Study Unit 3_STRATEGIC PAY PLANS 2024.pdf

Human Resources- Performance Management and Appraisal HRMA 221 Study Unit 3 – Strategic Pay Plans K.Paadi Building A3A – Room G30 018 – 389 - 2391  STUDY UNIT 2 – MODULE OUTCOMES List the basic fac...

Human Resources- Performance Management and Appraisal HRMA 221 Study Unit 3 – Strategic Pay Plans K.Paadi Building A3A – Room G30 018 – 389 - 2391  STUDY UNIT 2 – MODULE OUTCOMES List the basic factors determining pay rates. Explain in detail how to establish pay rates. Define and give an example of how to conduct a job evaluation. Explain how to price managerial and professional jobs. Discuss competency-based pay and other current trends in compensation. Explain the importance today of broad banding, comparable worth and board overview of executive pay. Discuss the Reward and Recognition objectives as per the SABPP HR standard 7.  Employee compensation All forms of pay going to employees arising from their employment (Dessler: 2011) Two main components of employee compensation Direct Financial Payments Indirect Financial 1. Wages or salary Payments 2. Pay is hourly, weekly or 1. Indirect compensation in monthly form of benefits 3. Incentives (sales bonuses, 2. Legally required benefits commission) (social security) 3. Optional (group health benefits)  What is a reward? Something which is given in return for something else. Extrinsic rewards and intrinsic rewards offered to employees in return for their services to the organisation (Warnich: 2015). The financial and non-financial rewards provided by an employer for the time, skills and effort made available by the employee in fulfilling job requirements aimed at achieving organisational objectives.  Legal considerations in compensation In South Africa, various laws need to be considered when compensating and rewarding employees, namely: Basic Conditions of Employment Act (No. 75 of 1997) Labour Relations Act (No. 66 of 1995) The Compensation for Occupational Injuries and Diseases Act (No. 130 of 1993) The Unemployment Insurance Act (No.63 of 2001) The Employment Equity Act (No. 55 of 1998) The Income Tax Act (No. 58 of 1962) The Skills Development Act (No. 97 of 1998) Companies Act (No. 71 of 2008)  Compensation objectives Attracting good and talented employees. Retaining good and talented employees. Motivate employees. Comply with legal requirements.  Corporate Policies, Competitive Strategy, and Compensation  Aligned Reward Strategy  The employer’s basic task:  To create a bundle of rewards—a total reward package—that specifically elicits the employee behaviors that the firm needs to support and achieve its competitive strategy.  The HR or compensation manager along with top management creates pay policies that are consistent with the firm’s strategic aims. Self study: Go and look up Employment Value Propositions  Developing an Aligned Reward Strategy Questions to Ask: 1. What are our company’s key success factors? What must our company do to be successful in fulfilling its mission or achieving its desired competitive position? 2. What are the employee behaviors or actions necessary to successfully implement this competitive strategy? 3. What compensation programs should we use to reinforce those behaviors? What should be the purpose of each program in reinforcing each desired behavior? 4. What measurable requirements should each compensation program meet to be deemed successful in fulfilling its purpose? 5. How well do our current compensation programs match these requirements?  Compensation Policy Issues Pay for performance Pay for seniority The pay cycle Salary increases and promotions Overtime and shift pay Compensation Policy Issues continued….. Probationary pay Paid and unpaid leaves Paid holidays Salary compression Geographic costs of living differences  Equity Relates to fair and procedural distribution of rewards. It is an important objective of any remuneration system. Forms of Equity External How a job’s pay rate in one company compares to the job’s pay rate in other companies (similar jobs). Equity Internal How fair the job’s pay rate is, when compared to other jobs within the same company. Equity Individual How fair an individual’s pay as compared with what his or her co-workers are earning for the same or very Equity similar jobs within the company. Procedural The perceived fairness of the process and procedures to make decisions regarding the allocation of pay. Equity  Methods to Addressing Equity Issues Communications, Job Analysis Performance Salary Grievance Mechanisms, and Job Appraisal Surveys and Employees’ Evaluation and Incentive Pay Participation  Methods to Address Equity Issues Salary surveys To monitor and maintain external equity. Job analysis and job evaluation To maintain internal equity Performance appraisal and incentive pay To maintain individual equity. Communications, grievance mechanisms, and employees’ participation. To help ensure that employees view the pay process as transparent and fair - procedural equity  Establishing Pay Rates STEPS IN ESTABLISHING PAY RATES 1 Conduct a salary survey 2 Conduct a job evaluation 3 Group similar jobs into pay grades. Price each pay grade 4 Fine-tune pay rates. 5  Establishing Pay Rates (cont’d) STEP 1: CONDUCT A SALARY SURVEY Conduct a salary survey of what other employers are paying for comparable jobs (to help ensure external equity). Uses for Salary Surveys To price To market-price To make decisions benchmark jobs wages for jobs about benefits  Establishing Pay Rates (cont’d) STEP 2: CONDUCT A JOB EVALUATION Determining the worth of a job within the organisation resulting in organisational pay systems (ensure internal equity) Skills Effort WHY? Identify Compensable Factors Responsibility Working Conditions  Establishing Pay Rates (cont’d) Job Evaluation - Determining the worth of a job within the organisation resulting in organisational pay systems. Basic Principle of Job Evaluation – jobs that require more qualifications, responsibilities and more complex duties should receive more than jobs with lesser requirements,  Establishing Pay Rates (cont’d) Point Method Ranking Method STEP 3: GROUP SIMILAR JOBS INTO PAY GRADES Factor Comparison Classification Methods  Establishing Pay Rates (cont’d) METHOD DESCRIPTION ADVANTAGE DISADVANTAGE Job ranking Jobs are placed in order of their Fast, easy to explain and Suitable for smaller worth to the organisation