CHAPTER 6 - COMPENSATION & BENEFITS PAIRED COMPARISON

 Individual jobs are compared with every other job, based on a

Learning Objectives: ranking system, and an over-all score is given for each job
1. Be able to explain the goals of a compensation plan. o Based on the paired ranking system, the sales director
2. Explain the internal and external considerations of compensation shout have a higher salary than the project
package development. Administrative Assistant, because the ranking for that
3. Know how to develop a compensation philosophy. job is higher. Likewise, a receptionist should be paid
4. Explain types of job evaluation systems and their uses. less than the project administrative assistant because
5. To define and discuss the types of pay systems & factors determining this job ranks lower.
the type of pay systems uses.
6. Know the laws relating to compensation JOB CLASSIFICATION SYSTEM
 Every job is classified and grouped based on the knowledge and
COMPENSATION PACKAGE skills required for the job, years of experience, and amount of
 include salary, bonuses, health-care plans, and a variety of other types authority for that job
of compensation. o Levels may vary based on job family

GOAL: POINT FACTOR SYSTEM

1) To attract people to work for your organization and retain people who  Determines the value of a job by calculating the total points
are already working in the organization. assigned to it
2) To motivate employees to work at their peak performance and  Where in you identify compensable factors, as sign points to
improve morale. factors (degrees), weigh factors or categories, and categorize jobs
3) Employees who are fairly compensated, provide better customer
service and resulted in organizational growth and development HAY PROFILE METHOD
 Focuses on three factors:
Market Compensation Policy  know-how,
 to pay the going rate for a particular job, within a particular market  problem solving / thinking required by the job, and
based on research and salary studies  extent to which the job is accountable, within procedure,
policy and managerial control/ supervision
Market Plus Philosophy
 based on going rate and add a percentage to that rate. 3) PAY SYSTEM
 Method use to determine what a position should pay and how much a
Market Minus Philosophy person should earn
 based on a particular percentage less than the market  Based on knowledge, experience and skills necessary to complete a job
 Provides a fair and consistent method for determining a pay rate

PROCESS FOR IMPLEMENTING COMPENSATION STRATEGY TYPES OF PAY SYSTEMS

1. Pay Grade Levels
1) COMPENSATION INTERNAL & EXTERNAL FACTOR  or salary grades, are a range of salaries expressed in levels from
a. Internal Factors the lowest range to the highest
 Compensations Strategy o Based on education, years of experience, or test results
 employer’s ability to pay
 type of industry 2. Pay Grade Scales
 va lue of employee & particular job to the organization  similar to pay grade level but there are also steps allocated within
 presence of a union the grades and a person moves up a step on the scale for annual
increases
b. External Factors
 current economic state 3. Delayering and Banding
 unemployment rates  cuts down the number of pay level within the organization
 inflation and cost of living o General Electric - in mid 1990 a delayered pay grades
because employees were less likely to take a
reassignment that was at a lower pay grade, even
2) JOB EVALUATION SYSTEMS reassignment might have been a good opportunity
 Systematic and orderly process of determining the worth of a job in
relation to other jobs (Edwin B. Flippo) 4. Going Rate Model
 Process of analyzing and assessing various jobs systematically to  analysis of the going rate for a particular job is the basis for
ascertain their relative worth in an organization determining what people within the organization should be paid
 Example: Need to hire the best project manager. But there is a
Job Analysis lack of supply
 Compensable Factors: experience level, education, working o Most company are paying $75,000 for this position.
condition, confidential data, consequences of mistakes and errors, You need to pay the same or more, because of labor
complexity of duties, responsibility, mental and physical demands, supply & demand
& others
 Developing the method 5. Management Fit Model
 Job structure  each manager makes a decision about who much a new hire
 Wage Structure should be paid
 Disadvantages: discrimination, halo effects, & resentments within
JOB RANKING SYSTEM the organization
 job titles are listed and ranked in order of importance in the
organization
 Each job as a whole is compared with other and this comparison
of jobs goes on until all the jobs have been evaluated and ranked
 COMPENSATION STRATEGIES LAWS RELATING TO PAY (PHIL)
1) Skill-based pay - salary levels are based on an employee’s skills, as 1) RA No. 6727 (Wage Rationalization Act) and its IRR
opposed to job title. 2) PD 851 and its amendments
2) Competency-based pay - looks at the employee’s traits or 3) RA No. 8282, as amended by RA 11210 (Expanded Maternity Act) and
characteristics as opposed to a specific skills set. its IRR
3) Broadbanding - similar to pay grade system except all jobs in a
particular category are assigned a specific pay category.
4) Variable Pay System - provides employees with a pay basis but OTHER TYPES OF COMPENSATION
then links the attainment of certain goals or achievements directly Mandated:
to their pay (BP + commission) 1. Social Security System
2. Pag-ibig (HDMF)
4) TYPES OF PAY 3. Phil-Health (PHIC)
PAY ATTRIBUTES 4. Retirement
Fixed compensation calculated on a weekly, biweekly, or 5. Service Incentive Leave
Salary 6. 13th Month Pay
monthly basis. No extra pay for overtime work
Hourly Employees are paid on the basis of number of hours worked.
Wage Voluntary:
Pieceswork Employees are paid based on the number of items that are 1. Incentive Pay
System produced 2. Stock Options
3. COLA
INCENTIVE 4. Medical Insurance
ATTRIBUTES 5. Profit sharing 6. Paid Time Off (VL and SL)
PLAN
COMMISSION An employee may or may not receive a salary but will be
PLANS paid extra (e.g. a percentage for every sale made.
Extra pay for meeting or beating some goal previously
BONUS determined. Bonus plans can consist of monetary
PLANS compensation, but also other forms such as time off or gift
certificated
PROFIT
Annual bonuses paid to employees based on the amount of
SHARING
profit the organization earned
PLANS
When an employee is given the right to purchase company
stock at a particular rate in time. Please note that a stock
STOCK
“option” is different from the actual giving of stock, since the
OPTIONS
option infers the employee will but the stock at a a set rate,
obviously cheaper than the going rate

OTHER
TYPES OF
ATTRIBUTES
COMPENSA
TION
Fringe This can include a variety of options. Sick leave, paid vacation
Benefits time, health club membership, daycare services
Most organizations provide health and dental care benefits for
Health
employees. In addition, disability and life insurance benefits
Benefits
are offered
Some organizations provide a retirement plan for employees.
The company would work with a financial organization to set
Retirement
up the plan so employees can save money, and often,
Plan
companies will “match” a percentage of what the employee
contributes to the plan

5) PAY THEORIES
1) Equity Theory - concerned with the relational satisfaction
employees get from pay and inputs they provide to the
organization.
2) Expectancy Theory - says that employees will put in as much
work as what they expect to receive in return for it.
3) Reinforcement Theory - if high performance is followed by
some reward, that desired behavior will likely occur in the
future

LAWS RELATING TO PAY (US)

1) Equal Pay Act of 1963 LAWS RELATING TO PAY (US)
2) Fair Labor Standards Act (FLSA)
3) Federal Unemployment Tax Act (FUTA)
4) Federal Employees Compensation Act (FECA)