Illustration of a Wage Curve Using the Point Method of Job Evaluation Wage curve passes through the midpoint of each pay grade $ 0 100 200 300 400 500 600 700 800 900 www.hrcp.com Points Copyright © 2015 by HRCP, L.C. Point Assignments for Four Compensable Factors Weighted Compensable Factor percentage Degree/Points 12345 Skill (40%)20324872100 Responsibility (30%) 15 24 36 54 75 Effort (20%)1016243650 Working Conditions (10%) 2 8 12 18 25 Example: Regrind Operator Compensable Factor Degree Points Skill 3 48 Responsibility 2 24 Effort 4 36 Working Conditions 4 18 Total Points 126 www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: In developing a wage curve, why is it so important for the key jobs to be equitably paid jobs? www.hrcp.com Copyright © 2015 by HRCP, L.C. Wage Curve Based on 15 Key Jobs X Pay $ Y Points www.hrcp.com Copyright © 2015 by HRCP, L.C. Factor Comparison Method 1. Identify key (benchmark) jobs 2. Identify job factors 3. Rank jobs 4. Assign monetary amounts to each job on each factor 5. Compare unique jobs with key jobs www.hrcp.com Copyright © 2015 by HRCP, L.C. Guide Chart-Profile Method A job evaluation system that is basically a factor comparison system, although it is also very similar to the point method since it uses points. www.hrcp.com Copyright © 2015 by HRCP, L.C. Job Pricing and Pay Rate Administration www.hrcp.com Copyright © 2015 by HRCP, L.C. Job Pricing The process of placing a dollar value on the worth of a job is referred to as job pricing. www.hrcp.com Copyright © 2015 by HRCP, L.C. Pay Grades Constructed Along the Wage Curve Maximum Hourly wage Red circle rate Trend line Maximum for labor grade 2 Minimum Starting wage for limit line labor grade 2 Pay range Labor 12 3 4 5678 grades www.hrcp.com Points Copyright © 2015 by HRCP, L.C. Two Pay Ranges 10% $ 20% Points www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: What are compa-ratios and how can they be used? www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: What are red circle rates? What alternative methods does a company have for handling red circle rates? www.hrcp.com Copyright © 2015 by HRCP, L.C. Adjustments for Inflation Administrative problems may arise when the wage structure has to be adjusted due to inflation or internal changes within the organization, such as job redesign. What are the consequences of adjusting the wage curve? www.hrcp.com Copyright © 2015 by HRCP, L.C. Individual Pay Rate Determination The relative pay of individuals who perform similar jobs in the same company. www.hrcp.com Copyright © 2015 by HRCP, L.C. Pay Decisions Pay decisions are controlled by two basic processes. 1. The design of the wage structure 2. The formal budgeting process www.hrcp.com Copyright © 2015 by HRCP, L.C. Economic Factors Affecting Compensation www.hrcp.com Copyright © 2015 by HRCP, L.C. Economic Factors Affect Compensation Inflation Interest rates Industry competition Foreign competition Economic growth Demographic trends www.hrcp.com Copyright © 2015 by HRCP, L.C. Demographic Trends The labor market is primarily influenced by five demographic forces: birthrates participation rates immigration education unemployment How can demographic trends in the labor market impact wages? www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: How does an increase or decrease in unemployment rates influence a company's compensation system? www.hrcp.com Copyright © 2015 by HRCP, L.C. Incentive Compensation Systems www.hrcp.com Copyright © 2015 by HRCP, L.C. Money & Motivation Theories How is money viewed in the following theories? Need Theory Self-determination Theory Expectancy Theory Equity Theory Goal Setting Theory www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: