HUMAN RESOURCE
MANAGEMENT
Chapter 9
HUMAN RESOURCE MANAGEMENT
Mathis R., Jackson J. 13TH EDITION
WAGES AND SALARIES
What is the difference?
Wages and Salaries
• Salary: Payment, usually paid monthly and usually
expressed as an annual amount, made by employers to
employees in return for work done. Paid to employees
whose contribution cannot be measured easily.
• Wage: Payment for labor or services usually according
to contract. An equivalent or a return for something done,
suffered or given. Paid to jobs which can be measured in
terms of money’s worth.
• Compensation: a comparative term; includes wages
and all other allowances and benefits. (e.g. allowances,
leave facilities, housing, travel, and non-cost such as
recognition, privileges, and symbols of status)
Wage and Salary Administration
A group of activities involved in the development,
implementation, and maintenance of a pay system.
An ongoing process of managing a wage and
salary structure.
The overall goal of a wage and salary
administration program is to attract, retain, and
motivate employees and to help an organization
achieve its management objectives.
WHY DO WE NEED TO STUDY WAGE
AND SALARY ADMINISTRATION?
Why do we need to study Wage and
Salary Administration?
To have a scientific, rational, and balanced wage
and salary structure.
In a salary administration, the employer should not
feel that the employees are paid more than they
deserve and the employees should not feel that
they are underpaid.
The role of Human Resources in the
payment of salaries
One of the most important functions of Human Resources
is the payment of the proper salaries and the wages to all
company employees. The pay that the employees receive
from their employer is the very reason for their being in the
job.
The function of the payroll in a company is usually the
wage and salary administration and it is carried out by the
Human Resources Department.
Wage and Salary Surveys
• Once the worth of a job has been established, using
one of the job ratings systems, the actual salary to be
paid for each job must be determined.
• A major factor in making the determination is the
wage survey.
• Since salaries paid by other companies have an
effect on employment, morale and turnover rate,
close attention is paid to the salary that is prevailing
in the community and industry for specific jobs.
Wages and salary surveys
• A survey of employers in the same industry and
the same area showing the wages
and salaries they pay to their employees.
• Wage and salary surveys are useful because
they show the usual compensation in a given city
or other place, which may result in employers
making upward or downward adjustments.
Wages and salary surveys
• The actual salary to be paid for each job must be
determined.
• Wage survey is a major factor.
• Informal surveys may be conducted through
telephones or informal interviews.
• Formal surveys use questionnaires based on
standards jobs.
• The Human Resource Department are preparing
sets of questionnaires.
Procedure in conducting wage and salary
surveys
After the org. completes the salary survey and finds out, what the
prevailing salaries are in the community for comparable jobs, it
must then make several decision
1. Whether the company should pay salaries above, below,
or the same level, as the others in the same industry in the
community are paying for the same jobs.
2. Whether the company should pay a single rate for each
job, or slot the jobs into ranges or grades.
3. How many pay grades or salary rages to use, and how
wide each pay grade should be (from the minimum of the
grade to the maximum).
4. What is the range of the amount in terms of money value
that should be selected for each salary grade.
The following are the advantages of the wage and
salary structure:
• It affects the workers’ earning and
standard of living.
• It eases the recruitment and maintenance
of an effective labor force.
• It develops employee morale and increases
work efficiency.
• It represents cost and competitive
advantage in the industry.
• It helps in preparing budgetary allocations
and eases computation of salary
adjustments and as an aid in short term
and a long range plans.
• It eliminates pay distortions and inequalities
in employee compensation.
• It establishes an equitable salary range for
various jobs.
INCENTIVE PLANS
What are incentive plans?
HUMAN RESOURCE MANAGEMENT
Mathis R., Jackson J. 13TH EDITION
Variable: Incentives for Performance
• Variable Pay
• Compensation linked to
individual, group/ team,
and/or organizational
performance.
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be scanned, copied or duplicated, or posted to a publicly
accessible Web site, in whole or in part.
12–18
Why Use Variable Pay?
Some people perform better
and are more productive
than others
Better performing
employees should receive
more compensation
Variable
Pay Assumptions
Total compensation should
be tied directly to
performance and results
Some jobs contribute more
to organizational success
than others
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–19
FIGURE 12–1
Effective Variable Pay Plans
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–20
Developing Successful
Pay-for-Performance Plans
Link strategic goals
and employee
performance
Enhance results and
reward employees
financially
Reasons for
Pay-for-Performance
Plans
Promote
achievement of
HR objectives
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Reward and
recognize employee
performance
12–21
Successful Variable Pay Plans
Effective Incentive Plans
Does the Plan
Fit the
Organization?
Does the Plan
Reward the
Appropriate
Actions?
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Is the Plan
Administered
Properly?
12–22
Why Variable Pay Plans Fail
Plan incentives
are not seen as
desirable
Plan rewards
teams/groups
rather than
individuals
Plan doesn’t
reward doing a
good job
Employees’
View of Variable
Pay Plan
Plan doesn’t
motivate
Plan doesn’t
increase base
pay
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
.
12–23
Developing Successful Incentive Plans
Develop clear, understandable
plans that are continually
communicated
Use realistic performance
measures
Keep plans current and linked to
organizational objectives
Link results to payouts that
recognize differences
Identify variable pay incentives
separately from base pay
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Successful
Incentive
Plans
12–24
FIGURE 12–3
Categories of Variable Pay Plans
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–25
Individual Incentives
• Piece-Rate Systems
• Straight piece-rate
system
• Differential piece-rate
system
• Bonus
• “Spot” Bonuses
• Special Incentive
Programs
• Performance awards
• Recognition awards
• Service awards
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–26
FIGURE 12–4
Purposes of Special Incentives
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–27
Why Organizations Establish Variable Pay Plans for
Groups/Teams
Group/TeamBased Variable
Pay Plans
Improve
productivity
Tie pay to team
performance
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Improve
customer service
or production
quality
Increase
employee
retention
12–28
Design of Group/Team Incentive Plans
Group/Team Incentive Plan
Issues
Distribution of
Group/Team
Incentives
Timing of
Group/Team
Incentives
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Decisions About
Group/Team
Incentive
Amounts
.