inexpensive organisations Classification Jobs are classified into grade Easily accepted by employees Classifications do not relate method levels Suitable for large dispersed to specific jobs organisations Open to corruption and abuse Factor Identify compensable factors detailed and specific, tied to Difficult to explain to comparison like skills, efforts and working external market wage salaries employees, not easily conditions and each assign a rate adaptable to change to each factor Point method Extension of the factor Detailed and specific, also easy for Time consuming, requires comparison method. employees to accept, easy to keep many parties for decision Each method is divided into as jobs change so often making levels or degrees which are then assigned points. Establishing Pay Rates (cont’d) STEP 4: PRICE EACH PAY GRADE Assign pay rates to pay grades Job Clusters Wage Curve Establishing Pay Rates (cont’d) STEP 5: FINE-TUNE PAY RATES Correcting Developing out-of-line pay ranges rates  Establishing Pay Rates (cont’d)  STEP 5: FINE-TUNE PAY RATES  Developing pay ranges  Flexibility in meeting external job market rates.  Easier for employees to move into higher pay grades.  Allows for rewarding performance differences and seniority.  Correcting out-of-line rates  Raising underpaid jobs to the minimum of the rate range for their pay grade.  Freezing rates or cutting pay rates for overpaid (“red circle”) jobs to maximum in the pay range for their pay grade.  DEVELOPING A WORKABLE PAY PLAN (HR IN PRACTICE) Salary survey – first conduct a salary survey. Local consulting companies can be useful in benchmarking employees’ salaries and develop sufficient pay grades for companies. Job evaluation – Split employees into three clusters; managerial/ professional, office/ clerical and plant personnel. Choose compensable factors for each group, assign points or rank each job. Pay policies – Have compensation policies in place.  PRICING MANAGERIAL AND PROFESSIONAL JOBS  Aim: To attract and keep good employees.  What Really Determines Executive Pay?  CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in a short and long term.  Firms pay CEOs based on the complexity of the jobs they filled.  Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay.  PRICING MANAGERIAL AND PROFESSIONAL JOBS  Incentives are used to attract and retain the best employees.  Top executives compensation consists of four elements: Base bay Short-term incentives Long-term incentives Executive benefits and perks  PRICING MANAGERIAL AND PROFESSIONAL JOBS  Incentives are used to attract  Base pay: fixed salary, guaranteed bonuses. and retain the best employees.  Short-term incentives: cash or stock bonuses.  For achieving short-term goals (sales revenue).  Top executives  Long-term incentives: stock options compensation consists of  Encourage the executive to take actions that drive up the value of the four elements: company’s stock. Base bay Short-term incentives  Executive benefits and perks: retirement plans, life insurance, and Long-term incentives health insurance without a deductible or coinsurance. Executive benefits and perks  PAY SYSTEMS Time based – employees are paid by the time worked (mostly for blue collar or unskilled positions) Employee/ person based – paying people for the skills they learn and use Broad banding – collapsing many pay grades (salary grades) into few wider grades Skills/ competency based – how many skills you have and how many jobs you can perform Performance based – paying employees according to their performance  COMPETENCY-BASED PAY Time based – employees are paid by the time worked (mostly for blue collar or unskilled positions) Employee/ person based – paying people for the skills they learn and use. Broad banding – collapsing many pay grades (salary grades) into few wider grades. Skills/ competency based – how many skills you have and how many jobs you can perform. Performance based – paying employees according to their performance.  WHY USE COMPETENCY-BASED PAY? Why Use Competency-Based Pay? Support High- Support Strategic Support Performance Performance Work Aims Management Systems  COMPETENCY-BASED PAY IN PRACTICE  Main elements of skill/ competency/ knowledge–based pay programs: 1. A system that defines specific skills, and a process for tying the person’s pay to his or her skill. 2. A training system that lets employees seek and acquire skills. 3. A formal competency testing system. 4. A work design that lets employees move among jobs to permit work assignment flexibility.  COMPETENCY-BASED PAY IN PRACTICE  Pros  Higher quality  Lower absenteeism  Fewer accidents  Cons  Pay program implementation problems  Costs of paying for unused knowledge, skills, and behaviors  Complexity of program  Uncertainty that the program improves productivity  OTHER COMPENSATION TRENDS  Broadbanding  Comparable Worth  Consolidating (combining or joining) salary  Refers to the requirement to pay grades and ranges into just a few wide levels men and women equal wages for or “bands,” each of which contains a relatively wide range of jobs and salary levels. dissimilar jobs that are of comparable (rather than strictly  Pro and Cons equal) value to the employer.  More flexibility in assigning workers to different  Seeks to address the issue that job grades. women have jobs that are  Provides support for flatter hierarchies and teams. dissimilar to those of men and  Promotes skills learning and mobility. those jobs are often consistently  Lack of permanence in job responsibilities can be valued less than men’s jobs. unsettling to new employees.  THE PAY GAP THE PAY GAP Improving productivity through hris: automating compensation administration  Factors Lowering the Earnings of Women:  Benefits of Compensation Automation:  Women’s starting salaries are  Allows for quick updating of compensation traditionally lower. programs.  Salary increases for women in  Eliminates costs of formerly manual professional jobs do not reflect their above-average performance. processes.  In white-collar jobs, men change jobs  Coordinates centralized compensation more frequently, enabling them to be budgets to prevent overages in compensation promoted to higher-level jobs over and raises. women with more seniority.  In blue-collar jobs, women tend to be  Can integrate and automatically administer placed in departments with lower-paying other pay actions. jobs.