                   • Noncontributory Plan Retirement plan funded entirely by contributions from the employ
                     • Cash Balance Plan Retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee’s salary; the account earns inter-est at a predefined rate.