12–29
Group/Team Incentives (cont’d)
• Distributing Rewards
• Same-size reward for each member
• Different-size reward for each member
• Problems with Group/Team Incentives
• Rewards in equal amounts may be perceived as “unfair” by employees
who work harder, have more capabilities, or perform more difficult jobs.
• Group/team members may be unwilling to handle incentive decisions
for co-workers.
• Many employees still expect to be paid according to individual
performance.
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–30
FIGURE 12–6
Conditions for Successful Group/Team Incentives
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–31
Organizational Incentives
Profit Sharing
Primary Objectives
Drawbacks
• Increase productivity and
organizational performance
• Disclosure of financial
information
• Attract or retain employees
• Variability of profits from year
to year
• Improve product/service
quality
• Enhance employee morale
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
• Profit results not strongly tied
to employee efforts
12–32
FIGURE 12–7
Framework Choices for a Profit-Sharing Plan
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
12–33
Employee Stock Plans
• Stock Option Plan
• A plan that gives employees the right to purchase a fixed number of
shares of company stock at a specified price for a limited period of
time.
• If market price of the stock is above the specified option price,
employees can purchase the stock and sell it for a profit.
• If the market price of the stock is below the specified option price, the
stock option is “underwater” and is worthless to employees.
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
EMPLOYEE BENEFITS
.
13–35
Benefits of employees
• Benefit
• An indirect reward given to an employee or group of employees for
organizational membership.
EmployerProvided
Benefits
Absorb social
costs for health
care and
retirement
Influence
employee
decisions about
employers
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
Are increasingly
seen as
entitlements
Average over
40% of total
payroll costs
13–36
FIGURE 13–1
Employer Compensation and Benefits Costs per Hour
Source: U.S. Bureau of Labor Statistics, 2008.
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
13–37
FIGURE 13–2
Strategic Benefits Considerations
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
13–38
Benefits Design
• Decisions Affecting Benefit Design:
• How much total compensation, including benefits,
can be provided?
• What part of total compensation of individuals should benefits
comprise?
• Which employees should get which benefits?
• What expense levels are acceptable for each benefit?
• What are we getting in return for the benefit?
• How flexible should the benefits package be?
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
reserved. May not be scanned, copied
or duplicated, or posted to a publicly
accessible Web site, in whole or in part.
FIGURE 13–4
13–39
Typical Division of HR Responsibilities:
Benefits Administration
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duplicated, or posted to a publicly accessible Web site, in whole or in part.
reserved. May not be scanned, copied
or duplicated, or posted to a publicly
accessible Web site, in whole or in part.
FIGURE 13–7
Types of Benefits
13–40
LABOUR UNIONS
Labour Unions
• Labour unions are certified organizations of
workers that negotiate matters with
employers such as:
• wages
• working conditions
• job security and other benefits
An organization of workers that tries to
improve working conditions, wages and
benefits for its members.
Decrease of Union Membership
Unions rose to prominence in the 1930s, but several
factors have led to declines in union membership since
the 1950s:
•“Right to Work” Laws: Laws which ban mandatory union
membership at the workplace. A union cannot force
workers to join.
•Economic Trends: Unions have traditionally been strongest
in the manufacturing sector, representing workers who
have industrial jobs. These jobs have been declining in
number as the American economy becomes more service
oriented. Less manufacturing jobs, less union workers.
Decrease of Union Membership
• Fulfillment of Union Goals: With the
government setting standards for
workplace safety, and with more benefits
being provided by both private and
government sources, some claim that the
union membership has decreased simply
because their goals have been fulfilled.
Collective Bargaining
• The process in which union and company
representatives meet to negotiate a new
labor contract. The contract contains all the
requirements of workers to the employer
and the employer to the workers. They
include; salary, benefits, working
conditions, work day/hours, conditions for
hiring/firing, etc.
Collective Bargaining
In collective bargaining
for a new contract,
unions argue for:
•Better wages and
benefits
•Safe working
conditions
•Conditions under which
an employee can be
fired
Collective Bargaining
• When a contract needs to be renewed, union and
employer representatives meet and discuss their
demands. Compromises are made until a new
contract is agreed upon by both sides. A vote by
union members is held to approve a new
contract.
• But, what if both sides cannot agree on a new contract?
If Collective Bargaining Fails…
• Mediation: A settlement technique in which a
neutral mediator (usually a judge) meets with
both sides and suggests a solution for both sides.
The mediation is non-binding, i.e. the union or
management can reject the mediation.
Ex. The union wants a 5% raise, management
offers a 1% raise. The mediator suggests a 3%
raise. Both union and management can reject the
offer!
If Collective Bargaining Fails…
• Arbitration: A settlement technique in which a
third party (arbitrator) reviews the case and
imposes a decision that both sides are required
to accept.
Ex. Union wants a 5% raise, management offers 1%. The
arbitrator imposes a 3% raise. The union has to accept
the arbitration without a vote
Union’s Ultimate Weapon!
STRIKES! A strike is an
organized work stoppage
intended to force an
employer to address union
demands.
Strikes can be harmful to
both employer and union
members. The employer
loses money and business
to competitors during a
strike, union members do
not get paid during a strike.
It becomes a waiting gamewho can last the longest.