Human Resource Management
Compensation and Benefits
Compensation
Hot topics
Compensation Management
Benefits
Hot or Warm Topics
Executive compensation - Are
corporate executives overpaid or
underpaid?
Sex discrimination and comparable
worth
Open vs. secret pay plans
Skill-based compensation plans
Team vs. individual pay
Executive Compensation (2005)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
Name
Richard D Fairbank
Terry S Semel
Henry R Silverman
Bruce Karatz
Richard S Fuld Jr
Ray R Irani
Lawrence J Ellison
John W Thompson
Edwin M Crawford
Angelo R Mozilo
John T Chambers
R Chad Dreier
Company
Capital One
Yahoo
Cendant
KB Home
Lehman Bros
Occidental Pet
Oracle
Symantec
Caremark Rx
Countrywide
Cisco Systems
Ryland Group
Pay ($mil)
249.42
230.55
139.96
135.53
122.67
80.73
75.33
71.84
69.66
68.95
62.99
56.47
5-Yr Pay ($mil)
448.58
258.29
279.21
227.37
375.81
198.44
868.93
131.65
161.85
160.14
103.44
150.22
http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html
Executive Compensation (2008)
Average compensation for 200 chief executives at America's
largest public companies was $10.8 million
Sanjay Jha
Larry Ellison
Robert Iger
Kenneth Chenault
Vikram Pandit
Mark Hurd
Jack Fusco
Rupert Murdoch
David Cote
A.G. Lafley
Motorola
Oracle
Walt Disney
American Express
Citigroup
Hewlett-Packard
Calpine
News Corp.
Honeywell International
Procter & Gamble
$104.4 million
$84.6 million
$51.1 million
$42.8 million
$38.2 million
$34.0 million
$32.7 million
$30.1 million
$28.7 million
$25.6 million
CEO Compensation Compared to
Average Production Worker
2007
2006
2005
2004
2003
2001
1990
1982
1970
344 to 1
364 to 1
465 to 1
431 to 1
301 to 1
525 to 1
107 to 1
42 to 1
28 to 1
Since 1990, if the minimum wage rate had risen at
the same rate as CEO pay, minimum wage would
now be $23.03 instead of $7.25.
http://money.cnn.com/2005/08/26/news/economy/ceo_pay/
Europe's 25 Highest-Paid CEOs(2005)
1. Lindsay Owen-Jones, L'Oreal (France), $28.3M
2. John Browne, BP (Britain), $14.0M
3. Arun Sarin, Vodaphone (Britain), $12.2M
4. Henri De Castries, AXA (France), $9.1M
5. Josef Ackermann, Deutsche Bank (Germany), $8.4M
http://www.timeinc.net/fortune/information/presscenter/fortune/press_releases/2
0050627H_europe.html
% Change
1988-2005
Australia 292%
Belgium 157
Canada 152
France 197
Germany 187
Italy
232
Japan
8
Netherlands118
New Zealand -Spain
98
Sweden 304
Switzerland172
UK
161
US
169
CEO Pay/
Relative to
Worker Pay (2005)*US CEO (2005)
15.6
33%
18
46
23.1
49
22.8
56
20.1
55
25.9
53
10.8
25
17.8
40
24.9
18
17.2
32
19.2
44
19.3
64
31.8
55
39
* Ratio of CEO compensation to the compensation of manufacturing production workers.
Source: Authors’ analysis of Towers Perrin (1988, 2003, and 2005).
