Compensation 12th Edition

CHAPTER ONE THE PAY MODEL Overview Part One, Introducing the Pay Model and Pay Strategy, contains chapters one and two. This part of the text talks about what pay means and how paying them in different ways can influence them and influence organization success. The two chapters describe the compensation policies and techniques

VII. Your Turn: The Role of Labor Costs in Retail Electronics Summary of Case The case discusses Circuit Citys decision in 1997, to replace some of its highest-paid employees with lower-paid workers. Some commentators attributed the loss it suffered in the following quarter to this decision. The company was forced to liquidate

CHAPTER 10 PAY-FOR-PERFORMANCE PLANS Overview This chapter focuses on pay-for-performance plans. There are a wide variety of pay-for-performance plansincentive plans, variable-pay plans, compensation at risk, earnings at risk, success sharing, etc. Sometimes these names are used interchangeably, but they should not be. The major thing these names have in common is

IV. Team Incentive Plans: Types When we move away from the individual incentive systems and start focusing on people working together, we shift to group incentive plans. A standard is established against which worker performance (in this case, team performance) is compared to determine the magnitude of the incentive pay. The standard

VI. Your Turn: Comparing Airlines Summary of Case This case compares the wage and profit sharing plans for two airlines, American Airlines and Delta. A table in the text shows base wages and profit sharing information for airline pilots at both airlines. The pilot is the number one authority, and in charge,

CHAPTER ELEVEN PERFORMANCE APPRAISALS Overview This chapter discusses the difficulties associated with measuring performance, particularly when using subjective procedures. Performance reviews are used for a wide variety of organizational decisions, one of which is to guide the allocation of merit increases. Unfortunately, the link between performance ratings and organizational outcomes may be lacking.

C. Strategy 2: Select the Right Raters A second way that firms have tried to improve the accuracy of performance ratings is by focusing on who might conduct the ratings and which of these sources is more likely to be accurate. To lessen the impact of one reviewer, and to increase

VI. Your Turn: Performance Appraisal at American Energy Development Summary of Case American Energy Development is an oil drilling company. The founder passed away and his son John Robertson took over as CEO, steering a much more aggressive company. American Energy Development is an oil drilling company. The founder passed away and

CHAPTER TWELVE THE BENEFIT DETERMINATION PROCESS Overview Part Five of the text discusses the key issues associated with employee benefits. Given the rapid escalation in the cost of employee benefits, organizations are advised to evaluate the effectiveness of their benefit adoption, retention, and termination procedures. Since employee benefits cost more than $10

IV. Components of a Benefit Plan Exhibit 12.5 outlines a model of the factors influencing benefit choice, from both the employers and the employees perspective. A. Employer Factors As Exhibit 12.5 indicates, a number of factors affect employer preference in determining desirable components of a benefit package. Relationship to Total Compensation Costs oA

VI. Your Turn: World Measurement Summary of Case World Measurement is the world leader in product testing for safety. Lewis Jacobs, the President of the company, is convinced he must get concessions from the employees if World Measurement is to effectively compete with increasing foreign competition. He is displeased World Measurement is

CHAPTER THIRTEEN BENEFIT OPTIONS Overview Since the 1940s, employee benefits have been the most volatile area in the compensation field. From 1940 to 1980, dramatic changes came in the form of more and better types of employee benefits. The result should not have been unexpected. Employee benefits are now a major, and according

C. Individual Retirement Accounts (IRAs) An individual retirement account (IRA) is a tax-favored retirement savings plan that individuals can establish themselves. Unlike the other pension options, IRAs dont require an employer to set them up. Even people not in the workforce can establish an IRA. Currently, IRAs are used mostly to store

VIII.Your Turn: Adapting Benefits to a Changing Strategy Summary of Case McDonalds is scrambling trying to meet the changing needs of consumers. These include millennials who prefer healthier products, customers who complain about long wait times in the drive thru, and competitors who offer burgers made to order. In response McDonalds has

CHAPTER FOURTEEN COMPENSATION OF SPECIAL GROUPS Overview This begins the three chapter Part Six Extending the System. In the prior chapters, the authors described compensation programs as if they were fairly uniform across all jobs in an organization. However, a number of employee groups require, because of their importance to strategic success, special

E. Whats All the Furor Over Executive Compensation? What Academics Say One explanation for the extreme pay of executives involves social comparisons. oIn this view, executive salaries bear a consistent relative relationship to compensation of lowerlevel employees. When salaries of lower-level employees rise in response to market forces, top executive salaries also

III. Your Turn: A Sports Sales Plan Summary of Case The Buffalo Bisons are a Triple A affiliate in New York Mets. In the early 90s when the stadium was still new and the team was a perennial contender, filling out 20,900 seats was fairly easy and sell-outs were very common. In

CHAPTER FIFTEEN UNION ROLE IN WAGE AND SALARY ADMINISTRATION Overview Many experts believe that unions are facing their most critical challenge of the last 50 years. From 1983 to 2014, union membership fell from 20.1 percent to 11.1 percent among wage and salary workers. While 35.7 percent of firms in the public sector are