According to Expectancy Theory, what should a supervisor do to motivate an employee? www.hrcp.com Copyright © 2015 by HRCP, L.C. Efforts to Reduce Inequity Inequity can exist when people are either overpaid or underpaid. Both conditions or inequity motivate individuals to establish a more equitable exchange. What methods do individuals use to reduce inequity? www.hrcp.com Copyright © 2015 by HRCP, L.C. Incentive Compensation Plays a strategic role in increasing organizational effectiveness. www.hrcp.com Copyright © 2015 by HRCP, L.C. Merit-Increase Guidelines: Fixed Increase or Discretionary Increase Fixed Discretionary *Expected Number Performance Rating Increase or Increase of Employees Amount Range Outstanding: Truly exceptional 1 in 10 12% 10-15% performance Excellent: Constantly exceeds standards 2 in 10 8% 7-9% Good: Occasionally exceeds 4 in 10 5% 4-6% standards Average: Occasionally meets 2 in 10 3% 2-3% standards Fair: Marginal performance 1 in 10 1% 0-1% * Note to supervisors: This column shows the number of employees in a typical department who would normally be rated in each category. www.hrcp.com Copyright © 2015 by HRCP, L.C. Salary Increase Matrix using the Compa-ratio Approach Compa-ratio Performance 0.80 - 0.89 0.90 - 0.99 1.00 - 1.09 1.10 - 1.20 Outstanding 7.0 - 8.0 % 6.0 - 7.0 % 5.0 - 6.0 % 4.0 - 5.0 % Above Average 5.0 - 6.0 % 4.0 - 5.0 % 3.5 - 4.5 % 3.0 - 4.0 % Average 3.0 - 4.0 % 2.5 - 3.5 % 2.0 - 3.0 % 1.5 - 2.5 % Below Average 1.0 - 2.0 % 0.8 - 1.8 % 0.6 - 1.6 % 0.4 - 1.4 % Unsatisfactory 0 % 0 % 0 % 0 % www.hrcp.com Copyright © 2015 by HRCP, L.C. A Comparison of Straight Piecework & F.W. Taylor’s Differential Piece-Rate Plan Straight piecework: 25 cents/unit $ Taylor’s differential piece- rate plan: 22 cents/unit if less than standard; 27 cents/unit if more than standard Standard Number of units produced www.hrcp.com Copyright © 2015 by HRCP, L.C. The Standard Hour Plan Workers are paid an hourly wage, but the hour is measured in units produced rather than in minutes. www.hrcp.com Copyright © 2015 by HRCP, L.C. The Halsey Premium Plan Workers receive a guaranteed hourly wage plus a percentage (33 percent was recommended) of the wage for any time saved. The actual production standards are determined by past performance rather than by time-and-motion studies. www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: What is "restriction of output," and why does it occur? What can be done to avoid it? www.hrcp.com Copyright © 2015 by HRCP, L.C. Illustration of Group Norms Restricting Productivity: Individual Productivity of a New Employee Units per hour 60 Standard 56 Group norm Starting date Two and one-half weeks later www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: What conditions are necessary for these individual incentive plans to operate effectively: piecework, merit pay increase, commission sales, and the standard hour plan? www.hrcp.com Copyright © 2015 by HRCP, L.C. Skill & Knowledge Based Pay Reward employees for their ability to perform an array of related tasks or skills rather than for the actual work performed. www.hrcp.com Copyright © 2015 by HRCP, L.C. Skill x Performance Pay Matrix Hourly Rates of Pay Performance Level Above Skill Level Marginal Acceptable Exceptional Standard 1 $8.00 8.36 8.75 9.15 2 8.48 8.87 9.30 9.72 3 9.00 9.42 9.87 10.33 4 9.55 10.00 10.50 11.00 www.hrcp.com Copyright © 2015 by HRCP, L.C. Differential Pay overtime shift pay hazard pay on-call pay call-back pay geographic differentials weekend and holiday pay www.hrcp.com Copyright © 2015 by HRCP, L.C. Discussion Question: What conditions make a group incentive system superior to an individual incentive system? www.hrcp.com Copyright © 2015 by HRCP, L.C..