The Wage Gap Over Time
Year
Women's
Earnings
Men's
Dollar
Percent
Earnings Difference
2005
$31,858
$41,386
$9,528
77.0%
2004* $32,285
$42,160
$9,875
76.6%
2003
$30,724
$40,668
$9,944
75.5%
2002
$30,203
$39,429
$9,226
76.6%
2001
$29,215
$38,275
$9,060
76.3%
2000
$27,355
$37,339
$9,984
73.3%
1999
$27,208
$37,701
$10,493
72.2%
1998
$27,290
$37,296
$10,006
73.2%
1997
$26,720
$36,030
$9,310
74.2%
1996
$25,919
$35,138
$9,219
73.8%
1995
$25,260
$35,365
$10,105
71.4%
1994
$25,558
$35,513
$9,955
72.0%
1993
$25,579
$35,765
$10,186
71.5%
1992
$25,791
$36,436
$10,645
70.8%
The Wage Gap Over Time
Year
Women's
Earnings
Men's
Dollar
Percent
Earnings Difference
1991
$25,457
$36,440
$10,983
69.9%
1990
$25,451
$35,538
$10,087
71.6%
1989
$25,310
$36,855
$11,545
66.0%
1988
$24,774
$37,509
$12,735
66.0%
1987
$24,663
$37,389
$12,726
65.2%
1986
$24,479
$38,088
$13,609
64.3%
1985
$23,978
$37,131
$13,153
64.6%
1984
$23,453
$36,842
$13,389
63.7%
1983
$22,961
$36,106
$13,055
63.6%
1982
$22,367
$36,224
$13,857
61.7%
1981
$21,830
$36,854
$15,024
59.2%
1980
$22,279
$37,033
$14,754
60.2%
1979
$22,446
$37,622
$15,176
59.7%
The Wage Gap Over Time
Year
Women's
Earnings
Men's
Dollar
Percent
Earnings Difference
1978
$22,617
$38,051
$15,005
59.4%
1977
$21,743
$36,901
$15,158
58.9%
1976
$21,738
$36,114
$14,376
60.2%
1975
$21,297
$36,207
$14,910
58.8%
1974
$21,419
$36,456
$15,037
58.8%
1973
$21,397
$37,381
$15,984
56.6%
1972
$21,185
$36,614
$15,429
57.9%
1971
$20,691
$34,771
$14,080
59.5%
1970
$20,567
$34,642
$14,075
59.4%
1969
$20,156
$34,241
$14,085
58.9%
1968
$18,836
$32,389
$13,553
58.2%
1967
$18,241
$31,568
$13,327
57.8%
1966
$17,874
$31,055
$13,181
57.6%
1965
$17,852
$29,791
$11,939
59.9%
http://www.pay-equity.org/info-time.html
Median Annual Earnings of Fulltime Workers (Bureau of Labor
Statistics, 2000 census)
Male Female
Physicians, surgeons
Lawyers
Judges, magistrates
Actuaries
Pharmacists
Teacher assistants
Cooks
$140,000
90,000
88,000
80,000
70,000
20,000
17.000
http://gblakely.com/BADM553/censr-15.pdf
88,000
66,000
50,000
56,000
63,000
15,000
15,000
Compensation Goals
Attracting good employees
Retaining good employees
Motivating employees
Complying with the law
Having a cost effective compensation
system
Compensation and the
Three Equities
External Equity
Attracting good employees
Internal Equity
Retaining good employees
Individual or Employee Equity
Motivating employees
External Equity
Attracting good employees
Labor Market Model
Market Surveys
http://salarysource.com/
http://swz.salary.com/
Pay strategy/policies
Internal Equity
Retaining good employees
Job Evaluation Techniques
Ranking
Jobs are compared to each other based on their overall
worth to the company. The ‘worth’ of a job is usually
measured by judgments of skill, effort, responsibility, and
working conditions.
The advantage of the ranking method is that it is simple.
The disadvantages, similar to the ranking method of
performance appraisal, are that the intervals between the
ranks are assumed to be equal, the judgments are
global, and as the number of jobs for evaluation
increases it becomes increasingly difficult. Also, the
evaluators must have knowledge of all jobs.
Classification method
Jobs are classified into a grade/category structure. Each tier of
the structure has a description and associated job titles. For
example, the Westinghouse system had:
–
–
–
–
–
–
–
Grade 1 Unskilled ex. File clerk
Grade 2 Skilled ex. Typist, lathe operator
Grade 3 Interpretive ex. Chief clerk
Grade 4 Creative ex. Engineers, sales reps
Grade 5 Executive ex. Department heads
Grade 6 Administrative ex. Chief engineer, Director of R&D
Grade 7 Policy ex. Vice-president of Marketing
Each job is assigned to the grade/category providing the
closest match to the job. Standards are developed mainly
along occupational lines. The standards help identify and
describe key characteristics of occupations that are important
for distinguishing different levels of work.
Pay ranges are then assigned to grades.
The advantages of this method are that it is simple and has
been in use for many years.
Its disadvantages include the fact that classification judgments
are subjective, and the standard used for comparison may have
built-in biases. Also, some jobs may fit into more than one
grade/category or their descriptions are so broad that they do
not relate to specific jobs.
Factor Comparison
Select benchmark jobs.
Sets of compensable factors are identified as
determining the worth of jobs. The number of factors is
usually four or five and typically relate to skill,
responsibility, effort and working conditions.
Jobs are then ranked on each factor.
Wages are then allocated to the factors. The
organization’s other jobs are then compared to the
benchmark jobs and rates of pay for each of the other
jobs.
Factor comparison has the advantage that the value of
the job is expressed in monetary terms, and the method
is applicable to a wide range of jobs.
The method’s disadvantages are that the pay points for
each factor is based on subjective judgments.