III. Your Turn: Predicting a Contracts Clauses Summary of Case GM must remain competitive with global competitors, like the Korean and Japanese automakers, who have much lower labor costs as compared to GM. In order to cut its labor costs GM has made numerous moves in the past 20+ years:It shifted from

CHAPTER SIXTEEN INTERNATIONAL PAY SYSTEMS Overview Around the world, global competitive forces have changed the way people work and how they get paid. The globalization of businesses, financial markets, trade agreements, and even labor markets is affecting every workplace and every employment relationship. Employee compensation is central to the workplace, and embedded in

VII. Comparing Costs Comparisons of total compensation among nations can be very misleading. Even if wage rates appear the same, expenses for health care, living costs, and other employer-provided allowances complicate the picture. oFor example, outside the U.S., many nations offer some form of national health care. An organization may pay for

XI. Expatriate Pay Multinationals operate, by definition, in many nations and segment their workforces into subgroups based on home country. Employees temporarily working and living in a foreign country are called expatriates (or expats). oExpatriates who are citizens of the employers parent or home country and living and working in another country

XIII.Your Turn: IBMs Worldwide Business and Employment Strategies and Compensation Summary of Case IBM feels that many organizations involved in the globalization debate mistakenly project the 20th century multinational on to the 21st century global reality. Samuel Palmisano, the CEO of IBM, feels that in a multinational model, companies built local production

CHAPTER SEVENTEEN GOVERNMENT AND LEGAL ISSUES IN COMPENSATION Overview The last part of the total pay model is management. This means ensuring the right people get the right pay for achieving the right objectives in the right way. While the text has touched on issues of management, several issues remain. First, noted in Chapter

III. Living Wage Rather than push for changes in the FLSA, an alternative approach in recent years has been to push for a living wage at local levels that provides a minimum wage tailored to living costs in an area. oSometimes the laws cover only city employees; other times they cover employers

XI. Pay Discrimination and Dissimilar Jobs In 1981, the Supreme Court, in Gunther v. County of Washington, determined that pay differences for dissimilar jobs may reflect discrimination. oThe Court stated that a Title VII pay case was not bound by the definitions in the Equal Pay Act. oWhile the Court did not say

XIV. Your Turn: From Barista to Manager Summary of Case You started as a barista at an upscale coffee shop that is part of a nationwide chain of 200 such stores, but have moved up to become the store manager. Currently, you are having some issues over the fact you get paid

CHAPTER EIGHTEEN MANAGEMENT: MAKING IT WORK Overview The financial conditions of an organization, the competitive pressures it faces, and budgeting are integral to managing compensation. The cost implications such as updating the pay structure, increasing merit pay, or instituting gain sharing are critical to making sound decisions. Consequently, budgets are an important part

E. Budget Controls: Top Down Top-down budgeting begins with an estimate from top management of the pay increase budget for the entire organization. Once the total budget is determined, it is then allocated to each manager, who plans how to distribute it among subordinates. There are many approaches to top-down budgeting. A typical

IV. Managing Pay to Support Strategy and Change Alignment issues must be managed successfully to drive future revenues. Compensation often plays a singular role when organizations restructure. Strategic changes in the business strategy means the compensation strategy must be realigned as well. Pay is a powerful signal of change; changing peoples pay

VII. Your Turn: Communication by Copier Summary of Case The case is concerned with an employee discovering that a noted screw-up was making $65,000 a year more than more competent colleagues, while some new hires were earning almost $200,000 more than their counterparts with more experience. The employee is dissatisfied and ponders

CHAPTER TWO STRATEGY: THE TOTALITY OF DECISIONS Overview This chapter examines the key aspects of decisions taken during the creation of compensation strategy. The key premise is that the way employees are compensated can be a source of sustainable competitive advantage. The three tests to identify if a pay strategy provides competitive advantage

XI. Your Turn: Merrill Lynch Summary of Case The case profiles the financial crisis at Merrill Lynch at the end of the last decade, which was acquired by Bank of America for $50 billion. B of A received government assistance during the financial crisis from (and was covered by) TARP (the Troubled

CHAPTER THREE DEFINING INTERNAL ALIGNMENT Overview Chapter Three is the first of four chapters in Part Two, Internal Alignment: Determining the Structure. This chapter discusses internal alignment and how it affects employees, managers, and employers. Internal alignment refers to the pay relationships among jobs/skills/competencies within a single organization. An internal pay structurethe array

V. Strategic Choices in Designing Internal Structures Aligned pay structures support the way the work gets done, fit the organizations business strategy, and are fair to employees. Greater internal alignmentfitis more likely to lead to success. Misaligned structures become obstacles. They may still motivate employee behavior, but it may be undesirable

