Chapter 11: Establishing
Strategic Pay Plans
Submitted by: Group 8
1. Aligning total Rewards with Survey :
Creating a compensation package (wages, incentives, and benefits) that
produces the employee behaviors the firm needs to achieve its
competitive strategy.
Include traditional pay, incentives, and benefits, but also “rewards” such
as more challenging jobs (job design), career development, and
recognition.
Basic Factors 2. Equity and its impact on pay rates :
In this theory, if a person has an inequity, a tension or drive will develop
in Determining that motivates him/her to reduce the tension and perceived inequity.
External equity :
Pay Rates Job’s pay rate in one company compares to the job’s pay rate in another
company.
Use salary surveys to monitor and maintain external equity
Internal equity :
Fair the job’s pay rate when compared to other jobs within the same
company.
Use job analysis and comparisons of job evaluation to maintain internal
equity
Individual equity
Use performance appraisal and incentive pay to maintain individual equity.
Procedural equity
Use communications and employees participation to help ensure that
Basic Factors employees view the pay process as procedural equity.
in Determining Legal Considerations in Compensation
Legal compensation systems around the world operate within the
Pay Rates framework of act.
Various laws specify things like minimum wages, overtime rates, and
benefits
The 1936 Walsh-Healey Public Contract Act sets basic labor standards for
employees working on any government contract that amounts to more than
$10,000. It contains minimum wage, maximum hour, and safety and health
provisions, and requires time-and-a-half pay for work over 40 hours a week.
A systematic comparison done to determine the worth of one job relative to
the other.
The basic principle of job evaluation is jobs requiring greater
qualifications, more responsibilities, and more complex duties should
receive more pay than jobs with lesser requirements.
First, you might decide that one job is more important than another, and not
dig deeper.
Also, you can compare the jobs by focusing on certain basic factors the
Job Evaluation jobs have in common called compensable factors. They are the factors
that establish how the jobs compare to one another and determine the pay
for each job. Eg.: skills, effort, responsibility and working conditions.
Initial steps for Job Evaluation:
Identifying the need for job evaluation
Cooperation from employees
Choose a job evaluation committee
Ranking method: The simplest method of job evaluation that involves
ranking each job relative to all other jobs, usually based on overall
difficulty.
Steps in Ranking Method:
i. Obtain job information
Job Evaluation ii. Select and group jobs
Methods iii.
iv.
Rank jobs
Combine ratings
v. Compare current pay with what others are paying for the same job from
the salary survey.
vi. Assign a new pay scale
Job Classification or Job Grading: A method for categorizing jobs into
groups.
All the jobs in each group are of roughly the same value for pay purposes.
Groups are called classes if they contain similar jobs, or grades if they
contain jobs that are similar in difficulty but otherwise different.
Job Evaluation The analysts choose compensable factors and then develop a short class or
grade descriptions that describe each class (or grade) in terms of the
Methods amount or level of the factors in those jobs.
Based on these compensable factors, raters write a grade definition.
Then the evaluation committee reviews all job descriptions and slots each
job into its appropriate grade, by comparing each job description to the
rules in each grade description.
Point Method: A number of compensable factors are identified and then
the degree to which each of these factors is present on the job is
Job Evaluation determined.
Computerized Job Evaluation Methods: Computerized systems have two
Methods main components:
i. Questionnaire
ii. Statistical methods
Compensating Executives
Pricing Base Pay – It includes the person’s fixed salary.
Short-term incentives – Cash or stock bonuses for achieving progress
Managerial and towards strategic goals.
Professional Long-term incentives – The aim is to encourage the executives to take
actions that drive up the value of the company’s stock and include things
Pay like stock options.
Executive benefits and perks – These include things such as supplemental
executive retirement pension plans.
Compensating Professional Employees
Pricing • Employers can use job evaluation for professional jobs.
Managerial and • Compensable factors focus on problem-solving, creativity, job scope, and
technical knowledge and expertise.
Professional • Firms use the point method and factor comparison methods, although job
Pay •
classification is the most popular.
Professional jobs are market–priced to establish the values for benchmark
jobs,
Thank You