Point Method
The point method is an extension of the factor
comparison method. Usually between eight
and fourteen compensable factors (typically
related to skill, effort, responsibility, and
working conditions) are identified as
determining the worth of jobs.
Factors are divided into degrees
Points are assigned the degrees
Benchmark jobs are compared to market rates
Individual or Employee Equity
Motivating performance
JOB ATTRIBUTE RANKING
Please rank, from 1 to 10 in order of importance, with 1 being the most important,
the following job attributes. In the first column indicate the rank in terms of your own
preferences and in the second column indicate how you think others will rank these
same job attributes.
Your Ranking
Others' Ranking
Advancement
_____
_____
Benefits
_____
_____
Company
_____
_____
Co-workers
_____
_____
Hours
_____
_____
Pay
_____
_____
Job Security
_____
_____
Supervisor
_____
_____
Type of Work
_____
_____
Working Conditions
_____
_____
JOB ATTRIBUTE RANKING
The following median rankings are based on the responses of 39,788 job applicants
(Minneapolis Gas Company).
MEN
WOMEN
Self
Others
Self
Others
Advancement
3.3
3.8
5.3
4.3
Benefits
6.8
5.2
8.0
5.9
Company
4.5
6.8
4.6
7.1
Co-workers
6.0
7.7
5.2
7.3
Hours
7.6
5.4
6.9
5.0
Pay
5.6
2.1
6.0
2.1
Job Security
2.5
3.6
4.9
5.4
Supervisor
6.3
7.4
5.3
7.0
Type of Work
3.3
4.9
1.5
3.5
Working Conditions
7.9
6.9
6.5
6.8
What Do Workers Want From Their Jobs?
Supervisors
Good working conditions
Feeling "in" on things
Tactful disciplining
Full appreciation for work done
Management loyalty to workers
Good wages
Promotion and growth with company
Sympathetic understanding of personal problems
Job security
Interesting work
1 = most important in job
10 = least important in job
(From Lawrence Lindahl, " What Makes a Good Job?", Personnel, (January 1949)
4
10
7
8
6
1
3
9
2
5
Workers
9
2
10
1
8
5
7
3
4
6
What do new graduates value in jobs?
Company culture
Advancement opportunities
Nature of work (e.g., challenging)
Training provided
Work/non-work balance
Monetary compensation
Benefits
Location
Vacation time
Level of job security
Size of company
International assignments
Rated on seven point scale (1 = not important to 7 = very important).
Source: Human Resource Management (2003), 42, p. 23-37.
6.2
6.0
5.9
5.7
5.5
5.3
5.2
5.0
4.6
3.9
3.7
3.3
What do applicants with college degrees want in jobs?
1993
1978
Type of work
2.2
1.5
Advancement
4.6
3.6
Co-workers
5.1
5.2
Company
5.7
4.4
Security
5.8
5.5
Location
6.2
Supervisor
6.3
5.5
Pay
6.3
5.2
Working conditions
7.2
7.2
Benefits
7.4
7.9
Hours
9.3
8.0
1993 sample = 623, 1978 sample = 4,535
Source: Journal of Occupational & Organizational Psychology (2003) , 66, p. 71-81
Individual or Employee Equity
Motivating performance
At the individual level
Pluses and minuses
Methods/techniques
At the organization level
Pluses and minuses
Methods/techniques
Compensation and the Legal
Environment
The Fair Labor Standards Act of 1938
Minimum Wage
Exempt vs. Non-exempt and overtime
http://www.ewin.com/articles/exneot.htm
http://www.dol.gov/elaws/esa/flsa/screen75.
asp
The Equal Pay Act of 1963
Benefits
The Cost of Benefits
Mandatory
Workers’ Compensation
https://www.brickstreet.com/default.aspx
Unemployment Insurance
Family Medical Leave
Social Security http://www.ssa.gov/
Retirement income
Disability income
Medicare
Survivor benefits
2006 rates
– Social security 6.2% on first $94,200
– Medicare 1.45% unlimited
Benefits
Non-mandatory
Insurance
Health
–
–
–
–
Cost escalation
COBRA
HIPAA
Types of health insurance
» Traditional indemnity plans
» HMO
» PPO
Retirement
ERISA (1974)
– Vesting
» Full vesting after 5 years
» 20% per year after 3 years
– Fiduciary standards
– Pension Benefit Guarantee Corporation
Defined benefit
Defined contribution
– 401(k), 403(b)
» http://invest-faq.com/articles/ret-plan-401k.html
– IRA
– SEP
– Keogh
http://www.dallasfed.org/ca/wealth/3.html
http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html
Benefits continued
Paid time off
Employee services