VIII. Your Turn: So You Want To Lead The Orchestra! Summary of Case Students are provided an actual salary structure for a regional orchestra and are expected to analyze the pay structure using various concepts related to internal alignment. analyze the pay structure using various concepts related to internal alignment. analyze the pay structure

CHAPTER FOUR JOB ANALYSIS Overview This chapter describes a key component of the pay modeljob analysis. Job analysis is a systematic method that focuses on describing the differences and similarities among jobs within an organization. An equitable internal pay structure has two hallmarks: to encourage employee behaviors to help achieve an organizations objectives

X. Your Turn: The Customer-Service Agent Summary of Case Students are provided with information on a day in the work life of Bill Ryan, a customer-service agent, who works for Half.com, an online marketplace owned by eBay. Based on this information, students have an opportunity to gain hands-on experience with some of the

CHAPTER FIVE JOB-BASED STRUCTURES AND JOB EVALUATION Overview This chapter and the next one discuss techniques used to value work. All these techniques are used to design pay structures that will influence employee behavior and help the organization sustain its competitive advantage. Chapter five describes the process, techniques, and methods used to evaluate jobs to

C. Point Method Point methods have three common characteristics: 1. Compensable factors 2. Factor degrees numerically scaled 3. Weights reflect the relative importance of each factor Each jobs relative value is determined by the total points assigned to it. Point plans are the most commonly used job evaluation approach in the United States and

VIII.Your Turn: Job Evaluation at Whole Foods Summary of Case Students are expected to design a job structure using information available through job analysis and 10 job descriptions that have been completed already. and 10 job descriptions that have been completed already. and 10 job descriptions that have been completed already. Learning Objective Understand the importance

CHAPTER SIX PERSON-BASED STRUCTURES Overview This is the final chapter of Part Two: Internal Alignment: Determining the Structure. This section of the book examined pay structures within an organization. The premise underlying internal alignment is that internal pay structures need to be aligned with the organizations business strategy and objectives, the design of

IV. How-To: Competency Analysis The bottom part of Exhibit 6.6 shows the basic decisions in creating a competency based structure. The first decision, and by the far the most important, is to clarify the objective of the plan. A. Objective One of the pitfalls of competency systems is trying to do too many

IX. Your Turn: Climb the Legal Ladder Summary of Case Students are provided with an example of a typical pay schedule for law school graduates, associate attorneys, and partners in Sullivan and Cromwell, a large law firm in New York. The case challenges students to analyze if the pay structures used in

CHAPTER SEVEN DEFINING COMPETITIVENESS Overview This begins Part Three External Competitiveness: Determining the Pay Level, which contains two chapters. In Part Two, the focus was on the internal structure or relative value organizations and markets assigned to different jobs. In Part Three, the authors continue that focus, but also examine how organizations choose

VI. Product Market Factors and Ability to Pay The supply and demand for labor are major determinants of an employers pay level. However, any organization must, over time, generate enough revenue to cover expenses, including compensation. It follows that an employers pay level is constrained by its ability to compete in the product/service

XI. Your Turn: Two-Tiers Wages Summary of Case U.S. automakers are counting on two-tier wage structure to control labor costs over the next several years. The case talks about how this new pay strategy has helped the U.S. automobile companies beat recession and bankruptcies and increase employment rates in the industry. There

CHAPTER EIGHT DESIGNING PAY LEVELS, MIX, AND PAY STRUCTURES Overview This chapter focuses on the major decisions and techniques involved in determining an organizations external competitiveness policyestablishing pay levels and pay mix forms and designing pay structures. Most organizations survey other employers pay practices to determine the rates competitors pay. Based on the survey

XIV. Still Your Turn: Word-of-Mouse: Dot-Com Comparisons Summary of Case Compensation data for numerous jobs are more available due to the existence of various websites. The website of www.salary.com or www.glassdoor.com provides pay data for numerous jobs in different companies in different industries in different cities throughout the U.S. This case challenges

CHAPTER NINE PAY-FOR-PERFORMANCE: THE EVIDENCE Overview This chapter is the first of three chapters comprising Part Four Employee Contributions: Determining Individual Pay. The primary focus of Part Three was on determining the worth of jobs, independent of who performed those jobs. Job analysis, job evaluation, and job pricing all have a common theme.

IV. Does Compensation Motivate Behavior? Now lets look at the role of compensation in motivating the four types of behavior outline earlier: the decision to join, to stay, to develop skills, and to perform well. A. Do People Join a Firm Because of Pay? Level of pay and pay system characteristics influence

VI. Your Turn: Burger Boy Summary of Case Burger Boy is a fast food restaurant. The case explains the scenario at the restaurant on a Friday lunch rush hour. Friday is considered the busiest day and lunch hour usually sees peak customer traffic. The restaurant is understaffed with only 8 employees on

D. Construct a Market Pay Line Market pay line involves making decisions about which salary survey jobs to include that are judged to closely match internal benchmark jobs, which companies to include, and which measures of pay to use. Definition: A market line links a companys benchmark jobs on the horizontal axis